Many BC Family Law and British Columbia divorce clients who have BC family assets and who are dividing BC family assets may be missing the boat on getting their fair share of BC family assets or other or BC business assets when an asset at the time of trial or division in a separation agreement has no current value but which BC family asset has the potential to increase in value in the future. Where a BC commercial property or BC business asset or BC patent asset currently has no value a good BC Family Law lawyer should ensure that you do not simply transfer your one half share in this BC family asset to the other spouse for no value. We recently settle the case by ensuring that our client obtained an in specie division meeting a division of the asset itself for example on a property rather than simply transferring your one half share to your other spouse for no money consider trying to stay in as a half owner so that you can participate in the gain in the future. Of course you have to consider seriously the upside and downside of staying in on a asset which currently has no value. You should also consider what contribution you may have to make in the future as a partner in this asset and you should also consider if it’s appropriate for ex-spouses to continue to work together after they are divorced or separate.
A recent example of an in specie division of an asset with potential upside was made in Smith v Smith 2008 BCCA 245. We provide the extract from the reasons below.
In Specie Transfer or Compensation Order?
[24] Ms. Smith’s second ground of appeal is that the trial judge erred in ordering an in specie transfer of shares and shareholder loans of Dr. H.G. Smith Inc. instead of making a compensation order in her favour for the value of her interest in those assets. It will be recalled that at para. 28 of her reasons, the trial judge suggested that the manner of distribution of the shares and shareholder loans may attract certain tax consequences‚Äù. She therefore ordered that 30% of the assets simply be transferred to Ms. Smith. On appeal, however, Mr. Marzban contends that there was no basis for this conclusion. I note that Mr. McMann gave evidence as to possible distributive taxes‚Äù that would be payable if and when CML made a distribution of its value, but we were not referred to any corresponding evidence regarding Dr. H.G. Smith Inc.
[25] There is of course case-law on the question of when future income tax liabilities should be taken into account when the court is being asked to determine the value of assets. (See especially Halpin v. Halpin (1996) 27 B.C.L.R. (3d) 305 (C.A.), at paras. 62-70 and the Ontario cases cited therein, and O’Bryan v. O’Bryan (1997) 43 B.C.L.R. (3d) 296 (C.A.), at paras. 52-4.) These cases make it clear that disposition or distribution costs (of which there must be some evidence) should normally be taken into account in determining value except where it is not clear when, if ever” there will be a disposition of the property. That is the case here, but the question being considered is whether a compensation order should have been made rather than an in specie distribution. In this context, other factors also come into play, as McLachlin L.J.S.C. (as she then was) explained in Tratch v. Tratch (1981) 30 B.C.L.R. 98 (S.C.). In her analysis:
Section 52 of the Act gives the court the power to make orders as to the ownership, right of possession or division of property. In my opinion, the goal of the court in a case such as this one should be to divide the family assets with as little disruption, including commercial disruption, as is compatible with securing to each party his rightful interest as determined under ss. 43 to 51. One way to achieve this goal may be to grant to the wife the entire interest in the matrimonial home, leaving specified personal assets including business assets to the husband: see Russell v. Russell (1979), 9 F.L.D. 194 (B.C.S.C.); Sinclair v. Sinclair (1979), 13 R.F.L. (2d) 352 (B.C.S.C.). Where it is necessary to give one spouse a share of the business assets controlled by the other in order to effect a just distribution, this may be done by outright transfer of one of several assets to the claimant spouse (Treacher v. Treacher or by giving her a mortgage interest in the business asset (Glover v. Glover, 27 February, 1980, Vancouver, 5936/D833008).
Minimization of commercial disruption is of considerable importance in this case. It was not disputed that the matrimonial home and the Mazatlan property can and should be sold. These pose no problems. Other assets, however, present considerable difficulty. These consist mainly of the business interests in the husband’s name in private corporations which the husband does not control. It might be difficult to find a ready sale for these interests at a fair value. There are obvious tax implications. Moreover, the husband is actively employed by at least one of these interests, the Edgewater Motor Hotel in Seattle. To order a sale might deprive him of this work. I therefore conclude that the major disruption incidental to a general order for sale and division of all family assets is to be avoided. [At 112-3; emphasis added.]
See also Blackett v. Blackett (1989) 40 B.C.L.R. (2d) 99 at 104-6, 22 R.F.L. (3d) 337 (C.A.); and Kowalewich v. Kowalewich (1998) 50 B.C.L.R. (3d) 12, 38 R.F.L. (4th) 282 (C.A.), at paras. 12-6.
[26] Mr. Marzban on behalf of Ms. Smith submitted that although the trial judge had a wide discretion, she should have given effect to the principle that where possible, the parties‚Äô financial affairs should be separated, and that it was preferable not to leave one ex-spouse as the minority shareholder of a company that is not only controlled by the other, but dependent on his personal services for its business. Further, no hardship would be visited on Dr. Smith if a compensation order were made, since he will be receiving half the value of the family home, or at least $1,000,000, when it is sold. This should be enough to allow him to satisfy any compensation order without difficulty. (Counsel have agreed that if a compensation order were made, it should be for $202,390, prior to allowing any amount for CML’s shares in Dr. H.G. Smith Inc.)
[27] In all the circumstances, I agree that a compensation order for $202,390 should have been made in respect of the wife’s 30% interest in the shares and shareholder loans. I would allow the appeal on this ground as well.
CML Shares
[28] Different considerations apply to the question of how Dr. Smith’s shares in CML should be re-apportioned and paid for. As has been seen, he had purchased the Cornwall property before he was married; Ms. Smith did not contribute to the property’s maintenance or to the acquisition of the shares in CML; and since CML effectively paid for what otherwise would have been a personal loan to pay for the couple’s new home in 1993-4, she benefited from that arrangement. It seems to me preferable that this court should apportion these shares rather than remit this matter to the trial court. Being of the view that an equal apportionment would be unfair in the circumstances I have described above, I would re-apportion the shares 90% in Dr. Smith’s favour. Further, given that the shares represent an appreciating asset that will provide a source of income in the parties‚Äô later years, and that there will be significant taxes payable on any sale or winding-up of the company, I would make an in specie order with respect to Ms. Smith’s 10% of these shares.
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