Business Owned by a Spouse: How Equalization Works in Ontario

If you or your spouse owns a private company, a professional practice or a share of a family business, separation raises an obvious question: does the other spouse get half of it? The answer is more nuanced than that, because equalization works on values, not on ownership of particular assets.

This article explains how a business fits into the equalization calculation in Ontario, what protections exist for businesses that need to keep operating, and what you will need to disclose.

How a business is counted

Equalization compares each spouse's net family property. When a divorce is granted, a marriage is declared a nullity, or spouses separate with no reasonable prospect of resuming cohabitation, the spouse with the lower net family property is entitled to one-half of the difference between the two.

"Property" is defined broadly as any present or future, vested or contingent interest in real or personal property. That includes shares in a business or company, which are counted at their value. Net family property is the value of all property a spouse owns on the valuation date, except excluded property, less debts and liabilities and less certain pre-marriage property. If a spouse's net family property comes to less than zero, it is deemed to be zero.

So the spouse who does not own the business does not usually become a co-owner. The business is given a value, and that value feeds into the calculation.

Valuation date and proof

The valuation date is the earliest of five dates: separation with no reasonable prospect of resuming cohabitation; the date a divorce is granted; the date the marriage is declared a nullity; the date a spouse starts a successful improvident-depletion application; or the day before a spouse dies.

The Act does not set a formula for valuing a private business. Valuation usually involves professional evidence from a business valuator, and the two sides may disagree about the method and the result. If a spouse claims a deduction or exclusion, that spouse has the onus of proving it.

• Business value on the valuation date feeds into net family property.
• Debts of the spouse, including business-related debts that are the spouse's own liabilities, are deducted.
• A spouse claiming a deduction or exclusion must prove it.

Protection for an operating business

A property order must not require or cause the sale of an operating business or farm, or seriously impair its operation, unless there is no reasonable alternative. The court may instead order a share of profits or, for an incorporated business, a transfer of shares.

Where the equalization payment is owed, the court may order one spouse to pay the other and may order security for the payment. To avoid hardship, it may allow payment in instalments or delayed payment for up to ten years. If the paying spouse's circumstances change materially, the court may vary the instalment or delayed-payment terms, but it cannot change the amount owed or postpone payment beyond the ten-year period.

In rare cases, the court may award more or less than half the difference, but only if equalizing would be unconscionable.

Disclosure and getting information

In an equalization application, each party must serve and file a sworn statement of property, debts and other liabilities. It must cover the date of marriage, the valuation date and the date of the statement. A party making a property claim must serve and file a financial statement, which is Form 13.1 for property claims.

Within 30 days after the financial statement is due, a party to a Part I property claim must serve supporting documents, including statements for accounts and investments issued closest to the valuation date. Before a settlement conference or trial, each party must also serve and file a net family property statement, Form 13B.

If a party has not served a required disclosure document, the court may order them to do so and must also order them to pay costs. The court may order a non-party to produce a document, and may order a party or non-party to be questioned under oath. A party who finds that a served document is incorrect must promptly serve the corrected information.

What to do next

• Collect corporate records, financial statements, tax returns and shareholder documents for the business.
• Note the valuation date that applies to your situation.
• Gather personal account and investment statements closest to that date.
• Consider whether a professional business valuation is needed.
• Speak with a family lawyer and an accountant before agreeing to any value or payment plan.

Frequently asked questions