Vaughan Family Lawyers Advising on Business Valuation
Running your own business involves a considerable amount of time, effort, and money. An ownership interest in a business must generally be included in the division of property between spouses upon separation. Calculating the value of a business and determining how its value is to be divided can be a highly technical and complicated process with much at stake. A spouse’s failure to fully and accurately disclose their business interests within their family property can have serious legal consequences.
The seasoned family lawyers at GDH Family Law have extensive experience helping clients protect their business interests after the breakdown of a relationship. Our knowledgeable team works closely with certified business valuators, and will ensure you receive a reliable valuation. We make sure clients understand their rights and obligations and can make informed decisions about handling their business interests throughout their separation or divorce.
Business Interests & Equalization
In most cases, the value of a spouse’s business interests must be included within their family assets for equalization. It is important to remember that the business itself and its value are two separate entities. A spouse who solely owns a business may be able to keep the business post-separation but still be required to share its value through their equalization payment to the other spouse. However, if the business-owning spouse cannot pay their equalization payment using their non-business assets, they may need to sell or encumber the business (e.g. by borrowing against the business’s assets) to meet their equalization obligations.
As with any other family property, both spouses may be entitled to share the value of a business acquired during the marriage through the equalization process. Where a spouse owned the business on the date of marriage, they must share any increase in its value between the dates of marriage and separation.
Reduction or Exclusion of Business Interest Value
There are limited circumstances in which a business’s value can be reduced or excluded from the equalization process. In some cases, a spouse may have an interest in a business that is actually controlled by other parties, such as third-party shareholders or partners. In these situations, there may be a reduction of the spouse’s interest and, therefore, a corresponding decrease in the value to be included in the equalization.
To completely exclude the value of a spouse’s business interests from equalization, the couple will typically have had to do so through a domestic contract prepared before their separation (such as a marriage contract or cohabitation agreement). The contract must outline the details of the business, set out its value at the time of the agreement, and include clear language stating that the business value is to be excluded from equalization if the relationship ends.
Inheritance of Family Business
When a spouse inherits a family business, the value of the business may be excluded from equalization upon the breakdown of the relationship; however, the income generated from that inheritance may be considered property for the purposes of equalization or income for support purposes.
A spouse who expects to inherit (or has inherited) a business interest should consult with an experienced family lawyer as soon as possible to preserve their right to exclude its value from equalization. The spouse should carefully preserve all records that prove the exclusion and anything that traces the business assets if they have been converted into other assets.
Methods of Business Valuation
The complicated nature of business valuations makes it challenging to do without professional guidance. The ordinary financial statements and accounting records available to business owners are not usually enough to make an accurate business valuation. A family law lawyer is not a qualified expert on business valuations, so most cases require the assistance of an expert known as a Chartered Business Valuator who can provide a reliable and fair assessment for equalization purposes.
Having a professional valuator handle the business valuation has the added benefit of evidentiary support in case of a dispute. A valuator will provide a detailed report that includes extensive documentation to show how and why they used a particular valuation method.
Contact GDH Family Law in Vaughan for Advice on Business Valuation
The innovative team at GDH Family Law understands how technical and overwhelming family business interests can be, particularly within the context of property division and equalization. We offer à la carte legal services at any stage in the proceedings and can limit our involvement to your business-related equalization issues. For clients who prefer more comprehensive assistance, our experienced family lawyers can represent your interests throughout your entire separation or divorce.
GDH Family Law is a dedicated family law firm located in Vaughan and assists clients in the surrounding areas, including Maple, Concord, Woodbridge, Markham, Kleinburg, Richmond Hill, Nobleton, Toronto, Newmarket, Aurora, Brampton, Caledon, Mississauga, Etobicoke, North York, Thornhill, and King City. For a free initial consultation on your family matter, contact us at 416-535-6944 or reach out online.