MacLean Law’s UHNW FAMILY AND DIVORCE BUSINESS VALUATIONS lawyers handle cases involving multimillion and even billion-dollar family businesses and ventures. We have set the highest wins for spousal support, child support, lump sum support, costs, fines and restraining orders and set records for multimillion dollar property division settlements even in very short disputed relationships.
Top UHNW FAMILY AND DIVORCE BUSINESS VALUATIONS lawyers and wealthy family law clients need to:
- understand the requirements under the BC Family Law Act to obtain and retain the Chartered Business Valuator (“CBV”) designation from the CBV Institute
- recognize the different types of valuation reports that can be prepared by CBVs and the reliance that can be placed on each
- recognize the reasons for performing a business valuation
- better understand how a company’s financial statements are used when preparing a business valuation
- comprehend the basic valuation approaches
- correct for inappropriate deductions, delayed profits to ensure proper EBITDA calculation occurs
BEST UHNW FAMILY AND DIVORCE BUSINESS VALUATIONS Tel: 604 602 9000
Under the British Columbia Family Law Act, the standard approach to business valuation for family law purposes is to determine the fair market value of the shares in the company as of the date of trial or agreement, unless a different date is justified by significant fairness considerations. Click here to learn general concepts of what are approaches used in a business valuation?
CBV = Certified Business Valuator Tel: 604 602 9000
In BC family law property division cases, the valuation is typically performed by a qualified business valuator, who may be jointly appointed or court-ordered, and the process must comply with the Supreme Court Family Rules. In today’s blog Fraser MacLean sets out some general principles for wealthy family business owners and their spouses to be aware of.
Under the BC Supreme Court Family Rules (SCFR), specifically Rule 13, family property valuations must generally use a single, jointly appointed expert. This joint expert has a duty to assist the court, not to advocate for either party. Before appointing an expert, parties must agree on key details like the expert’s identity, the issues to be addressed, any assumptions, the questions for the expert, the report’s timeline, and fee responsibility. UHNW FAMILY AND DIVORCE BUSINESS VALUATIONS involving multimillions of dollars need tax planning and distributive tax consequence calculations.
DANGER ALERT NOT ALL ASSETS ARE CREATED EQUALLY ON SEPARATION Tel: 604 602 9000
Many parties and non specialist lawyers may be unaware of:
- Distributive Taxes The case determined that potential (or “latent”) tax liabilities should be deducted from the value of a corporation or other asset when dividing family property, even if the asset is not immediately sold.
- Fairness in Asset Division BC Appeal Court’s have emphasized that assets should be put on the same level for fairness and equality of treatment between spouses.
- Evidence Requirement A deduction for distributive tax requires clear expert evidence of the exact amount of tax that would be payable.
- Timing of the valuation can be critical particularly in cyclical business environments and good lawyers can help you pick a favourable date
Valuation Methodology: Shares vs. Underlying Assets Tel: 604 602 9000
The default position is to value the shares of the company, not the underlying assets directly. The rationale is that the spouse’s interest is in the shares themselves, which represent a bundle of rights—including the right to the net value of the company after accounting for liabilities, taxes, and other contingencies—not in the company’s assets per se. The expert valuator will typically use one or more recognized valuation approaches (asset-based, income-based, or market-based) to determine the fair market value of the shares, taking into account the company’s assets, liabilities, earnings, and market conditions.
However, in some circumstances, the court or the parties may direct the expert to value the underlying assets of the company rather than just the shares. This may occur if:
- The company is essentially a holding company for assets (e.g., real estate or investments), and the share value is closely tied to the underlying asset values.
- There are concerns about the accuracy or transparency of the company’s financial statements.
- The structure of the company or the nature of the business makes an asset-based approach more appropriate (for example, where the business is not a going concern or is being wound up).
- the asset is special and distinct from the share ownership or there is a constructive or resulting trust claim against the underlying assets
Key Considerations in BC Family Law Practice
- The expert’s instructions should specify whether the valuation is of the shares or the underlying assets, and any assumptions to be made.
- The court retains discretion to determine the appropriate valuation method and date to achieve substantial fairness, especially in complex or unique cases.
- The valuation must consider all relevant factors, including latent taxes, disposition costs, and any discounts or contingencies that would affect the realizable value of the shares or asset
- In most cases under the BC Family Law Act, expert valuators are instructed to value the shares of the company, reflecting their fair market value as of the relevant date, rather than valuing the underlying assets directly. Valuing the underlying assets may be appropriate in specific circumstances, but this is the exception rather than the rule, and should be clearly set out in the expert’s instructions or by court order.
VANCOUVER UHNW FAMILY AND DIVORCE BUSINESS VALUATIONS Tel: 604 602 9000
Challenges in Business Valuation for Divorce
Valuing a business in the context of divorce brings unique challenges, including:
- Goodwill Disputes: Goodwill refers to the intangible value of a business. In Virginia, courts distinguish between enterprise goodwill (attached to the business) and personal goodwill (attached to the individual). Only enterprise goodwill is subject to division.
- Income Manipulation: A business owner may underreport income, get paid in cash, delay billing, run personal expenses through the business improperly, or inflate expenses to lower the business’s valuation or reduce support obligations.
- Ownership Complications: If the business has other partners or shareholders, their rights and interests must also be considered.
- Co-mingling of Assets: Using marital funds to grow a separate business may convert some or all the business into marital property.
- Timing Issues: A business’s value can fluctuate significantly between separation and trial, and courts may face disputes over the appropriate date of valuation.
- minority discounts when third parties and other family members are co-owners
- Capital gains and distributive tax discounts
The area of business valuation, dates of valuation to be used and unequal division based on significant unfairness need a deft touch. Hire top Canadian UHNW family lawyers at MacLean law to help sort things out fairly and accurately.
