Should I pay my partner's wife for her design help?

[Brandon Giarusso]

My partner and I just closed on our first flip together and when it came down to dividing up the profit we've run into some issues. He wants his wife to get paid a separate design fee for her involvement. This had been brought up when we bought the deal but nothing was agreed upon, which is our fault. I am really trying to see this fairly and thats why I would love some outside unbiased opinions. She is a designer, but not an established one, more of a hobby. She's done a few rehabs and jobs here and there, but she is very good. I agreed to give her full design power over the project, we made some decisions as a group but for the most part she just had the go ahead to make the final decisions on anything design related. In that way she isn't like a normal designer we would hire, in that she doesn't present options and pricing and give us the final say on what we choose, she just gets to go ahead and designs how she best sees fit. I always wanted to avoid trying to put a monetary value on what each person brought to the table in the partnership because that can get ugly. I did put in $50K more money and we used my $250K line of credit I already had from the bank to fund the rehab (which I already paid closing costs on). She did put in a lot of work on the project and I guess I am not opposed to paying for that, just how much that is has been bothering me, because any amount he comes up with is fine because essentially whatever fee we pay her goes to him anyway. I Would love an outside opinion on this because I really want to do whats fair and make the partnership go smoothly from here on out because we have more projects already underway. 

[Mike H.]

I find it very hard to believe that they "assumed" she was going to get paid given that you did not agree to any number before she started.  Thats nonsense.

They knew exactly what they were doing. They didn't say anything because you didn't say anything and then they were waiting til the end to spring it on you. 

Here's the problem I see. You put 50k more money at risk and used your 250k line of credit to fund the rehab? Where is your return on that? Where is your reward for taking the additional risk?

What I would say is you'll give her a 1k out of your end on this one and tell her that her husband can give her another 1k but going forward you need to even steven the partnership for it to make sense.  

You're risking a lot more money on the deals so either they pony up everything 50/50 or else you're going to need a larger percentage of the deal. 55/45 seems more than reasonable. And then you two pay the wife out of the shares EQUALLY.

So maybe each of you gives her 7.5% so she gets a 15% stake in the profits as her pay.  

But honestly, her real "pay" or return on her time is that her husband is getting half the profits and with her help his profits should have been more than without it - if she's as good as she's suggesting.  So she technically did get paid. 

But I would not pay for design unless you really don't think you can do this without her. If so, then come up with some number you think is reasonable. And then renegotiate your percentages based on the amount of monies you're risking compared to them.

Ultimately, the obvious solution is to tell them that they need to put up half of ALL funds needed for the deal. Half the purchase. Half the rehab. Half the carrying costs.

And if they don't like that, I'd tell em to take a flying leap. Why should you risk so much and still split the profits 50/50. Is the partner guy finding the deals? Does he have some special skill that you would not be able to do the deals without him? If so, then maybe its a wash. Your money for his super special skill so thats why 50/50?

But honestly, the fact that they just "assumed" she was going to get paid is still a huge put off to me. How much are they assuming she was going to be paid? Noone would ever assume something like that. Ever. If she really believed she was going to get paid, she would have asked how much you guys were going to pay her - BEFORE she even started.

I'd throw her the bone and give her 2 grand. One from you and one from her husband's cut.

Then you're at least making a gesture to acknowledging the effort she put in. But after that, you need to get the agreement locked in. After all, that was your first one so you write it off as a misstep and move forward. I would not want to jeopardize something thats working. But don't let them pull a fast one on you either.

And no way would I pay her the going rate for a designer. Thats ridiculous. She was clearly never "engaged" for her services. Or else she would have a number from you already.