Division of Property with Self-Employed Individuals
How Businesses are Valuated
When a married couple separates or files for divorce, most of the property they accumulated in the course of their marriage is to be divided amongst them. When one of the partners is self-employed in an unincorporated or an incorporated business, the value of the shares is considered matrimonial property, thus are also subject to being divided.
One method to come up with the value of a business is to consider its worth to a third-party. In an incorporated business the equity in the physical assets, debts owing to creditors and expected earnings would all be taken into account when determining the value of the business. Most of the time individuals hire a valuator to consider a business’s worth.
The partner who owns the business has a legal obligation to disclose every detail about the business so it may be accurately valued for its worth. This includes providing:
· Copies of financial statements
· Tax returns
· Bank account statements
· Copies of cheques issued to the owner
· Information about any benefits the business owner may have received
Following the valuation of the business, it must be decided between the couple how the value will be divided. One of the partners may use cash to buy the other one out, they may transfer other property in the equal value of the business, or they may transfer over their shares in the company.
In the Family Law Act, the equalization of net family properties under Divorce states:
5 (1) When a divorce is granted or marriage is declared a nullity, or when the spouses are separated and there is no reasonable prospect that they will resume cohabitation, the spouse whose net family property is the lesser of the two net family properties is entitled to one-half the difference between them
In summary, when a marriage is dissolved due to separation, divorce or death of a partner, each partner becomes entitled to one half of the value of property accrued in the course of the marriage. The increase in the value of a property which was owned by one of the partners during the marriage must also be considered.
An equalization payment or equalization of net family property is the payment that is owed to one of the spouses due to sharing their property which commences upon marriage. This also includes a business in which a partner was self-employed.
Regardless of the fact that one spouse was the owner of the business, their spouse is still entitled to one half of the value of that business, considering it was up and running at the start date of their marriage.
If you are currently going through a divorce, separation or have suffered the loss of your spouse, we are here for you. At Tailor Law Professional Corporation, we have excellent lawyers who are well-equipped with assisting you in your legal needs. Please do not hesitate to contact us at 905-366-0202, or visit our website here.
https://www.lawnow.org/self-employment-and-family-law-calculating-income-for-support/ https://stepstojustice.ca/steps/family-law/3-calculate-each-partners-net-family-property https://www.ontario.ca/laws/statute/90f03 https://www.attorneygeneral.jus.gov.on.ca/english/family/divorce/division_of_property/