Is My Spouse Entitled to Half My Business?

Is My Spouse Entitled to Half My Business?

Splitting Up: Is My Spouse Entitled to Half My Business?

So, you have your own business (or your spouse does) and are contemplating separation and/or divorce – but where will you stand at the end of the day? Who does the business really belong to and what will happen to it?

As a general principle, the law in BC presumes that each spouse owns half of all family property, regardless of their contribution to that property, and regardless of in whose name the interest is held. A business (whether wholly or partly owned by you) is considered to be “family property” under the Family Law Act if it was owned by you (or your spouse) on the date you separate, unless it is “excluded property”. The same applies to interests in companies. These would be considered to be family property– unless it is excluded property.

So, what is excluded property?

Section 85(1) of the Family Law Act sets out a list of what is excluded from family property:

  • (a) property acquired by a spouse before the relationship between the spouses began;
  • (b) gifts or inheritances to a spouse;
  • (c) a settlement/award of damages to a spouse as compensation for injury/ loss (unless the settlement/award represents compensation for both spouses or lost income of a spouse);
  • (d) insurance policy money paid/payable (except for a property policy and any portion that represents compensation for both spouses or lost income of a spouse);
  • (e) property referred to in any of paragraphs (a) to (d) that is held in trust for the benefit of a spouse;
  • (f) property held in a discretionary trust (i) to which the spouse did not contribute, (ii) of which the spouse is a beneficiary, and (iii) that is settled by a person other than the spouse;
  • (g) property derived from property or its disposition referred to in any of paragraphs (a) to (f).

So, if you had your business before your relationship began, this would be excluded property. However, be aware though that family property includes the increase in value of excluded property since the beginning of the relationship between the spouses (or since the date that the excluded property was acquired).

Example:

You started your business in 2008. Your relationship began on 14/2/2014. You separate almost five years later on 1/1/2019. This means that the increase in the value of your business (if any) from 14/2/2014 until 1/1/2019 is NOT excluded property. Consequently, your spouse would be entitled to a 50% of the increase in value of the business for the period 14/2/2012 until 1/1/2019. Your spouse would not be entitled to 50% of your business as a whole, just 50% of any increase in value during the relationship.

If the business you had before the relationship has not grown in value during your relationship, then there is nothing to share. The business is excluded.

Please remember that you bear the onus of proving your business is excluded to benefit from this exception. Financial records would have to be produced and expert evidence may be required.

Do not dispose of any family property (including a business not excluded) prior to separation UNLESS it is necessary to reorganize your financial affairs for the benefit of the family’s finances. The Court has powers to reverse a transfer of what would have been a family asset (or provide compensation) if it believes an asset was disposed of, before separation, in an attempt to prevent the asset being deemed family property i.e. not for legitimate reasons.

Something also to note is the fact that a business may (in whole or part) be excluded property but does not mean that the income you (or your spouse) earn from that business is also excluded. This income is income in the ordinary way and will be taken into consideration when determining spousal or child support, if applicable.

Please remember the content above represents a basic answer to a general question. The area of family property and what may or may not be excluded that form the general 50/50 split principle is not straightforward.

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