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Lorne MacLean, MacLean Family Law

Valuing The Family Business On Separation is required when separating spouses have a family business, partnership interest, or professional practice. Dividing family businesses has a significant emotional component because spouses have often built them up during their relationship. Adding to the stress is the fact that the business, partnership or practice is the engine that supports the spouses and their children financially.

In cases of highly profitable professional practices, partnerships and companies, spousal and child support will need to be paid from the income the business generates and this adds complexity. Hiring a senior family lawyer, such as Lorne N MacLean, QC and his team, who are experienced with valuing the family business on separation is key to a successful resolution of this obviously complex and important issue. High net worth divorce and separation issues involving international assets and companies are areas Lorne MacLean, KC focuses on.

Valuing The Family Business On Separation 1-877-602-9900

So, what happens to the family business on separation? There are really 3 options:

  • one spouse buys the other spouse out immediately or over time;
  • the business is listed for sale and the proceeds from the sale get divided;
  • both parties keep joint ownership of the business and hope they can run it without acrimony after they separate.

Who Is Hired When Valuing The Family Business On Separation?

In cases where one person wants to buy the other out, an estimation of value is needed. BC Supreme Court family rules require a joint valuator, as opposed to two dueling valuators, in an attempt to give the parties and the court a balanced valuation perspective. In rare cases, a second expert can be hired when one spouse is disappointed in the valuation opinion. In BC, the expert will usually be a Certified Business Appraiser (CBA)  but sometimes a special broker, for example one who sells dentist’s practices, may be hired. 

Your high net worth divorce and family lawyer must be skilled in giving proper assumptions to the valuator to ensure a proper result. Most often, an expert will dig into the history, finances, assets, liabilities, and other aspects of the business to determine a value. These experts will use one of the valuation approaches listed below in arriving at a number they feel is a fair estimate of a person’s interest in a particular business. Sometimes selling a business is the only way to determine its real value and non-competition clauses may also be required if one spouse buys the other out.

Valuing The Family Business On Separation – Opposing Goals

Common sense dictates that the buying spouse will want a realistically low valuation for the business and will seek discounts for income tax and notional sales costs if it were sold and the selling spouse conversely, will want a realistically high value without any discounts for income tax and sales costs. Ensure your lawyer can marshal evidence and  put questions to the expert joint valuator so valuation factors in your favour get the focus they deserve.

Valuing The Family Business On Separation – Hire A Lawyer Who Knows The Area

Our savvy high net worth separation and divorce lawyers understand that sometimes companies have special accounts and assets that can reduce the tax burden and are skilled in employing stategies to share disputed taxes equally between the parties. Talk to us about capital dividend accounts and shareholder loans which can save thousands and in some of our past cases millions of dollars in taxes when dividing a family business.

Valuing The Family Business On Separation – Three Valuation Approaches

There are three approaches to how you can go about valuing the family business on separation:

  1. The asset approach, the asset approach calculates a value using a fairly simple formula: assets minus liabilities equals the value value. Assets include both tangible and intangible assets. Tangible assets include the real estate, infrastructure, inventory, and anything else related to the business that you can actually touch. Intangible assets are patents, accounts receivables, goodwill and other assets that are not actually physical objects. This approach works better for small family run businesses and if real estate is owned a real estate appraiser needs to do the valuation before the business valautor determines the company’s value. 
  2. The market approach,The market approach calculates the value of a business by comparing it to similar businesses that have been sold. This approach is similar to how real estate appraisers will look at similar recent sales of similar homes in a neighborhood when determining the value of the house being appraised. Finding a similar business that has recently been sold is often difficult and competing businesses often won’t share their financial results for obvious reasons. Looking at Statistics Canada profits by business sector can be used as a rough guide. In a precedent setting case MacLean won on a stock broker’s book of business, recent sales and rules of thumb were applied by the valautor to come to a value.
  3. The income approach. The income approach uses historical information and particular formulas to predict expected cash flow and profits in calculating the value of the business. The formulas used consider future benefits as well as the rate of risk or return. This is the most common approached used to determine a value of a successful business. Redundant asset corrections, review of non arm’s length salaries, correction for fair market salaries of senior management, assessing clients, contracts, risks faced by the company and the strengths of the business are all part of this approach. Making sure hidden cash income and other benefits or schemes are rooted out is also key to a fair valuation. Forensic audits may also be employed if there is reason to doubt the financial books.

Hire Our Top Rated Lawyers When Valuing The Family Business On Separation 1-877-602-9900

Valuing the family business on separation leaves zero margin for error. Call Lorne N MacLean, QC or any one of our senior family lawyers today at any of our offices across BC and downtown Calgary.