Redress Risk Management (post until May 31/19)

Divorcing with business assets — what to expect

The end of a marriage is a time of tension and uncertainty that can become even more heated when one of the parties has their own company, making the services of a business valuator necessary, says Toronto family lawyer Erin Chaiton-Murray.

“It’s often the case that the value can’t be determined simply by the parties and lawyers because it is more complex,” says Chaiton-Murray, a senior associate with Fogelman Law.

“So we would have a business valuator calculate the value of the business that should be included in the equalization. We need them to provide us with the numbers and the evidence that we can use to calculate entitlements and deal with property issues.”

In a separation or divorce, the party who owns the asset has the onus of establishing its value, and the general practice is to retain a professional to carry out the valuation, she tells, noting that “the practice of determining what a company is worth is complex and layered, and involves various considerations.”

It’s because of that complexity that the valuator’s report may not be the final word on the worth of the business, Chaiton-Murray says.

Once the report is produced by the person who owns the asset, “The other party may consider retaining their own expert to review the valuation and potentially produce a critique report or a second opinion. That report would set out the other expert’s opinion on what may be wrong with the original valuation, or where there are areas for discussion. Then these two reports will become part of the evidence in the case,” she explains.

If the case is in litigation, ultimately, at trial, the court would decide which expert opinion it prefers based on the documents and the valuators’ testimony, Chaiton-Murray says.

But if the matter is not being litigated, she adds, the reports would become important information for settlement discussions.

“It may be that the experts agree or come close to agreeing on the value, and that makes it much easier. But there also could be a significant difference in opinion on some aspects of the valuation or all of it,” she says. Sometimes she will suggest that a meeting or mediation take place with the experts in attendance to discuss the differences between their two values and whether a “compromise position” can be reached.

“Is there room for agreement on some middle ground that would avoid further fights about the value and seems fair to everyone? If so, let’s use that number and move on. But sometimes that’s not possible,” Chaiton-Murray says.

When acting for the party with the corporate asset, she says, a lawyer should tell the client “they need to be very co-operative and efficient in responding and providing the valuator access to whatever information is required. The sooner they can get the information they need, the sooner they can do their calculations and complete their work.”

A valuator often needs access to other professionals who work with the company, such as an accountant or someone else in the business who manages financial documents and handles year-end statements, she says.

“I tell parties it is helpful if those individuals are available and can provide the information quickly,” Chaiton-Murray says.

The lawyer representing the other party will review the valuator’s completed report and, “It’s likely that we will want to have our own expert take a look at the document and give us some feedback on it,” she says.

“I’ll explain to the party that even though it’s not their asset, it may be necessary for them to incur some costs in having a second expert look at the original report in order to feel confident about the number that’s being used and the value to be included in the property or support calculations.”


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