In Ontario marital property, or net family property, is the difference between the value of a spouse’s property on the date of separation and the value of their property on the date of marriage (net of liabilities). An exception is made for the matrimonial home, which is often split evenly between the spouses. On separation, each spouse calculates their respective net family properties and the spouse with the greater amount then owes an equalization payment to the other spouse in the amount of 50% of the difference between the two.
As co-owners of the business both you and your spouse will have to record the value of each of your respective interests in your net family property. But this doesn’t necessarily mean that the business will be split and in all likelihood, you won’t need a judge to weigh in. There are a number of options available to the both of you.
You may consider, for example, continuing to run the business together. This option will obviously only make sense if your marital separation isn’t so acrimonious that you can’t carry on a working relationship, but if it is on the table then this scenario is probably the easiest route to take.
Many couples won’t be able to make this kind of accommodation and will therefore have to find a way to remove themselves or their spouse from the business. At this point you’ll likely need a business valuation so that both parties have an understanding of the value of their ownership interest.
With a valuation of your business interests in hand, one of you may then decide that you would be prepared to sell your ownership interest or exchange it for other assets from the marriage. You may, for example, find that your interest in the business is of comparable value to your spouse’s share in the matrimonial home and decide to leave them with your share of the business in exchange for keeping the house.
If neither of you feels like leaving the business to the other, you can always choose to sell the business and share in the profits. This has the added benefit of providing some finality since it will be easier to determine income for spousal and child support purposes, but you’ll then need to somehow replace that lost income and will also be left without a business and the opportunity to grow it.
Matthew Krofchick, CMA, CBV, CMC, has assisted in the valuation of many businesses at Krofchick Valuation Partners. Matthew’s financial background is applied daily to reviewing and creating financial modeling for business valuation and litigation support reports.