A sobering statistic for many is that over 40% of marriages will end in divorce before the 50th year of marriage.  This does not exclude business owners and a matrimonial separation can result in significant professional fees for business owners, especially when the value of the business is a key area of dispute. An independent business valuation can help to minimize legal and expert fees for business owners going through a matrimonial separation.
The division of property is a major issue in a matrimonial separation. According to the Ontario Ministry of the Attorney General :
"When a marriage ends, … the value of any property that was acquired by a spouse during the marriage and still exists at separation must be divided equally between the spouses. Also, any increase in the value of property owned by a spouse at the date of marriage must be shared. The payment that may be owed to one of the spouses in order to effect this sharing is called an equalization payment, or an equalization of net family property."
Upon separation a net family property (NFP) statement is prepared setting out the value of the assets and liabilities of each spouse as at the date of marriage and the separation date. Privately held business interests (i.e. shares, stock options, restricted stock, etc.) constitute property, the value of which must be included in the NFP statement. The assistance of a Chartered Business Valuator will likely be needed where there are business interests and the parties cannot mutually agree on the value of the those interests as at the marriage date or the separation date.
Depending on the separation process (i.e. collaborative, mediation, litigation, etc.), the parties may agree to jointly retain one independent business valuator to value the business interests. One party, however, may opt to individually retain an independent business valuator. The other party will often then retain a separate independent business valuator to review, critique and respond to the other expert’s report. This can be a costly process.
Where spouses disagree over the value of the business significant legal and expert business valuation fees can be incurred towards various activities relating to the value of the business interests (e.g. document productions, discoveries, legal motions, expert reports, negotiations, critique reports, trial, etc.). This can become a very costly, time consuming, and emotionally draining process. If the business valuation issue becomes very contentious, professional fees can quickly escalate to well over $100,000.
Obtaining an independent business valuation for a fraction of this cost can help avoid a disagreement over value in the event of a marital breakdown, which is well worth it if it saves hundreds of thousands of dollars in professional fees. By not having an independent business valuation (and discussing this issue with your spouse) you increase the chances of there being a dispute over the value of the business in the event of a matrimonial separation.
Contact us at firstname.lastname@example.org or www.vspltd.ca to find out more about the business valuation process and the types of valuation reports that CBVs provide.
1. Source: www.statcan.gc.ca, CANSIM Table 101-6511.
2. Source: www.attorneygeneral.jus.gov.on.ca.