A spouse's business in an Ontario separation

A business owned by one married spouse stays with that spouse. What gets shared is its value: the owner's interest is counted in their net family property on the valuation date, less what it was worth on the wedding day if they owned it then. The other spouse receives an equalization payment, and the court avoids orders that force an operating business to be sold.

How is a business dealt with in an Ontario separation, step by step?

Ontario's Family Law Act does not give the other spouse a share of the company itself. It treats an interest in a business like any other property: it is valued, entered into the owner's net family property, and the spouse with the higher total pays the other half the difference. Our property division page explains the wider framework. For a business, the work usually runs in this order:

Identify the interest. A sole proprietorship, a share of a partnership, or shares in a corporation, including a holding company. Form 13.1, the sworn financial statement used in property cases, has a Part 4(e) for business interests; corporate shares may go there or in Part 4(c).
Value it on the valuation date. The form asks for your best estimate of the market value of your interest, not what you paid for it or the figure on the balance sheet. The date itself is explained in our page on the valuation date, and values are taken at close of business on that day (s. 4(4)).
Value it on the wedding day. If the owner had the business before marrying, its net value on the date of the marriage is deducted, so only the growth during the marriage is shared. Our guide to calculating net family property shows the full formula.
Check for exclusions. Shares received as a gift or inheritance from a third person after the marriage, or a business left out by a marriage contract, may be excluded under section 4(2).
Produce the business records. Rule 13(3.3) of the Family Law Rules lists three years of business records that must be served within 30 days after the financial statement is due.
Get a valuation. For anything other than a very small business, the figure usually comes from a business valuator who writes an expert report. Each side may retain its own, or the spouses may agree on one.
Decide how the payment is made. The court can order a lump sum, instalments, security or, if needed, a transfer of shares (ss. 9 and 11).

What records does the owner have to produce?

Business owners carry the heaviest disclosure load in a property case. Rule 13(3.3) sets out what must be served, depending on how the business is held. Our guide to financial disclosure in a property case covers the rest of the list and what happens if it is not met.

How the business is held	Documents required for the three years before the valuation date	Rule
Sole proprietor or self-employed, including a professional practice	Financial statements of the business or practice, and every personal income tax return with all materials filed	r. 13(3.3), para. 5
Partner in a partnership	The partnership agreement, personal income tax returns, and the partnership's financial statements	r. 13(3.3), para. 6
Any interest in a corporation	Documents showing the number and types of shares and any other interest owned on the valuation date	r. 13(3.3), para. 7
Interest in a privately held corporation	Financial statements of the corporation and its subsidiaries; if a majority interest, every corporate tax return	r. 13(3.3), para. 8
Beneficiary of a trust (for example, a family trust holding shares)	The trust settlement agreement and the trust's financial statements	r. 13(3.3), para. 9

A valuator will usually ask for more than the rule's minimum: general ledgers, shareholder loan accounts, lists of major clients and details of any offers to buy. Under rule 13(11), a spouse who thinks the disclosure is not enough must first ask in writing, and if the information is not given within seven days the court may order it.

What goes into the value of a business interest?

The Act has no formula for valuing a business. That is different from a pension, where section 10.1 of the Act points to the Pension Benefits Act method; our page on pensions on separation covers that formula. For a business, the value is a question of evidence, and several items move it:

Tax on a future sale. Shares that have grown in value carry tax that will be owed when they are sold. Applicable contingent tax liabilities may be deducted (s. 4(1.1)).
Money between the owner and the company. If the company owes the owner money, that loan is property; Form 13.1, Part 4(f), asks for money owed to you "whether because of business or from personal dealings".
Guarantees. An owner who personally guaranteed the company's bank loan lists it as a contingent liability in Part 5. Our page on how debts are handled explains the debt side.
Value that depends on the owner. A practice built on one person's skill and relationships may be worth much less to a buyer than its income suggests. That is a valuation question, argued with evidence.
Change after separation. The value is fixed at the valuation date. Ontario's Court of Appeal held in Serra v. Serra that a later, market-driven drop in value can be considered, but only under the very high unconscionability test in section 5(6).

The business as a source of income for support

Property and support are separate questions. The business's value goes into net family property once. Its income is looked at again, year by year, for child and spousal support. Under section 18 of Ontario's Child Support Guidelines, if a parent is a shareholder, director or officer of a corporation and their personal income does not fairly reflect the money available for support, the court may include all or part of the corporation's pre-tax income. Salaries and fees paid to people who do not deal at arm's length with the company are added back unless shown to be reasonable (s. 18(2)). Section 19 lets the court impute income where, among other things, income has been diverted or expenses are unreasonably deducted. Our page on what counts as income for support goes through those rules in detail.

