How to Safeguard Your HNW Business When Your Marriage Ends

January 23, 2025

Running a business endeavour can be fraught with challenges. Success is rarely guaranteed and even the most enterprising owner can face an uphill climb to stay competitive in today’s changing business environment.

Many business people have spent years building their companies, putting in whatever effort is necessary to achieve long-term financial profitability. However, the demands of running a business can put a strain on even the best relationship. The long hours and financial pressures can drive a wedge between a couple, not to mention the emotional toll keeping a company solvent can take on a business owner.

Success can make the effort all worthwhile, especially if you have built your business into a high-net-worth enterprise. But what happens if your marriage or common-law relationship is irreparably damaged and a breakup is inevitable? How do you ensure control over your company and avoid disruption to business operations when you and your spouse split? The breakup of a marriage or common-law relationship can have serious implications for a high-net-worth business, which is why you need advice from experienced lawyers.

At Mills Family Law we offer a comprehensive array of services to help you navigate your separation and divorce in high-net-worth scenarios.

The Law in British Columbia

Determining the division of marital assets is spelled out in British Columbia’s Family Law Act. Couples typically have an equal share in any property that is acquired during their relationship. In this province that applies to those who are married and unmarried couples who have lived together in a marriage-like relationship for at least two years.

When a relationship ends it is necessary to classify all assets, distinguishing between marital assets (family property) and separate assets (excluded property). Marital property can include the family home, bank accounts, financial investments, pensions, automobiles and any other valuable personal possessions such as artwork acquired during the relationship.

The value of a couple’s property can be quite substantial in a high-net-worth divorce, which is one that involves one or both partners with at least $1 million in liquid assets (more realistically that cut-off may be as high as $5 million). These assets could also include commercial and residential real estate, stock options, executive bonuses, offshore accounts or trusts and private business interests.

You and your former partner will be expected to prepare a full, comprehensive and honest financial report to ensure an equitable division of your assets. However, determining the actual value of businesses or partnerships can be challenging, which is why your family lawyer may recommend retaining forensic accountants or other financial experts.

It is generally accepted that property each spouse brought into the relationship, as well as inheritances and gifts received by one spouse during the relationship, will be considered separate or excluded property. It should be noted, however, that any increase in the value of separate property during the relationship is considered family property and subject to division.

It Pays to be Proactive

When you started your business, you may have been single or, if you are in a relationship, your spouse’s only involvement may have been to provide emotional support. But as your enterprise grows and prospers you may look for tax advantages. You may consider incorporating or transferring shares in your company to your spouse to reduce your obligations to the Canada Revenue Agency.

However, the obvious drawback with that is what happens if the relationship ends. If your spouse contributed to the success of your business, even if they are not involved in the day-to-day operations, they may attempt to make a claim on the company. And a family court judge could agree with the validity of that claim.

No one enters a marriage or a common-law relationship with an end date in mind. However, breakups do happen and failing to take precautions could be detrimental to the company you have worked tirelessly to build into a financial and personal success.

If you started your business before entering into a romantic relationship you may want to consider a marriage or cohabitation agreement. Commonly known as a prenuptial agreement, these contracts outline how assets will be divided if the relationship ends. For example, you may state the company is your separate property and not subject to division. However, keep in mind that any value added to the business after your marriage date will be marital property.

Courts generally enforce marriage or cohabitation agreements as long as they were entered into voluntarily ­– with full financial disclosure ­– and are deemed “fair and reasonable.” However, parts of a prenup could be rejected if a judge determines the terms are grossly unfair or if circumstances have significantly changed since the document was agreed upon.

It is also possible to sign a postnuptial agreement after the relationship has already been established. This agreement governs new assets acquired during the relationship or changes in financial status.

Some couples also form a business during their relationship. In cases where both play a role in the enterprise, they should consider a shareholders’ agreement. These contracts could lay out what happens when one person leaves the business (whether because of the end of the relationship or for other reasons). Depending on the terms, it is even possible for both spouses to continue with the company after their romantic relationship ends.

In any event of the end of a marriage or common-law relationship, a shareholder agreement or a prenup and postnup could obviate the need for a costly legal battle and keep the business intact.

Protecting Yourself Without a Prenup

Being clear and concise in a domestic agreement is essential to avoid ambiguities that require intervention by the court. But it is still possible to ensure you are protected without a domestic agreement.

Setting up a paper trail can be in your best interest and that comes down to good record keeping. Keep personal and business expenses separate. This will avoid the need to sort out co-mingled funds.

Establish yourself as the sole owner. Relevant documents that can be used to establish your role may include legal statements, valuations and notices of assessment. Keep clear records of the sources of capital for your organization. Obviously, it hurts your case if funds from the relationship are used to pay business expenses. As well, using the resources of a private corporation for personal reasons could lead to your spouse being granted access to the organization’s assets.

If you want to make your significant other a shareholder for the purposes of income splitting, consider issuing non-voting shares or setting up a discretionary family trust with your spouse as a beneficiary but not a trustee. That way you retain control of the business.

Avoiding Court Can be in your Best Interests

Taking any legal dispute to court is not only costly and time-consuming, it is also risky. Although you may believe you have the legal high ground a judge might not share your opinion. In some cases, the court may appoint an administrator to oversee the business while a dispute is being litigated. A court decision could also impact the control you have on the operation or negatively affect the business.

Going to trial can be especially precarious when a high-net-worth business is involved because of the privacy implications. Court proceedings are open to the public and anything said during a hearing is a matter of public record unless it is a subject of a judge’s ruling. That means details you don’t want to be made known about your enterprise may no longer be protected. A high-net-worth business owner may also be in the public spotlight and their court case could draw unwanted media attention, as well as social media scrutiny.

That’s why it makes sense to work with a knowledgeable family lawyer who can provide comprehensive legal advice. If the end of the relationship is amicable you may be able to come to an agreement with your spouse. However, it is still in your best interest to consult with counsel on any arrangement to ensure that your legal rights are respected and protected.

At Mills Family Law we offer several services to serve your needs:

Collaborative Family Law: In this option you and your former partner work with your own lawyers to settle your issues. Other experts, including coaches, child specialists and financial experts may also be employed to navigate complex and emotionally difficult issues.

Alternative Dispute Resolution: ADR focuses on consensus, offering both parties the opportunity to negotiate, mediate or arbitrate their dispute. In mediation the couple meets alone with a neutral third party who facilitates negotiations. The mediator’s decision is not binding. Arbitration involves a neutral third party who makes a final decision that is binding.

Protect Your High-net-worth Business

The success of your business is important to you and how you handle your divorce can have a lasting impact on your future and that of your organization.

The experienced litigators at Mills Family Law deal with all family law issues to deliver the best legal representation regardless of the situation. We serve all of British Columbia, both in-person and remotely, and we are ready to help you. Contact us today to discuss your options.