BC Family Property Valuations At Start and End Of Marriage Are Key
The new British Columbia Family Law Act emphasizes that the starting value and ending value of each spouse’s family professional practices and business are critical to determining what share of family property each party receives upon the end of a marriage or marriage like relationship.
It is critical that parties entering into a new marriage or marriage like relationship obtain accurate and objective professional proof of the value of these lucrative assets from a certified business valuator or a certified real estate appraiser. If you are entering into a marriage agreement, cohabitation agreement, or are seeking to settle your relationship breakdown case proper and substantiated values are needed to ensure that the agreements will be upheld, or that the court will have proper valuation evidence before it of the starting value and ending values of these various ventures. Our highly rated lawyers in Vancouver, Surrey, Kelowna and Fort St John who are led by Lorne MacLean, Q.C. are familiar with the complex valuation issues including taxes, pretax profit analysis, valuation method and ways to reduce tax when dividing these valuable assets.
Call us toll free at 1 877 602 9900 if you are entering or leaving a relationship.
Given that there is a lots of money at stake when these type of business ventures are taken into account our BC family law rules provide for the appointment of a joint expert on financial issues. These experts may include certified real estate appraisers when real estate values are at issue or a certified business valuator when a business, professional practice or proprietorship is at issue before the court for division. The starting point for valuing these assets is a joint appraisal where the appraiser takes instructions from both parties or their counsel and seeks to provide a fair evaluation of these assets. It is open to a party who is dissatisfied to cross examine the joint expert and even to seek a second opinion or critique report of the initial valuation.
As there are often contested trials or disputes involving wildly disparate evaluations from two different experts the question arises as to what the court should do in cases where there are dueling valuation opinions. The recent case of Macnutt sets out what the court is allowed to do in these cases of disputed valuation evidence:
191] At this point, it is appropriate to acknowledge several authorities which have wrestled with the difficult issue of corporate valuation, especially when experts called to assist the court have strikingly different views, not only on what is a fair market valuation, given everyone is gazing into the future, but also what is the appropriate methodology to calculate such valuations. In addition, given there is no evidence the business will actually be liquidated, Mr. Stewart is correct when he describes the whole valuation process as “fictional”.
[192] In Hungerford Tomyn Lawrenson and Nichols v. Wilson, 2011 BCSC 1440, Registrar Sainty confronted a similar difficulty as the one facing the court in this case. I will quote her helpful discussion at length:
[363] Although not binding on me, decisions of the Tax Court of Canada are highly persuasive when considering expert reports on company valuation due to that court’s particular expertise in dealing with such matters. In Zeller Estate v. Canada, 2008 TCC 426, Campbell T.C.J. explained that business valuation is not an exact science. She explained that while the expert reports may provide assistance in this determination ultimately the court must decide what value is to be placed on a business. She explains at paragraphs 38-40:
[38] The determination of FMV, although based on expert opinion, is a question of fact that the Court must ultimately decide. There is ample authority for the proposition that as the trier of fact I am not bound to accept the evidence of any expert witness or to accept one expert’s report over another. It is entirely open to me to accept neither report in its entirety but to accept the best from both reports and to draw my own conclusions. I must conduct an analysis of the evidence of each of the experts and their respective conclusions to assist me in coming to a determination of the value…
[39] … [I]t is important to remember that valuation is, by its very nature, not an exact science and experts may often have an inclination, although unintentional, to become advocates of the party that engages them to complete the report. Chief Justice Bowman in Western Securities Limited v. The Queen, 97 DTC 977, at page 979 stated:One further problem arises in valuation cases of this type. Typically both parties call expert witnesses. In many cases, these witnesses are not divided on any serious question of principle, although occasionally they may differ on the highest and best use of the property being appraised. The major difference usually lies in the choice of comparables used and the positive or negative adjustments to be made to particular comparables based on such factors as location, the timing of the sale, or other physical characteristics of the property. It frequently happens that the judge determines a value somewhere between the opposing positions of the experts, not because of any desire to reach a Solomonic compromise, but because of a recognition that the positions adopted by the experts represent the polarized extreme ends of value. There is a danger that experts, albeit in good faith, may become advocates and their positions may become adversarial. For this reason a disinterested arbiter must often conclude that it is unwise to adopt entirely the position of one or the other and that it is more likely that a fair – I hesitate to use words such as “right” or “correct” in the necessarily imprecise area of valuation – value is likely to be somewhere between the two extremes. [Emphasis in Zeller.]
[193] At para. 366, Registrar Sainty said:
[366] … I am not required to accept or reject any of the expert opinions in part or in whole. The opinions of the expert witnesses are intended to provide guidance to me, but due to the unexacting nature of valuation (it is an art and not a science), I should be cautious in accepting any one opinion as correct. It is more likely than not that the value will fall somewhere between the parties’ expert opinions.
[194] Registrar Sainty concluded:
[385] Thus, the expert’s evidence must meet the standard of “providing some guidance” to the court, and then it is the trier of fact who must apply their judgment to determine value. The focus here is on allowing the trier of fact to employ a flexible approach to this often very complex and difficult process of valuation, in following the idea that valuation such as this is “more of an art than a science”.
[195] The above discussion contains much that is helpful in the present case. The parties are at odds on numerous points, and their extreme positions appear to be reflected by similarly divergent expert opinions. Under these circumstances, the comments of Bowman A.C.J. in Western Securities v. The Queen, 97 DTC 977, at p. 979 are particularly pertinent: “… it is unwise to adopt entirely the position of one or the other … it is more likely that a [fair value] … is likely to be somewhere between the two extremes.”
[196] The Court of Appeal has also recently noted the difficulty in determining the important question of what is a fair valuation of a business, given the financial repercussions for each party: Shannon v. Shannon, 2011 BCCA 397.Request a consultation at any of our 4 offices across BC.
