Business Ownership & Divorce in BC - Zukerman Law

Business Ownership & Divorce in BC

Divorce is a complex process, even more so when a business is involved. For British Columbia business owners, navigating the division of assets during a separation can feel overwhelming.  The BC Family Law Act has specific rules regarding how business assets are treated, and the outcome can significantly impact your financial future and the viability of your company.

Here at Zukerman Law Group, we understand the unique challenges business owners face going through divorce. Our team of experienced divorce attorneys possesses a deep understanding of both family law and business valuation.

What to Consider for Business Division at Divorce

What to Consider for Business Division at Divorce

It’s important to know what you want. The following are some questions to think about:

  • Does he or she possess shares in a large BC corporation or is he or she the sole shareholder?
  • Does the company or business have a bright future, or is it doomed to fail?

You should definitely split the company’s assets if your ex-spouse is the sole or majority shareholder. You should request half of the shares if you believe the company will expand and generate significantly more revenue in the future, and he is just a small shareholder with little to no influence over how the company operates. 

Receiving half of the business’ value at the time of separation is usually preferable. The reason? Finality. After divorcing, the majority of couples do not wish to maintain ties with one another or continue to be shareholders in each other’s companies. You might not be able to get money after you separate if you demand half of the shares because you will need to stay active in the company.

In order to ensure that you receive the least amount of value from the company, your ex-partner may wind down his or her company or reduce the shares if you request a share split rather than half of the value.

How Is a Business Divided in a Divorce?

How Is a Business Divided in a Divorce?

In a divorce, marital property can include assets like stocks, bank accounts, pensions, RRSPs, or bonds. However, in some cases, one or both spouses may own a business, which also needs to be divided. The divisibility of their business requires analysis of family law regulations in BC. 

Whether a small business is unincorporated or incorporated, it has a separate division. A business could be divided into assets after a divorce or separation, or it could be regarded as an asset in and of itself.

Here is how business valuation is determined for unincorporated and incorporated businesses when a divorce or separation occurs:

Unincorporated Businesses:

An unincorporated business itself may not be considered an asset, but all its components can be. This includes tools, equipment, vehicles, offices or shops, financial accounts, debts, and goodwill, which encompasses the business’s name value and its capacity to generate future income reliably.

Incorporated Businesses:

Incorporated businesses consider their shares to be assets. The value of the shares is determined by the assets and debts of the business, divided by the number of shares owned. Calculating the value of the shares is similar to estimating the value of an unincorporated company.

If a business is incorporated and a divorce happens, one spouse could take the company by dividing shares in the corporation or by receiving assets used by the business.

Assets should normally be distributed equally between partners, according to legal criteria established by the Family Property Act. This could entail equally dividing a company or the company’s assets.

Limited liability corporations (LLCs) do not protect businesses, but they can be preserved by compensating a spouse for their ownership interest or by having the spouse take equal-valued property to compensate for their share of the company.

Legal guidance is crucial for navigating this, and you can contact Zukerman Law Group for assistance.

What Happens to a Business Owned by One or Both Spouses?

What Happens to a Business Owned by One or Both Spouses?

In the case of a divorce, any business founded by one spouse while they were married has to be split between the two parties. Two methods exist for completing this:

One Spouse Receives Half of the Shares of the Business

One possibility is for the spouse who owns the business to give the other spouse 50% of the company’s shares, thereby making the other spouse a shareholder in the company, rather than receiving a payout.

This is a good option to consider if:

  • The company has a high share valuation despite not having many important assets.
  • The spouse who owns the business is only a minority shareholder.
  • Both partners wish to continue being somewhat involved in the company since they believe it will increase in value over time and bring in a lot more money.

One Spouse Receives Half of the Value of the Business

An alternative would be for the spouse who owns the company to give the other spouse half of the company’s value.

This is frequently the better choice for many couples since it allows them to move on and cut all ties with their ex-spouse.

Additionally, this might be a better choice if:

  • The spouse who owns the company is a major shareholder.
  • The company’s value will probably decline over time.
  • The non-owning spouse is not interested in continuing to be associated with the business.
How Do I Value His/Her Business in Dividing Business Assets in Divorce?

How Do I Value His/Her Business in Dividing Business Assets in Divorce?

A business evaluator is essential for properly valuing a business to divide assets in a divorce. There are two popular methods: Asset Valuation and Going Concerns/Share Valuation. An asset valuation is suitable for businesses with poor performance, such as equipment and real estate. On the other hand, a share valuation or going concern valuation is suitable for businesses with high future profits. 

The evaluator estimates the company’s earnings, determines assets and liabilities, and calculates the value of shares. Once the share value is determined, half of the shares’ value can be requested.

Conclusion

Divorce and business ownership can be a complex issue in British Columbia. With careful planning and the right legal guidance, you can navigate this situation while protecting your business and your financial future. By understanding how the Family Law Act applies to business assets, exploring valuation methods, and considering alternative solutions like spousal agreements, you can approach this process with more clarity and confidence. Remember, the best course of action will depend on your specific circumstances. Consulting with one of the qualified family lawyers at Zukerman Law Group experienced in business valuation is essential to ensure a fair and efficient outcome for all parties involved.

For more information or to set up an INITIAL CONSULTATION, contact us at 604-575-5464 or contact us.

FAQs

  • 1- Is my wife entitled to half my business if we divorce Canada?1

    In the case of a divorce when a business is incorporated, a spouse can take the company by receiving assets used by the business or by dividing shares in the corporation.

  • 2- What is a wife entitled to in a divorce in BC?1

    In British Columbia, property division is regulated by the Family Law Act. In most cases, any property gained by a couple throughout their partnership will be equally divided between them. The property they brought into the relationship is usually excluded, although the increase in value over the course of the relationship can be divided.

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Stuart Zukerman

Stuart Zukerman, a graduate of the University of British Columbia, has over 32 years of experience in litigation with a focus on Family Law, Personal Injury, Wrongful Dismissal claims, and Collaborative Divorce & Mediation. He has extensive trial experience in divorce, child custody, spousal support, asset division, and ICBC injury claims. As an accredited Family Law Mediator, he helps resolve disputes without court intervention. Stuart has also authored papers on family law and lectured at CLE courses.