What happens to small business assets during a divorce?

This article looks at what happens to business assets during a divorce in British Columbia.

Many married couples not only live together, they also work together in a family business. In the event of a divorce, however, those businesses and each spouse's livelihood can be put in serious jeopardy. As the Globe and Mail reports, 80 percent of small businesses in Canada have no partnership agreement in place and those those that do rarely address what happens to business assets in the event of a divorce. The truth is that without a partnership or prenuptial agreement in place, business assets are usually up for division during a divorce in much the same way that the couple's other assets may also be divided.

What is at stake?

While British Columbia law does offer some protection for business assets during a divorce, it can often be difficult to separate what is a business asset from what is a family asset. Even if the family business is only owned and operated by one spouse, the other spouse may be able to claim that he or she contributed to the business either directly or indirectly. For example, one spouse may have decided to be a stay-at-home parent so that the other spouse could focus on growing the business. In that situation, the non-owning spouse may be able to claim a share of the business' assets.

If each spouse has a stake in the business, then the future can seem perilous during a divorce. For example, the business may need to be sold off entirely so that each spouse gets his or her share. That can leave either spouse without a livelihood and may even put the business' other employees in a precarious situation. Trying to sell the business can also present its own problems, especially if disagreements arise concerning the value of the business.

How to resolve disputes

As the Financial Post points out, the best way to avoid disputes from threatening the existence of a small business is to plan for all eventualities as early as possible. That means having a business agreement, such as a partnership or shareholders agreement, in place to make it clear what share of the business each spouse owns. A prenuptial agreement can also help clarify what happens to the business in the event of a divorce or the death of one of the spouses.

If no such agreements are in place, then in most situations it is in both parties' best interests to negotiate a solution. An attorney can help business owners come to an agreement with their spouse concerning how business assets are to be divided. To help facilitate an effective settlement, it is useful to make sure business and personal assets are kept separate and that documentation showing the separation of those assets can be provided. In some cases, a judge may have to impose a division of business assets on a couple if an agreement cannot otherwise be reached.

Getting legal advice

During a divorce, business owners should contact a lawyer as soon as possible. The financial stakes are simply too high during a divorce to try to come to a favourable settlement on one's own. An experienced lawyer can help clients protect their business assets and negotiate a settlement that is in their long-term best interests.