Facts: Husband and Wife divorced after 28 years of marriage.

For most of their marriage, they lived in a house owned by Husband’s father, Grandfather. Grandfather paid the taxes and insurance, and Husband and Wife maintained renters’ insurance.

In return for living rent-free in Grandfather’s house, the parties helped with Grandfather’s various farm operations and rental properties.

In 2010, after Husband assumed the role of farm manager, Husband received profits from the properties and paid some farm expenses out of his own pocket. In exchange for managing the rental properties, Grandfather allowed Husband to keep the rent money he collected. The rental property income was one of the parties’ primary sources of income. Likewise, Grandfather allowed Husband to grow hay and alfalfa on Grandfather’s land, sell the hay, and keep the profits.

Wife argued there was a marital property interest in the farm operations and rental properties because an implied partnership existed between Grandfather and Husband.

The trial court rejected that argument.

Wife appealed.

On Appeal: The Court of Appeals affirmed the trial court.

Tennessee law provides that the association of two or more people to carry on as co-owners of a business for profit forms a partnership, whether or not they intend to form a partnership. The existence of a partnership may be inferred from the circumstances where the individuals involved have entered into a business relationship for profit, combining their property, labor, skill, experience, or money.

While receiving a share of business profits creates the presumption of a partnership, the presumption may be rebutted if the profits were received as payment for services as an independent contractor, wages, or other compensation to an employee.

The party claiming an implied partnership must prove its existence by clear and convincing evidence.

The Court found ample evidentiary support for the trial court’s decision:

Several important facts support the trial court’s conclusion that Husband was an employee of Grandfather’s as opposed to a partner. Husband was clearly brought on as an employee in the early 2000’s; at that time, he was paid $15 an hour and received W-2s from Grandfather. From the beginning, then, it was understood that Husband was an employee of Grandfather’s, notwithstanding the fact that the manner in which Husband was compensated changed over time. That Grandfather began sharing profits with Husband, as opposed to paying him an hourly rate, makes sense in light of the fact that Husband undisputedly took on more responsibility around the [properties] in approximately 2010, when the long-term farm manager retired.

Grandfather had an established pattern of compensating his employees in nontraditional ways. In determining whether Husband is a partner, we consider all relevant facts, including the conduct of the parties. And here, Grandfather’s conduct toward Husband was similar to his conduct towards other employees.

While Grandfather was certainly more generous with Husband given their close relationship, Grandfather’s arrangement with him was similar to that of other farm employees. It is worth noting that, according to [the] small farming operations expert, informal compensation structures are not uncommon in the farming industry, especially those arrangements involving family.

[W]hile Husband oversaw much of the day-to-day operations of the farm, Grandfather was involved, and in fact retained significant decision-making power. It cannot be said that Husband was allowed to run the [properties] with little to no input from Grandfather. Additionally, Grandfather owned all of the farmland, most of the farming equipment, the cattle herd aside from a few bulls, and all of the homes sitting on the farmland, including the marital home. While Husband certainly had access to these things, there is no dispute that Grandfather always owned and insured them. Stated differently, Grandfather assumed essentially all of the risk in the farming endeavors.

Additionally, Grandfather decided when rental properties should be sold or updated. He also paid for the larger expenses on the rental properties. Although Husband was responsible for the day-to-day management of the [properties], it was understood by those involved that Grandfather was the boss. Husband and Grandfather agreed at trial that Grandfather had the final word regarding the farms.

While the arrangement between Husband and Grandfather could be seen as unusual in the typical business world, it does not constitute a partnership, nor is it unusual in the context of family farming. Husband and Grandfather were not on equal footing when it came to the management of the [properties]. Husband’s role as farm manager was akin to that of an employee, albeit a well-compensated employee, where he oversaw the day-to-day operation of the [properties] but was always subject to Grandfather’s control. The fact that other nonfamily employees were compensated in similar manners buttresses this conclusion.

Based on all of the foregoing, we conclude that a presumption of an implied partnership arose due to profit sharing but that Husband rebutted the presumption at trial. These cases must be decided not based on one fact or circumstance, or a conclusive test, but rather based upon the consideration of all relevant facts, actions, and conduct of the parties. In this case, all of the relevant circumstances, taken together, establish that Husband was treated similarly to other farm employees and family friends.

The Court affirmed the trial court’s judgment.

Runion v. Runion (Tennessee Court of Appeals, Eastern Section, August 29, 2022).

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