What Happens to My Business in a Divorce?

Getting a divorce can be an emotional roller coaster for both parties. Unfortunately, it usually becomes even more complicated and frustrating when there are a high number of properties involved, including:

  • real estate
  • investments
  • bank accounts
  • pensions or
  • small businesses

Contacting an experienced divorce lawyer in Edmonton who is highly knowledgeable in this area of law is highly advisable.

Equitable Distribution of Assets and Liabilities

During a divorce, the division of assets is determined by the Family Property Act. The Act provides the guidelines to divide assets that have been accumulated during a marriage.  Generally, this division is set on a 50-50 basis, although there are some instances where an unequal division is found to be fairer.

If debts were accumulated during a marriage, they are divisible as well, whether just one spouse or both partners accumulated them. In most situations, marital property is divisible up until a divorce is settled. Dividing a marital asset is not usually based on the date of separation.

Understanding how to navigate the divisibility of assets and liabilities may be easier when you work with a first-class divorce lawyer in Edmonton. Call us today at (780) 462-4321 if you’re going through this process and need professional legal assistance.

How Is a Business Divided in a Divorce?

It’s common for the marital property being divided in a divorce to include assets such as stocks, bank accounts, pensions, RRSPs or bonds. However, in some cases, one or both spouses may own a business and that business would also need to be divided.

When one or both spouses are business owners, the divisibility of their business requires an analysis of the regulations associated with family law in Alberta. The division of small businesses is different if they are incorporated or unincorporated. A business may be considered as an asset or may be composed of assets that are divisible in a divorce or separation.

Here is how business valuation is determined for unincorporated and incorporated businesses when a divorce or separation occurs in Alberta:

Unincorporated Businesses: An unincorporated business is not an asset, but everything that makes up the business may be, which might include:

  • Tools, equipment or vehicles used by the business
  • Offices or shops, if owned
  • Business financial accounts
  • Business debts
  • Goodwill, which includes the name value of the business and the ability of the business to earn income in the future reliably

Incorporated Businesses: For incorporated businesses, the shares are assets. The value of the shares is determined by the assets and debts of the business, divided by the number of shares owned. Determining the value of the shares is similar to valuing an unincorporated business.

When a divorce occurs and a business has been incorporated, a spouse can take the company by receiving assets used by the business or by dividing shares in the corporation.

Legal guidelines set by the Family Property Act dictate that assets are generally to be divided equally between partners. This might include dividing a business or the assets of the company evenly.

Structuring a business as a limited liability corporation (LLC) does not protect it either. However, it is possible to keep a business intact by paying out a spouse to compensate for the ownership interest they have in the business. Another way to do this is by having the spouse take other property of equal value to make up for their share of the company.

Navigating this legal area and determining if a share of the business can be split typically requires the assistance of an experienced legal professional. Reach out to us through our Contact Us page if you have questions about this type of situation. We’d be happy to assist you.

Protect Your Business

For individuals who are already operating an existing business, it is typically best to have a properly crafted prenuptial agreement drawn up. Taking this action allows a spouse to continue to run the business after a divorce is finalized. It’s also important to note that some partnership agreements or Unanimous Shareholder Agreements include clauses to kick partners out if a divorce occurs. This can be an excellent way to help ensure that a business continues to operate.

Feel free to call us today at (780) 462-4321 or request an initial consultation online when you’re in this type of situation and need professional legal guidance.

photo of a husband and wife who are going through a divorce, but also own a business together, determining how to split their assets to protect their business during the process

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