shareholders,” says Karnay. “One of these shareholders was a corporation jointly owned by a husband and wife in the midst of a divorce. Let’s call this corporate shareholder Corporation A. To the fury of all the other shareholders who were trying to get this deal done, matrimonial issues ended up affecting the deal. Shareholder approval of the sale of Corporation A’s assets — its shares in the business being sold — was required and one of the spouses was withholding approval out of spite. The purchaser grew tired of waiting and the deal nearly imploded because of the delay caused by the warring spouses. Aſter many weeks and growing legal expenses, the deal finally closed but it almost didn’t happen.” This conflict could have been avoided if appropriate provi-


sions had been spelled out in a shareholders’ agreement between the spouses and/or a shareholders’ agreement among the shareholders of the business being sold. When a husband and wife jointly own shares of a corpora-


tion (as in the situation above), a shareholders’ agreement may provide that one spouse will have the first right and option to purchase the shares of the other in the event of a divorce, par- ticularly where the spouse with this option is active in the busi- ness and the other spouse is not. If both spouses are active shareholders, the agreement may provide for a buy-sell or shotgun arrangement where one party initiates the sale and the other has 60 days to decide whether to buy out the spouse’s shares or sell his or her own at a given price.


USING EXCLUDED ASSETS TO ACQUIRE A BUSINESS In some juris- dictions some assets can be excluded from matrimonial divi- sion. For example, if you purchase shares in a business with excluded assets (an inheritance for example) that equity stake and any upside growth in the business is yours and yours alone even in a divorce.


How to separate Not all divorces have to be decided by a judge. In fact, court should be the last resort, especially when a business is involved because in court everything, including sensitive busi- ness information, is made public. Plus, the judge has the power to make decisions that can seriously disrupt operations. There are six legal processes available to separating couples


in Ontario: spouse-to-spouse negotiation; mediation; arbitra- tion; collaborative lawyer-to-lawyer negotiation; traditional


lawyer-to-lawyer negotiation; and court. It’s not uncommon for those seeking a divorce to go to their


lawyer with a list of issues discussed and agreed upon with their soon-to-be ex-spouse. Spouse-to-spouse negotiation, however, is only recommended in simple cases where there is a high degree of trust, respect and cooperation between the separating spouses. Mediation and arbitration involve couples working


with an independent third party to resolve issues around property division, custody and parenting and support. The difference: in mediation participants have more say in the outcome because they get to discuss and craſt their own agreement with the assistance of the mediator. Arbitration is more like a court case and the parties have to accept what the arbitrator says. Collaborative divorce is well established across the country,


particularly among high-net-worth couples because the nego- tiations are private and focused on finding constructive solu- tions to personal, business and financial issues. Collaborative law lawyers or mediators oſten recommend the use of jointly retained neutral professionals such as certified business valu- ators to limit disputes and keep fees in check. In many ways collaborative negotiation is a kinder, gentler


approach. That’s because, unlike traditional divorce lawyers, collaborative law lawyers are trained in interest-based negoti- ations — a form of negotiation inspired by a model developed at Harvard University — and are required to follow certain negotiation protocols that oſten lead to extremely sophisti- cated, creative solutions. There are no bullying tactics or the threat of prolonged costly court cases. In fact, to strengthen the spirit of cooperation, the collaborative process requires couples and their lawyers to sign an agreement that states if the process is not successful and they do end up headed for court, they will have to retain different lawyers to handle the litigation. Thankfully, this rarely happens. Bottom line: no one wants to think about separating as you


are about to enter into a committed relationship, but plan- ning, particularly when a business is involved, can help you navigate through an emotionally charged time and save what you have worked so hard to build.


NATHALIE BOUTET is a family law lawyer and an expert in Ontario law (www.boutetfamilylaw.com or nboutet@boutetfamilylaw.com)


APRIL 2015 | CPA MAGAZINE | 39


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