Dealing with your Family Business in a Divorce

Going through a divorce can be a stressful and complicated time in your life. If you and your spouse run a small business together or even if only one spouse runs the business, the value of that business will need to be determined and divided.  Pursuant to the Family Property Act, the value of the business (including assets owned by the business) that were acquired during marriage and still exist at separation are to be shared equally between the spouses.

There are many ways to tackle the family business following a separation. Some couples will continue to run their family business even after their separation. If that is not possible, one spouse could buy out the other spouse or the business gets listed for sale.

What happens if only one spouse runs a business? Can one party hide their assets in a corporation to avoid giving assets to the former spouse?

The Alberta Court of Appeal in Aubin v Petrone 2020 ABCA 13 set out the legal test for when the separate identities of a Corporation and its shareholders may be set aside on the basis of:

  1. Whether the spouse behind the corporate veil has complete control of the corporation;
  2. Whether the spouse is using that control to commit a wrong or unjustly deprive the other spouse of his or her rights; and
  3. That the misconduct is the reason for the loss of the other spouse.

If the test is satisfied, the non-corporate spouse may be compensated for their share of the corporate asset through cash payment by the corporation or they may be given shares or corporate property to satisfy fair and equitable division of family property. In order to obtain a valuation of the shares, it is common practice to hire a business valuator.

As your business financially supports your children, spouse and yourself, it is important that you obtain sound legal advice.

Written by Sarah Macdonald

Related Posts: