Dividing Business Assets in Divorce or Separation
So you were a married unit during your marriage and allowed your partner to establish a business. Now the business is thriving, but your marriage is not. You want half of the value of your partner’s business after separation but do not know how to start. Here are two important things to consider for dividing business assets in a divorce in British Columbia:
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It is crucial to know which one you want. Here are the questions you should consider:
- Is he/she the sole shareholder, or is he/she owning shares in a big BC corporation?
- Is the company or business likely to grow and be worth more in the future, or does the future look dim?
If your ex-spouse is the only or the major shareholder, you should probably divide the value of his/her company. If he is only a minority shareholder and has little to no control over how the business does in the future, and you think the business will grow and make much more money, then you need to ask for half of the shares.
It is often better to get half of the value of the business upon separation. The reason? Finality. Most couples do not want to be connected to one another or stay as shareholders in each other’s businesses after divorce. If you ask for half of the shares, you will have to be involved in the business and may not be able to obtain funds upon separation.
The other danger is asking for a share split rather than half of the value is your ex-partner winding down his/her business or diluting the shares to make sure you get as little value as possible out of the corporation.
How Do I Value His/Her Business in Dividing Business Assets in Divorce?
This is not an easy or inexpensive task. In most cases, you must invest to hire a business evaluator to properly value the business to divide business assets in a divorce. There are various methods of evaluating a BC Business. Two popular ones are:
- Asset Valuation
- Going Concerns/Share Valuation.
Asset valuation is appropriate when the business is not doing that well and its assets, equipment, real estate, etc are the main source of valuation.
If the business is doing well and is likely to obtain high profits in the future, a share valuation or going concern valuation is appropriate because the evaluator will estimate how much the company is likely to earn now and in the future, determine the company’s assets and liabilities and come up with a value of the shares.
Once the share value is determined, you can often ask for half of the shares’ value.
Be careful about tax complications arising from dividing a BC Business. You must speak with a lawyer or an accountant to ensure you do not pay more taxes than you have to.
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This article is for information only and does not constitute legal advice. It does not create a lawyer–client relationship with YLaw or any of its lawyers. Laws and policies change, and information here may not reflect the most current legal developments. For full details, please contact us to obtain advice about your specific situation.