If my business partner is being sued for half the company in a divorce, do I have any recourse as a de facto partner even though I am not part of the sole proprietorship?

I have been the de facto partner in a business for 12 years even though I am not on the paperwork. The sole proprietorship is set up in my partner’s name, but he is now going through a divorce and his soon to be ex-wife is suing to get half of the company. Do I have any legal recourse as the equal business partner in all decision making and fiduciary matters?

Asked on December 20, 2017 under Business Law, California

Answers:

SJZ, Member, New York Bar / FreeAdvice Contributing Attorney

Answered 3 years ago | Contributor

No, you do not have any recourse because you are not an equal business partner--you are not a partner at all, if the company is a "sole proprietorship." As the word "sole" implies, it has one owner, the person you call you partner: it is is his company solely, not yours. And because it is a sole proprietorship, not an LLC or corporation, it's not really a "company" at all: in a sole proprietorship, the assets are owned directly the proprietor, the same way he owns his car or house or clothing; the income goes directly to the proprietor, not to some other entity; etc.. Legally, the company and proprietor are one and the same.
So the spouse is not suing for "half the company": she is suing for half the assets belonging to her spouse, which incudes what you think of as a separate company.
There are ways in the last 12 years this could have been resolved in your favor and you protected: your "partner," if he truly valued you as partner, could have entered into a legal partnership with you; or he could have turned the company into an LLC or corporation and given you the appropriate share of it. Either of those options would have given you a protectible legal interest. However, he did not, and if they in the divorce now, it is too late to change the business structure.


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