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How to Protect Your Business in a Divorce

How to Protect Your Business in a Divorce

Thinking about getting a divorce? 

Don’t want to lose the business you worked so tirelessly to create? 

No, we’re not advocating for either spouse to deny the other her or his fair share of the business assets, but there are ways to ensure that you don’t lose control of your business. 

Did You Know: More often than not, when one spouse runs a business, the other is either directly involved in building and operating the enterprise, or indirectly involved by making sacrifices to help strengthen the business. 

We’re suggesting that you put protections into place that may help prevent a messy, or contentious situation between you and your ex.  It is important to be clear in the parties’ roles, in case there is any future breakdown of the relationship.

Read below to see how you can protect your business during a divorce. 

Form a Corporation

There are multiple steps included in registering a corporation such as:

  1. Incorporate your business (obtain your articles of incorporation) through federal incorporation or provincial/territorial incorporation.
  2. Get a federal business number and Corporation income tax account from the Canada Revenue Agency.
  3. Register as an extra-provincial or extra-territorial corporation in all other Canadian jurisdictions where you plan to do business.
  4. Apply for any permits and licenses your business may need.

Checking with a lawyer to get this completed is your easiest and most convenient way of incorporating your business.  In this registration you would set out who the founding directors are and who the shareholders are.

Create a Prenuptial Agreement or Marriage Contract

With the prenuptial agreement, the business owner can exclude the company through a provision in the document.

It is important to note that within the prenup contract, you should be adding a term stating that the business is a separate entity and should remain separate from the marriage unless the designated owner chooses otherwise. 

The specific provision may require certain modifications based on the province and the type of marital property laws of your location, so it’s best to check with your local legal representatives to ensure that your contract follows local laws. 

Buy Out Your Spouse (If applicable)

If you are unable to protect your business and your spouse is now entitled to an interest in the company, you could potentially buy out your spouse.  Much like when one party wants to keep the matrimonial home, where one party is keeping a business, regardless of the other party’s involvement in that business, a buy-out may be required as a part of any separation.

Depending on the value of your property this may be the best solution for you.  Another option is a wait-and-see scenario, where the parties agree that the proceeds of sale of the business will be split upon a sale.  Typically, this is agreed to with specific terms surrounding timing, etcetera.

Determine What Assets Are Most Important 

If you need to retain 100% ownership of your business, you may have to sacrifice other marital assets to do this. 

Most provinces try to equitably split assets from within a marriage, including your business, so it is important to prioritize what is most important for you to hold onto and how best to shift the assets to accommodate.

Get the Value of the Business Defined: Conduct a Business Valuation

If how much your business is worth is a point of contention in your divorce, you will likely want to move forward with having a business valuation conducted.

This can be an expensive aspect of a divorce; however, it does depend on how extensive the operation of the business is. 

Conclusion

Need assistance with your divorce or have questions about your business’ security? 

Feel free to call our office today to book a free 30-minute consultation and let’s chat about how we can protect your business during a divorce today.

This blog is made available by the law firm publisher, Epstein & Associates, for educational purposes. It provides general information and a general understanding of the law but does not provide specific legal advice. Any specific questions about your legal concerns please contact us now and speak to an expert today.