Entrepreneurs and professionals
who devote their lives to creating a business are often ill-prepared for a family breakdown
$100,000 in savings. To equalize these assets, spouse B is enti- tled to half of the difference of their net family holdings or $200,000 [($400,000 + $100,000 - $100,000)/2 = $200,000]. Family laws in Canada take a spouse’s obligation to equalize
assets very seriously. If a spouse who has title to a business is not compliant or there is suspicion that a business owner is trying to hide or transfer assets to a third party or is inflating expenses to minimize the value of the company, depending on the jurisdiction the courts can step in and transfer or vest assets into the name of the non-title spouse, order the payment to come from company profits, freeze operations or order the sale of the business.
Common law couples Generally, once a couple has lived together in a conjugal rela- tionship for more than two or in some jurisdictions three years, the two are deemed by the provinces and territories to be com- mon law spouses for the purposes of division of property. This is important because in some provinces (Saskatchewan and Manitoba, for example) common law couples have the same rights as married couples when it comes to dividing their assets if the union breaks down. Common law couples in a number of provinces (including
Ontario and New Brunswick), on the other hand, do not enjoy the same right to equalize assets when the relationship ends, which means division of property can become even more com- plicated than it is for married couples. Typically, each common law spouse keeps assets in his or her own name. However, when there is a relationship breakdown, a non-title common law spouse may be able to make a claim against the assets of the other so long as it can be established that he or she made some contribution toward the value of those assets. Assets may include a stake in a business or professional practice owned by the other common law spouse.
How you can protect your business DOMESTIC AGREEMENTS (PRENUPS AND POSTNUPS) In a nut- shell, a prenup or postnup is a legal contract signed by both parties that outlines property rights and expectations (includ- ing alimony/support payments) upon divorce and takes prece- dence over provincial statutes on this front. Agreements draſted and entered into when a couple starts to live together, and before the wedding, are prenuptial agreements. If the agreement is entered into after the I dos or during the
38 | CPA MAGAZINE | APRIL 2015
relationship, it’s known as a postnuptial agreement. Pre- and postnups carry the same weight in the eyes of the court. To prepare a strong pre- or postnup agreement, each party
should be represented by his or her own legal counsel. In most regions, parties can detail what property will be con- sidered separate and how community property should be divided. For example, the non-title spouse may agree to exclude the
value of the business when it comes to divvying up the assets. Even if the non-title spouse does not agree to exclude the value of the business, he or she may agree to a number of helpful provisions, including the method used to value the business; waiving the right to seek an order to freeze the operations of the business; and how to best move forward with a legal sepa- ration (see How to separate, p. 39). Anyone who is planning to start a business, buy shares in a corporation or become a partner in a professional practice should consider consulting with a family law lawyer.
SHAREHOLDERS’ AND BUY-SELL AGREEMENTS A shareholders’ agreement is a legal contract among the shareholders of a cor- poration. It sets out the rights and responsibilities of the shareholders, including how decisions are made, the situa- tions in which shares can be sold, how the sale will be financed, under what circumstances a shareholder can be forced out, how disagreements are handled, who gets to sit on the board and more. It can also address what happens in the case of a matrimo-
nial breakup. For example, a shareholders’ agreement can stipulate that non-title spouses cannot become shareholders. Or the non-shareholder spouses can become parties to the shareholders’ agreement and indicate they are willing to ensure the shares never become subject to matrimonial prop- erty division. Or the shareholders’ agreement can require divorcing shareholders to sell their shares to the corporation or to the other shareholders. Any corporation with more than one shareholder should
have a shareholders’ agreement, says corporate commercial lawyer Diane Karnay of Wilson Vukelich LLP in Markham, Ont. If no shareholders’ agreement is in place and there is a conflict among the shareholders that cannot be resolved, then the consequence may be an inability to make decisions, causing the business to flounder and its value to erode. “I was involved in the sale of a business owned by several
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