Business Owners and Separation
How can a separation impact your business?
As a business owner, there are several important things to consider as you go through your separation.
Your business will be involved in the equalization process.
You may be wondering: why is my business relevant to the equalization process? Equalization views marriage as a partnership, acknowledging that each spouse contributes to the marriage in different but equally important ways. Equalization divides the assets and debts accumulated by the parties during a marriage.
Your business, like a home or a pension, is an asset. Like other assets, the business will need to be valued.
Depending on the status of your business, and whether you acquired the business before or during the marriage, you may be required to share the business value with your former spouse if it is in operation when you separate. Here are some scenarios that can occur:
If you owned the business at the date of marriage, the business value at the date of marriage will be deducted from your net family property.
If your business is still in operation by the date of separation or divorce, you will be required to share the increase in value since the date of marriage with your former spouse.
If your business was obtained during the marriage, then the business value will be divided between you and your former spouse.
Depending on the other assets and debts accumulated during the marriage, you may have to make an equalization payment to your spouse. This payment can make it seem as if you are “buying out” your spouse, even though they do not have an ownership interest in the business.
You may have to pay support based on your income from the business.
Child support and spousal support are both calculated based on your annual income. The starting point for this calculation is your Line 150 income. If you are required to pay child support or spousal support, the calculation does not take into account the fact that your spouse already shared in the value of the business. Your spouse's right to share in the accumulated value of your business is separate from your obligation to support them and/or your children.
You may have income imputed to you.
As a business owner, courts may look beyond your tax return to determine your income for equalization calculations. Business owners and/or those who are self-employed are entitled to make various deductions for income tax purposes. Therefore, your reported net business income may not be representative of your “actual” income. Similarly, a judge may find that your tax return does not adequately reflect cash sales or additional write-offs. For any of these reasons, a judge may impute income to you.
Learn more about imputed income: Intentional under- or unemployment and Self-employed payors
Are you a business owner thinking about getting married?
In case of separation, a marriage contract (otherwise known as a prenuptial agreement) can help protect your business. If you have partnership agreement, you may even be required to have a prenuptial agreement. A family lawyer and business lawyer can help you make the best decision for your business.