BV Benefit #9 – Matrimonial Separation

According to Statistics Canada, over 40% of marriages will end in divorce before the 50th year of marriage. [1]   Where there is a family business or where one spouse has an ownership interest in a privately held company, there may be a need for an independent business valuation in a matrimonial separation.

The division of property is a major issue in a divorce.  According to the Ontario Ministry of the Attorney General: [2]

“When a marriage ends, the equal contribution of each person to the marriage is recognized.  The law provides that the value of any kind of property that was acquired by a spouse during the marriage and still exists at separation must be divided equally between the spouses. Also, any increase in the value of property owned by a spouse at the date of marriage must be shared.  The payment that may be owed to one of the spouses in order to effect this sharing is called an equalization payment, or an equalization of net family property.”

As such, upon separation, a net family property (NFP) statement is prepared setting out the value of the total assets and liabilities of each spouse as at the date of marriage and the separation date.  In order to assist in this regard, family law lawyers will often turn to financial professionals for assistance.  Privately held business interests (i.e. shares, stock options, restricted stock, etc.) constitute property, the value of which must be included in the NFP statement. The assistance of a Chartered Business Valuator will likely be needed where there are business interests and the parties cannot mutually agree on the value of the those interests as at the marriage date or the separation date.

Depending on many factors, including the chosen separation process (i.e. collaborative, mediation, litigation, etc.), the parties may agree to jointly retain one independent business valuator to value the business interests.  One party, however, may opt to individually retain an independent business valuator.  The other party will then retain a separate independent business valuator to review, critique and respond to the other expert’s report.  This, however, can be a costly process.

Where an established business exists at the time of marriage, the parties may elect to jointly obtain an independent business valuation at that time.  Full disclosure and agreement on value up front will eliminate the need for a retroactive marriage date valuation in the event of a future breakdown.

In matrimonial disputes there is often an immediate need for a business valuation. However, shareholders may find that obtaining annual valuation updates for purposes of the shareholder agreement can also be very useful in the event of a marital breakdown.