Placing a value on the family business in divorce

On behalf of Gary Kirk of Kirk Montoute LLP posted in Family Law on Monday, May 9, 2016.

One of the toughest issues in an Alberta divorce is to determine a division of property between the divorcing spouses that complies with provincial law and that will be sufficient to support each of them going forward. Key to property division in divorce is placing a value on each asset. Valuation of a family business can be especially complex and challenging. 

Alberta has enacted the Matrimonial Property Act that governs property division in divorce and provides, broadly, that: 

  • Matrimonial property is that acquired by either spouse or both of them during marriage and is normally divided 50-50.
  • Exempt property is that brought into the marriage by either spouse as well as certain other kinds of property received by one spouse like an inheritance, gift, some court settlements or awards, or certain kinds of insurance proceeds. Exempt property (or an asset that can be traced to exempt property) is kept by the original owner in the property division.
  • Increase in value of exempt property during the marriage is to be justly and equitably divided.

So, in looking at a privately held family business, it must of course be determined whether it is matrimonial or exempt property. If it is matrimonial, fair and accurate valuation is especially important. There are different ways to place value on a business, as detailed by CBC News

Practically speaking, business valuation requires the assistance of an expert professional such as a business valuation firm, a business broker or a Chartered Business Valuator or CBV. It is a complex question that requires extensive research into the particular industry and the market in which the business operates as well as analysis of the business assets and debt. 

If the couple is able to negotiate toward a matrimonial settlement agreement, they may choose to hire a valuation expert together to save money. Such professionals are expensive, which may preclude each hiring their own, whether in or out of court. 

If they cannot agree in negotiation on a business value, as well as how to handle the business in property division by either selling or liquidating and dividing the proceeds, having one spouse own the business and buy out the other’s share, or jointly own the business as an operating concern after divorce, the judge in the divorce will have to place a value on the business and determine appropriate property division.

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