Key takeaways
When one spouse owns a business, a separation becomes more complex. In Ontario, a privately held business is an asset that must be valued and included in the equalization of net family property. For business owners across Mississauga, Toronto, and the wider GTA, how that value is determined can be the single largest financial issue in the divorce.
Equalization requires each spouse to account for the value of everything they own on the valuation date. A business — whether a professional practice, a corporation, or a share of one — is property with value, so it has to be quantified even though it cannot simply be sold or split. The result feeds into the equalization payment owed between the spouses.
Valuators generally use one of three broad approaches. The income (or capitalized earnings) approach values the business based on its expected future earnings and is common for profitable operating businesses. The asset-based approach looks at the net value of the company’s assets and is often used for holding companies or businesses being wound down. The market approach compares the business to sales of similar businesses. The right method depends on the nature of the company.
Because these valuations are technical and often contested, they are usually prepared by a Chartered Business Valuator (CBV). A properly prepared valuation carries far more weight than an owner’s estimate and is often essential if the matter proceeds to court.
A recurring issue is double recovery: counting the same business income once when valuing the business for equalization and again as income used to pay support. Ontario courts are alert to this, and careful analysis is needed to avoid a spouse being charged twice for the same dollars.
Minority ownership discounts, personal versus commercial goodwill, tax on a notional sale, and the liquidity needed to actually pay an equalization amount all affect the outcome. Business-owner divorces reward early, specialized advice.
Yes. In Ontario a privately held business is property that must be valued and included in the equalization of net family property.
Usually a Chartered Business Valuator (CBV), whose report carries far more weight than an owner’s estimate and is often essential if the matter proceeds to court.
It is counting the same business income twice — once when valuing the business for equalization and again as income used to pay support. Ontario courts are alert to it, and careful analysis is needed to avoid it.
This article is general information and is not legal advice. If you or your spouse owns a business, contact Tailor Law to discuss valuation and equalization.