In many divorces, one spouse owns and runs a business. Alberta divorce law recognizes this kind of business as “family property”. This means that, in most of these cases, a business is an asset that must be valued and divided between the spouses as part of the divorce process. This point raises an obvious question: How is the business divided between the spouses?
The percentage each spouse receives depends on the roles each spouse played during the marriage. For example, if mom stayed home and raised the children, and allowed dad to build and run the business, the result would likely be a 50/50 split. Practically, this makes sense because at least half of the company’s success was based upon mom’s domestic contributions.
However, there are other circumstances where the division might not be equal. Let’s say the wife (Mrs. Darnold) owned a successful dental clinic. Her husband, Mr. Darnold, also earned a significant income working full-time, outside the home. The couple had 3 children, and most of the child-care was performed by a live-in Nanny.
In this situation, it is very possible that Mr. Darnold would not be entitled to a 50% share of his wife’s dental clinic. This is because Mr. Darnold did not make any contributions to the success of his wife’s business. It would be unfair for Mr. Darnold to get half of something he had nothing to do with.
Unequal division of a family business also occurs in the following situation: where one spouse owned the business before the relationship began. In these circumstances, the financial worth of the company is broken down into two different time frames: 1) the business value before the marriage, and 2) the business value after the marriage.
The non-business-owning spouse is only entitled to a portion of the after-marriage value of the business. The logic here is that, since the spouse had nothing to do with the business before the marriage, they should not get any share of the pre-marriage value. Conversely, the value of the business post-marriage is a family asset. Here, the spouse likely contributed in some way to the business after the marriage, and thus, they would be entitled to a portion of the business as part of the divorce.
It is important to note that dividing a business between spouses does not always mean the business ends. The company may carry on doing business after the divorce. However, in most cases, part of its value must be paid out to the non-business-owning spouse as part of the divorce process.
