Dividing a Business in British Columbia: What Separating Spouses Need to Know

Separation When You Own a Business in British Columbia

Many of our clients are business owners, or are separating from one. While there are additional steps involved, including more assets to account for, more decisions to make, and specialists who may need to be brought in, business ownership doesn't have to make your separation overwhelming. With the right information and the right support team, most couples navigate this process successfully and reach an agreement that works for both of them and for the business.

Is the Business Family Property?

In British Columbia, a business started or grown during the relationship is generally considered family property, which means its value is subject to division when you separate. This is true whether one spouse was actively involved in running the business or not.

If one spouse owned a business before the relationship began, it becomes a bit more complicated because it is only the growth in value that is considered family property. This means that you need to know the value of the business at both the date you started living together and the current value.

The Valuation Question

Before you can divide anything, you need to know what the business is worth. Business valuation is a specialized field, and it is rarely straightforward. A qualified business valuator will look at things like revenue, profitability, assets, liabilities, goodwill, and the owner's role in generating income. There are different valuation processes for different types of business - this is not something that you can estimate yourself.

We recommend that you and your spouse jointly hire a neutral business valuator (this is a type of accounting specialist) to prepare a Certified Business Valuation to bring to mediation.

You Probably Don't Have to Sell the Business

One of the most common fears business owners bring to separation is that they will be forced to sell. In most cases, that isn't what happens. There are several ways to address a business in a separation agreement without liquidating it.

The owning spouse may buy out the other spouse's share of the business value using other assets, such as equity in the family home, RRSPs, or other investments. Alternatively, spouses sometimes agree on a structured payout over time. The goal is to reach a settlement that accounts for the business's value while allowing it to keep operating.

Your tax accountant is integral to assisting with structuring the buy-out plan in a way that will minimize tax for your family.

For the Non-Owner Spouse

If your spouse owns the business and you weren't involved in running it, you may feel uncertain about what you're entitled to or how to protect your interests. It's worth knowing that your lack of involvement in day-to-day operations doesn't reduce your claim to a share of the business's value if it grew during your relationship.

Getting a proper business valuation and independent legal advice is important to ensure that you’re agreeing to an arrangement that is fair in your situation. You want to understand the valuation process and make sure the number being used reflects the business's true worth.

What This Means for Your Separation Agreement

How a business is addressed in a separation agreement requires careful drafting. The agreement needs to clearly reflect the valuation, what the owning spouse is retaining, what the other spouse is receiving in exchange, and any payment terms if a buyout is structured over time.

Ready to Talk Through Your Situation?

Every business and every separation is different. At Modern Separations, we work with couples who want to resolve these issues collaboratively and reach an agreement that works for both of them. If you're not sure where to start or what your options look like, we're here to help. Book a consultation to talk through the details of your particular situation and find out about next steps.