When you get divorced in Alberta, you must consider how your property will be divided. Under Alberta’s Family Property Act (FPA), spouses are generally entitled to an equitable division of the assets they accumulated during their marriage. This is normally calculated by deducting the value of each spouse’s debts and liabilities from the value of their assets (called their net family property, or NFP). The spouse with the higher NFP will make an equalization payment to the spouse with the lower NFP that is equal to the difference between their individual NFPs.
As a business owner, it’s important to know how your venture may affect your net family property if you’re getting a divorce. Business valuation can be complex under the FPA. This guide provides key considerations for business owners ending their marriages.
At Verhaeghe Law, our Edmonton family lawyers have helped hundreds of divorcing clients divide their property equitably. With experience navigating both equalization and the valuation of businesses during divorce, we can answer any questions you have about how property division will affect you. To discuss your situation with our legal team today, schedule a consultation. You can call our Edmonton office at (587) 410-2500 or fill out our online contact form to get in touch. We serve clients across Alberta.
Will Your Business Be Divided During Your Divorce?
In Alberta, businesses are usually considered to be matrimonial property that is subject to division if:
- They started during the marriage
- They were started before the marriage, but they increased in value during the marriage
If your business was started before your marriage, only the value by which it has grown during the marriage will be subject to equalization. Even if your business is incorporated, the shares may be subject to division. The value of your business (or its increase in value) will be factored into your net family property and may affect the equalization payment you need to make.
Whether your business is subject to division will depend on a few different factors. If you and your spouse can agree to a division of your assets amongst yourselves without going to court (through mediation or arbitration, for example), your business may not be involved in your divorce. In addition, if you signed a prenuptial or postnuptial agreement that excludes your business from being valued during divorce proceedings, it may not affect your NFP.
Valuation of Businesses for Family Law Purposes
The valuation of your business is a critical and complex step in the divorce process. If you and your spouse proceed with the equalization of your net family property, the financial worth of your business needs to be determined.
Common elements considered in valuation include:
- Quarterly or yearly revenue
- Goodwill (including the brand’s reputation or customer base)
- Retained earnings
- Share value (if the business is incorporated)
- And more
Both your lawyer and independent financial experts (like a business valuator or accountant) can assist in valuing your business. Ensuring that you complete a thorough and accurate valuation can help reduce the potential for disputes and ensure fair equalization between yourself and your former partner.
Protecting Your Business During a Divorce
Although your business will not literally be divided in half during your divorce (unless you and your partner agree to do so in your separation agreement), it can impact your NFP value. To prevent this from happening, there are actions you can take before or during your marriage.
The most common way for owners to protect their businesses when they get married is through a domestic contract. Sometimes called a prenuptial agreement, you can set terms in a domestic contract that exclude your business or the value of its growth from division if you get divorced. If you are not married, but you live with your partner and are considered Adult Interdependent Partners in Alberta, you may also do this through a cohabitation agreement. In order for a domestic contract to be valid and enforceable, both partners must agree to it voluntarily.
Divorcing as a Business Owner in Alberta? Contact Verhaeghe Law Now
It’s important that business owners know how their organization will affect property division during their divorce in Alberta. Businesses are not automatically exempt from equalization, as even their value and growth during marriage may be shared. If you’re concerned about how the value of your business will affect your divorce, you should speak to a family lawyer as soon as possible for personalized guidance.
At Verhaeghe Law, our Edmonton divorce lawyers offer support to business owners navigating complex property division in the province. Contact us today to learn how we can help protect your assets. You can call our Edmonton office at (587) 410-2500 or fill out our online contact form to discuss your situation.