BC Business
On March 18, the Family Relations Act, the provincial law that has governed the division of assets between married spouses for the last thirty years, will be replaced by the Family Law Act. The changes are significant, and the most dramatic concern property and debt. Business owners may wonder what the implications are for them.
Under the old law, married spouses were presumed to be entitled to an equal interest in all assets owned by either or both of them. People living in unmarried relationships, even very long relationships, were only presumed to share in the assets registered in their joint names. Claims to assets owned only by one person were addressed by equitable principles that rarely yielded an entitlement anywhere close to the equal interest the couple would have if they had been married.
This left business owners with a pretty clear choice. If you didn’t want to share the value of your company, you didn’t get married and if your partner contributed to the company in some way, you compensated your partner for services rendered.
The new law will change everything.
Firstly, married spouses and unmarried spouses—people who have lived together in a romantic relationship for at least two years—will have exactly the same property rights. Because of the way the law is worded, “spouse” includes people who are in relationships now as well as people who separated at any time after March 18, 2011.
Secondly, spouses are presumed to keep for themselves the property they each brought into the relationship, plus certain kinds of property, like inheritances, court awards and insurance proceeds, received during the relationship. This is each spouse’s “excluded property.” What spouses share is “family property,” the property acquired by either or both of them during the relationship, including interests in corporations, businesses, partnerships, associations and ventures, plus the increase in value of excluded property.
This is a very different model of property division. Entitlement now rests on the date property was acquired and how the purchase was funded, rather than how the couple used the property.
Here’s how it breaks down for business owners who are married spouses or unmarried spouses.
If you owned your business before you and your spouse began to live together, the business is presumed to be your excluded property. It’s yours. What you have to share as family property is the increase in value of your business between the date you and your spouse began to live together and the date of your separation.
If you started your business after you and your spouse began to live together, your spouse is presumed to have a half interest in your business, although you can make some adjustments to reflect contributions made to your business from your excluded property.
However, even if you started your business after you started your relationship, your life partner does not become your business partner. Your spouse is entitled to an interest in half of the value of your business, not a half interest in the ownership of your business. Likewise, your spouse does not become liable for one half of your business’s debts; the debts of your business are reflected in the value of the interest you must share.
If the division of property under the Family Law Act is not to your liking, relief is available. Spouses may make property agreements before, during or after their relationship to circumvent the division of property under the new act. The new law is far more respectful of spouses’ agreements than the Family Relations Act, however it is essential that each spouse make full disclosure of their assets and liabilities, that the bargaining process is fair and that each spouse have independent legal advice before the agreement is signed.
John-Paul Boyd is a family law litigator, mediator and arbitrator with the Vancouver firm Aaron Gordon Daykin Nordlinger LLP.