Services · Family-Law Business Valuation
Business valuation for separation and divorce in Ontario
When a spouse owns all or part of a private company, the family-law file usually needs two numbers: what the shares are worth, and how much income the business really provides. Amir Rosenthal, CPA, CA, LPA, CBV, CFF, prepares that work from midtown Toronto.
Why the business needs a value
In Ontario, Part I of the Family Law Act sets out how married spouses divide the growth in their wealth during the marriage. Each spouse calculates their net family property: roughly, what they own on the valuation date, minus their debts, minus what they brought into the marriage. The spouse with the higher net family property generally pays the other an equalization payment of half the difference (section 5(1)).
Shares of a private company are property. There is no stock-market price for them, so someone has to estimate what they were worth on the valuation date and, if the spouse owned them before the marriage, on the date of marriage too. That is the work of a Chartered Business Valuator.
The dates that matter
The valuation date is defined in section 4(1) of the Act. It is the earliest of: the date the spouses separate with no reasonable prospect of resuming cohabitation, the date a divorce is granted, the date the marriage is declared a nullity, the date a successful improvident-depletion application is started, or the day before one spouse dies. In most cases it is the separation date. If the date is disputed, that is for the spouses, their lawyers, or the court to settle; the valuator can show how the value changes if a different date is used.
How a family-law business valuation usually runs
- InstructionsFrom counsel or both spouses: the dates, the shares to value, and who will rely on the report.
- RecordsFinancial statements, tax returns, shareholder agreements, and management information.
- AnalysisNormalize earnings, review owner and related-party items, and assess risk.
- ValueFair market value at the valuation date, and at the date of marriage if needed.
- ReportA written report counsel and the court can follow, plus income analysis for support if asked.
What gets counted, and what does not
- Contingent tax. The Act says the debts and liabilities deducted include applicable contingent tax liabilities (section 4(1.1)). For shares, that is often the tax that would arise on a sale.
- Excluded property. Some property is left out of net family property under section 4(2), such as property (other than a matrimonial home) received as a gift or inheritance from a third person after the marriage, and property that can be traced into it. The spouse claiming an exclusion has to prove it (section 4(3)).
- Personal versus business assets. Cash, investments, or real estate held inside the company affect the value of the shares and need to be identified.
Income for child and spousal support
A business owner’s personal tax return does not always show the money really available to them.
Section 18 of the Federal Child Support Guidelines lets the court add some or all of a corporation’s pre-tax income to a shareholder’s income where that is fair, and section 19 lets it impute income in other situations. Ontario’s Child Support Guidelines contain matching rules for cases outside the Divorce Act. Spousal support calculations usually start from the same income figure. A CPA who is also a CBV and holds the CFF (forensic accounting) designation can review the company’s records, adjust for personal expenses run through the business, and explain what income is realistically available.
Independence
The report may be prepared for one spouse or for both jointly. In either case the valuation has to be independent and objective, because its value to the court depends on it. Where Amir already acts as accountant to the company or either spouse, conflicts are considered before any engagement.
This page is general information about Ontario rules, not legal advice. Family law outcomes depend on the facts; speak to a family lawyer about your situation. Married and common-law couples are treated differently under Part I of the Family Law Act.
Related pages: business valuation, shareholder disputes, expert reports, and estate freeze valuation.
Family-law valuation questions
Why does a business need to be valued when spouses separate?
Under Part I of Ontario’s Family Law Act, each married spouse works out their net family property, and the spouse with the higher figure generally pays the other half the difference. Shares in a private company count as property, so they need a value at the valuation date. There is no market price for private shares, so a valuator estimates one.
What is the valuation date?
Section 4(1) of the Family Law Act sets it as the earliest of: the date the spouses separate with no reasonable prospect of living together again, the date a divorce is granted, the date the marriage is declared a nullity, the date a successful application for improvident depletion is started, or the day before one spouse dies. In most separations it is the separation date. The parties or the court decide the date; the valuator values the business as of that date.
Does the business also need a value at the date of marriage?
Often, yes. Net family property deducts the value of property (other than a matrimonial home) that the spouse owned on the date of marriage. If the spouse owned the shares before marrying, a second value at the marriage date may be needed.
Is tax taken into account?
Section 4(1.1) of the Family Law Act says the debts and liabilities deducted in calculating net family property include applicable contingent tax liabilities. In practice, the tax that would be payable on a sale or deemed sale of the shares is often considered. How it applies depends on the facts and is a question for the lawyers and the court.
Can the business be relevant to support as well as property?
Yes. Section 18 of the Federal Child Support Guidelines lets a court include some or all of a corporation’s pre-tax income in a shareholder’s income where the spouse’s personal tax return does not fairly reflect the money available for support. Ontario’s Child Support Guidelines contain the same rule for cases outside the Divorce Act. Spousal support calculations usually start from the same income figure.
Do these property rules apply to common-law couples?
The equalization of net family property in Part I of the Family Law Act applies to married spouses. Common-law partners can still have property claims, but they work differently. A family lawyer can explain which rules apply to you.
Can one valuator be hired by both spouses?
Yes. Some couples, usually through their lawyers, jointly retain one valuator to save cost and time. Others each retain their own. Either way, the valuator’s job is to give an independent opinion, not to argue for one side.
Complimentary discussion
If you or your lawyer already know the valuation date and the shares involved, mention them when you call or write.