Married couples are entitled to equalize their property when separating. A necessary part of this process requires both spouses to disclose all of their assets and liabilities as of the date of marriage and separation. Business interests are considered “property” just like any other asset, and must be valued accordingly. Examples include ownership of a sole proprietorship, partnership interests, shares in a corporation, and interests in holding companies.

In some limited and simple situations, spouses can agree on the value of the business interest in question with the help of their lawyers and some external accounting advice. Most often, parties will need to retain a Chartered Business Valuator (“CBV”) either jointly or independently to value the business for family law purposes (and where appropriate, to prepare an income analysis).

The business is ultimately assigned a “fair market value”, though there is no single way to determine fair market value. Valuators generally use one of two approaches: (1) the “liquidation value”, which considers the amount of money a business would receive if its assets were sold rather than continuing business operations; and (2) the “going concern value”, which focuses on the business’ future earning potential and intangible assets like goodwill, intellectual property, and a trained workforce. “Going concern value” means that the business will continue its operation with these intangible assets intact, and as a result is likely to have more value than its liquidation value alone.

To further complicate issues, once the CBV suggests the appropriate approach to use, there are three levels of reports they can prepare depending on the circumstances: (1) comprehensive; (2) estimate; (3) and calculation. Each report should include a conclusion as to the value of the business or asset in question, with differing levels of investigation, scrutiny, analysis, and ultimately reliability.

Aside from the value of the business, spouses may encounter issues relating to ownership of the business where unjust enrichment is at play, deadlock issues in the operation of the business where the spouses are joint owners, or tax issues that require collaboration amongst lawyers and experts when ultimately agreeing on how to divide their business interests.

Business-related issues arising from separation can be complex and more costly than necessary if not addressed appropriately from the outset. It is important to work with a competent team to ensure your interests are protected.