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    Hassiepen and Green Cases

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    Cynthia Hassiepen and Kevin Von Behren were divorced. Shortly after the divorce, Kevin began living with Brenda. Kevin and Brenda began an electrical contracting business, Von Behren Electric. Kevin contributed an old pickup truck and a drill; he also performed the actual contracting work. Brenda used her credit cards to purchase other business supplies and managed the office. Brenda continued to work at her job as a court reporter for two years after starting the business. Brenda and Kevin did not pay themselves a salary, but instead withdrew money from a joint account for both personal and business expenditures. Later on, Brenda and Kevin married.

    When the annual income from Von Behren Electric exceeded $100,000, Cynthia asked the court to increase Kevin's child support payments. Kevin argued that, since he and Brenda were partners, he was entitled to only half of the business' profits and, therefore, his child support should not be increased.

    Cynthia pointed to the following facts to support a conclusion that Kevin and Brenda were not partners in Von Behren Electric.
    1. Prior to their marriage, Kevin and Brenda filed separate tax returns, in which Kevin reported all of the business income and Brenda reported only her court reporting income. .
    2. Kevin put "sole proprietorship" on the top (in bold letters) of his tax return.
    3. No written partnership agreement existed. .
    4. Kevin and Brenda never informed their accountant that they were a partnership.
    5. No business signs indicated that the business was a partnership.
    6. Business cards for Von Behren Electric, Inc., stated "Kevin Von Behren/Owner". .
    7. When Kevin answered interrogatories for this case, he stated that he was sole owner and that Brenda worked for him.

    Issue: Were Kevin and Brenda partners?

    Compare the result in Hassiepen with the following case.

    Joseph DiFebo was married when he met Nancy Green one winter. By summer, they became romantically involved and he moved into her home. In the fall, Green borrowed money from DiFebo to make a down payment on the purchase of four houses. She bought all four properties in her name alone. Shortly before Thanksgiving, DiFebo moved out of Green's house. By the following winter, he had moved back in. He remained until summer, when he moved out for good. During their last winter together, the two parties signed this document:

    Nancy R. Green and Joseph A. DiFebo are equal partners in the following Wilmington, Delaware properties: 807 Pine Street, 427 East 3rd St., 611 East 7th Street, 613 East 7th Street. On the death of Nancy R. Green, her half interest is left to her daughters, Kelly R. Green and Stacy R. Green. On the death of Joseph A. DiFebo, his half interest is left to his daughters, Amy DiFebo and Beth Durham. If Nancy R. Green survives Joseph A. DiFebo she makes all decisions on the above properties.

    The two parties did not establish a partnership bank account. DiFebo never asked Green for a share of the rentals from any of these buildings. He did per- form some repair work on them. When the city condemned one of the properties, Green refused to give DiFebo half the proceeds. DiFebo testified that, in his mind, the money he transferred to Green established a partnership between them. Green testified that at no time did she consider their arrangement to be a partnership.

    Issue: Were these buildings owned by Nancy Green individually or by a partnership between Green and Joseph DiFebo?

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    Solution Preview

    The solution is in the format of comments on case study aforementioned:

    - Point 1: This shows that Kevin owns 100% of the company and that it is a sole proprietorship and not a partnership. This is an important point in the case. This coincides with Kevin not taking a salary. A sole proprietor cannot take salary, by law. It would be illegal. If Brenda is an employee (which she is, since this is a SP), he could put her on salary.

    - Point 4: This is why Kevin was filing a Schedule C, which is sole proprietorship report of income and expenses.

    - Point 6: This is in conformance with a SP.

    - Point 7: Problem. She wasn't taking a salary but using a draw. This means that any monies paid to Brenda would either be considered a loan to her, in which case a note receivable would have to exist on the books of the company, or the company was neglecting to pay payroll taxes on her salary, which is illegal. If she was taking draw without any of the above, it isn't draw. It's an expense as subcontractor wages, and the company (Kevin) needed to give her a Form 1099 MISC at the end of the year, with the total amount of money that she took during the year.

    - Issue: Were Kevin and Brenda partners?
    I have not actually studied this case. However, there are various points that need to be made, regardless of the specifics of the case itself. We have a major problem that is identified in the scenario above. Here it is - but instead ...

    Solution Summary

    This solution discusses each question presented in the Hassiepen case. All elements are comprehensively addressed.