Avoid a head-on collision between marriage and business

Mann Lawyers advises business owners to have a contract with their spouse
Mann Lawyers

For lawyer Kathleen Wright, it just makes good business sense to have in place a marriage contract (if married) or a cohabitation agreement (if in a common-law relationship).

“It’s admittedly not a nice topic to talk about – you’re just getting married and already talking divorce,” Wright said. “But if you look at it from a business perspective and the simple fact that about 40 per cent of marriages do end in separation or divorce, it only makes sense to take steps to protect that business.”

Why?

In Ontario if a couple splits, married spouses are entitled to apply for an equalization of net family property (or NFP). This allows for the growth of the spouses’ net worth accumulated from the date of marriage to the date of separation to be equalized. Unless otherwise specified through a binding legal agreement, such as a marriage contract, that can include interests and ownership stakes in a business.

Even couples who are not married can be subject to claims against their business interests at separation, added lawyer Caspar van Baal.

“Even in common-law relationships, claims can be made against the other partner’s property,” he said. “There is a perception that not getting married offers protection to the business, but there is case law that proves this won’t necessarily be the case.”

Wright and van Baal are both part of Mann Lawyers’ family law team.

What are the consequences to a business owner of not excluding their business interests from an equalization claim? They may be forced to sell their stake in the business – to the detriment of the business and any co-owners. Their lifestyle may have to drastically change. There may also be serious repercussions for retirement plans and savings.

“I’ve seen one case where someone had to sell off the family business and that business basically just disappeared,” Wright said.

The key is to be proactive and define an agreement that is fair and equitable for both spouses. For example, say one spouse is a civil servant and the other a business owner, they can agree the business owner will make no claim against the civil servant’s pension benefits and the civil servant will make no claim against the business interest.

“Too often, clients come to us when they should have come much sooner,” van Baal said. “Now their business is at risk and negative emotions are running high. Be proactive, see a lawyer, and make appropriate plans when times are good.”

Caspar van Baal, Kathleen Wright and Olivia Koneval make up the Family Law Team at Mann Lawyers. Mann Lawyers serves clients across Ontario with a team of 25 lawyers and 29 support staff. It also has lawyers who are licensed to practice in Quebec. To learn more, please visit www.mannlawyers.com.