Who Owns the Business? How to Handle Asset Division in Divorce

Divorcing a business owner comes with challenges beyond dividing homes and bank accounts. A business adds complexity - raising concerns about valuation, hidden assets, and fair compensation. If your spouse owns a company, knowing your rights is crucial.

Key Takeaways

• Marital or Separate Property? Businesses started during marriage are typically subject to division.
• Valuation Matters. Courts use different methods to determine a business’s worth.
• Hidden Assets Are Common. Some owners try to minimize their company’s value during divorce.
• You May Be Entitled to Compensation. Even if you don’t own the business, you could receive an equalization payment.
• Debt Also Counts. Business liabilities may be factored into property division.

Is the Business Marital Property?

One of the first questions in divorce is whether the business is part of marital assets. In Ontario, the Family Law Act requires equalization of net family property, which may include the business.

• Started During Marriage: Typically considered marital property and subject to division.
• Owned Before Marriage: Only the increased value during marriage may be divided.
• Prenuptial Agreement: If a marriage contract excludes the business, division rules may change.

How Is a Business Valued in Divorce?

Unlike dividing a house or savings, businesses are harder to split. Business owners may try to undervalue their company, while the other spouse argues it’s worth more. Courts rely on valuation experts to determine a fair market value.

Business Valuation Methods:

• Asset-Based Approach: Calculates value based on assets and liabilities.
• Income Approach: Focuses on cash flow and projected earnings.
• Market Approach: Compares the business to similar sales.

Hiring a forensic accountant can help uncover the true value, especially if the owner attempts to manipulate numbers.

What If Your Spouse Hides Business Assets?

It’s not uncommon for business owners to conceal income or undervalue their company. Watch for these red flags:

• Personal expenses paid through the business to lower reported income.
• Delaying contracts or payments until after the divorce.
• Hiding cash transactions or shifting funds offshore.
• Overstating liabilities to reduce net worth.

If you suspect hidden assets, you may need court orders for full financial disclosure or forensic analysis.

Can You Claim a Share of the Business?

Businesses aren’t usually split in half. Instead, the value is included in total marital assets, with an equalization payment balancing the division. However, your claim may be stronger if:

• You worked in the business or provided financial support.
• The business was a major marital asset requiring buyout arrangements.

Options for Business Division:

• One spouse retains ownership of the business while providing financial compensation or assets to the other.
• Selling the business and splitting proceeds (less common).
• Profit-sharing agreements (rare but possible in amicable cases).

What Happens to Business Debt?

Just like assets, business debts incurred during marriage can be included in property division. However, if the owner personally guaranteed a loan, they may bear full responsibility.

Protecting Yourself in a Business-Related Divorce

If your spouse owns a business, don’t assume fairness. Safeguard your interests by:

• Demanding full financial disclosure. Request all business records.
• Hiring your own financial expert. Don’t rely on your spouse’s valuation.
• Understanding your legal rights. Ontario law protects non-owner spouses.
• Negotiating strategically. Mediation can prevent costly court battles.

Secure Your Fair Share in Divorce

Divorcing a business owner can be complex, but with legal and financial guidance, you can protect your interests. Don’t let hidden assets or undervaluation leave you with less than you deserve - demand transparency and fight for your financial future.