Can I Stay in Control of My Business During a Divorce?

Can I Stay in Control of My Business During a Divorce?

Yes, it is possible to stay in control of your business during a divorce, but it requires careful planning, legal guidance, and often negotiation. In British Columbia, under the Family Law Act (FLA), a business or its increase in value during the marriage is typically considered family property and subject to division. However, there are strategies to protect your business interests and retain control.

 Key Considerations for Retaining Control of Your Business

1. Determine Whether the Business Is Family Property

• Pre-Marital Businesses: If you owned the business before the marriage, its pre-marital value is typically excluded from division. However, any increase in value during the marriage is subject to division.
• Businesses Started During the Marriage: These are considered family property and are subject to equal division unless otherwise agreed.

2. Valuation of the Business

The business must be valued to determine its contribution to the marital estate. This includes:

• Assets, liabilities, and cash flow
• Goodwill and intellectual property

Retain an experienced business valuator to ensure a fair and accurate valuation.

3. Structure the Division Without Sacrificing Control

• Instead of splitting the business itself, you can negotiate a settlement that compensates your spouse for their share of the business’s value using other assets (e.g., cash, property, investments).

Avoid Liquidation

• Courts rarely order the sale or division of a business if it would harm its operations. Demonstrating that the business is a key source of income for the family or others (e.g., employees) can help you retain ownership.

Strategies to Stay in Control of Your Business

Negotiate a Settlement Agreement

• Work with your spouse to reach an agreement that keeps the business intact, compensating them with other marital assets or a structured payout.

Prenuptial or Postnuptial Agreements

• If you are not yet married or already married, you can create an agreement specifying how the business will be handled in the event of a divorce.
• Prenups or postnups can exclude the business from division or limit your spouse’s share.

Use a Trust or Corporate Structure

• Businesses held in a trust or corporation may be protected from direct division, though the value may still be considered in asset calculations.
• Ensure these structures were set up before the marriage to avoid claims of deliberate shielding during the divorce.

Buy Out Your Spouse’s Share

• Offer to buy out your spouse’s interest in the business, either through a lump sum or structured payments.

Demonstrate Minimal Spousal Contribution:

• If your spouse had little to no involvement in the business, you may argue for a reduced claim on its value.

Use Mediation or Arbitration:

• Resolve disputes privately and efficiently through alternative dispute resolution methods, which often lead to mutually agreeable solutions without court intervention.

Example in a Vancouver Context

A Vancouver entrepreneur owns a tech company valued at $5 million, which grew significantly during the marriage. During the divorce:

• The court determines that the pre-marital value of $1 million is excluded, but the $4 million increase in value is family property.
• To retain control, the entrepreneur negotiates a settlement where their spouse receives other marital assets, including a rental property and cash, instead of a direct interest in the business.

Challenges and How to Address Them

High Valuation Disputes

• Challenge: Disputes over the business’s value can delay proceedings.
• Solution: Use a neutral financial expert to conduct an independent valuation.

Cash Flow Constraints

• Challenge: Paying out a spouse’s share can strain the business’s finances.
• Solution: Negotiate a structured payout plan to avoid immediate financial stress.

Involvement of Shareholders or Partners

• Challenge: Divorce proceedings can disrupt partnerships or shareholder agreements.
• Solution: Work with a lawyer to ensure compliance with existing agreements and minimize disruptions.

Tips to Protect Your Business

Seek Legal Assistance

If you’re concerned about staying in control of your business during a divorce, Mills Family Law, experienced Vancouver family lawyers, can help. We can assist you in protecting your business interests, negotiating fair settlements, and minimizing disruption to your operations. Call us at 778-945-3003 or fill out our web form to get started today.

Related FAQs

• How are complex assets like businesses valued in a divorce?
• What is the impact of not having a prenuptial agreement in a high-net-worth divorce?

For more details, refer to the Family Law Act of BC or speak with a lawyer to explore personalized strategies.