To share or not to share
There was an excellent article by Jim Middlemiss on page FP5 in the Financial Post on Monday 2 November 2015 with the title “Partners' Pre-Nup”. Quoting several Ontario lawyers, the article warns about the possible fatal risk to a business if a business partner divorces since the asset interest in the business could become a family asset subject to division in the divorce. The article reminds us all of the critical need for a well drafted, written agreement, regardless of your business structure, as well as written agreements between spouses, can reduce if not prevent expensive disputes.
However, what the article does not make clear is that the article was focused on Ontario facts yet the British North America Act 1867 (“BNA”) gave each of our Provinces separate jurisdiction over Property Law and naturally each Province can create an entirely different law over property – and division of family property.
A result similar to the risk highlighted in the Financial Post article could have occurred in British Columbia under the old 1979 Family Relations Act (“FRA”) because family assets were not all defined and a spouse needed only a contribution, direct or indirect, to a business (eg provide hostess services for business clients) for that business to become a family asset under the FRA and thus subject to division – unless the property owner could otherwise convince the court that the business was not a family asset.
However, British Columbia proclaimed a completely new family law in March 2013 named appropriately the Family Law Act (“FLA”). This 2013 FLA explicitly defines family assets by listing two types of property – excluded and included – thus changing the burden of proof for some assets. For example, the FLA explicitly lists businesses as excluded property and thus not a family asset subject to division – unless of course the court is otherwise convinced. Another difference between the FRA and the FLA is that the burden of proof to prove the excluded business asset is a family asset now falls on the spouse who wants the business asset to be a family asset subject to division.
The consequence of the 2013 FLA is that in British Columbia the onus is now on the non-owing spouse to prove that the business is a family asset. This change to the burden of proof does not mean that businesses cannot still suffer great harm from the pain and expense suffered by a business owner going through a family separation. It is still a very good idea to meet at least once a year with an experienced lawyer, like you to do with your dentist, to review your circumstances and find preventive solutions. It is much cheaper, than litigation, to make a written agreement for each business and personal relationship, to reduce if not prevent considerable expense caused by a marital separation.
The author is Andrew Liggett, a senior lawyer with decades of experience.
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