For a self-employed parent applying for child support, section 21(1)(d) requires three years of business financial statements and a breakdown of payments to non-arm's-length people. Where the parent controls a corporation, section 21(1)(f) requires the same for the corporation. If you have both a property claim and a support claim, the same documents often serve both.

What changes the answer

Gift or inheritance. Shares inherited from a parent during the marriage are excluded (s. 4(2), para. 1), but income from them is not, unless the will or gift said so (para. 2). Property bought with excluded money can be traced (para. 5). Our page on excluded property covers tracing and proof.
A marriage contract. Property that the spouses agreed in a domestic contract to exclude stays out of net family property (s. 4(2), para. 6).
Proof of the wedding-day value. The owner must prove any deduction they claim (s. 4(3)). A business started years before the marriage with no records of its value then can be hard to deduct.
No forced sale. An order cannot require or result in the sale of an operating business or farm, or seriously impair its operation, unless there is no reasonable alternative (s. 11(1)). The court may instead order a share of profits or, for a corporation, a transfer or issue of shares (s. 11(2)).
Time to pay. If needed to avoid hardship, the payment may be spread over or delayed for up to ten years, with security such as a charge on property (s. 9(1)(b) and (c)).
Protecting the asset. If there is a risk that business assets will be stripped, the court may make an order restraining depletion and preserving property (s. 12).
Unconscionable results. Section 5(6) allows an unequal share in narrow cases. Our page on unequal division of property explains the factors.

A worked example

For example, imagine a hypothetical couple, Sam and Casey. Sam owns all the shares of a consulting corporation that Sam started two years before the wedding. A valuator puts the shares at $60,000 on the wedding day and $460,000 on the valuation date. The contingent tax on a future sale of the shares is assumed to be $50,000 for illustration only. To keep the numbers simple, assume Sam has no other property or debts, and Casey's net family property is $70,000.

Line	Sam	Casey
Shares on valuation date	$460,000	$0
Contingent tax on shares (assumed)	minus $50,000	$0
Wedding-day value of shares	minus $60,000	$0
Net family property	$350,000	$70,000

The difference is $280,000, so Sam owes Casey $140,000. Casey does not become a shareholder. If Sam cannot raise that sum without selling the company, Sam could ask the court to allow instalments, with security, over a period of no more than ten years (s. 9(1)(c)), and section 11 makes a forced sale a last resort. Separately, if the company keeps profits inside it, the court may treat part of its pre-tax income as Sam's income for support under section 18 of the Child Support Guidelines. The tax figure is a placeholder, not an estimate, and interest and costs are left out.

Common mistakes when one spouse owns a business

Using the accountant's balance sheet as the value. Book value is not market value. Form 13.1 asks for the market value of your interest, which is why a valuation is usually needed.
Skipping the wedding-day value. An owner who does not prove what the business was worth when they married loses the deduction, because the onus is theirs (s. 4(3)).
Running personal costs through the company. Family expenses paid by the business can be added back to income for support under sections 18 and 19 of the Child Support Guidelines.
Moving money out after separation. Large dividends, new shares issued to others or asset sales after separation invite a preservation order under section 12 and damage credibility.
Late or partial records. If documents required by rule 13 are not served, the court may order them and, when it does, must order costs (r. 13(17)).
Assuming the other spouse gets half the company. Equalization is a payment. The business can stay intact, and the Act points the court away from a sale.

What to do this week

Write down the date you consider your separation date, and ask your accountant for the business's financial statements for the three years before it.
Collect your personal tax returns, with all schedules, for the same three years.
Find the share register, partnership agreement or articles that show who owns what, and any shareholder agreement.
Look for anything that shows the business's value on your wedding day: early statements, a purchase agreement or old tax returns.
If you are the non-owning spouse, make a written list of what you know about the business: bank, accountant, clients, vehicles and accounts.
Book a consultation before either of you hires a valuator, so the valuation answers the right questions.

Frequently asked questions

Will my spouse become a co-owner of my company?

Not usually. The normal result is a payment from the owner to the other spouse. Section 11(2) lets the court order a transfer or issue of shares, but only as a way to avoid selling or seriously impairing an operating business.

Does it matter that I started the business before we married?

Yes. Its net value on the date of the marriage is deducted, so only the growth during the marriage is shared. The exception for the matrimonial home does not apply to a business, but you must prove the wedding-day value.

Is a professional practice treated the same way?

Yes. Rule 13(3.3), paragraph 5, refers expressly to the financial statements of a "business or professional practice". How much of a practice's value would transfer to a buyer is a valuation question.

My spouse worked in the business without pay. Does that count?

Section 5(7) of the Act treats both spouses' contributions as equal, financial or otherwise, so unpaid work is already reflected in equal sharing. Whether any other claim fits your facts is worth raising at a consultation.

What if the business has lost value since we separated?

The value is still taken at the valuation date. In Serra v. Serra, the Court of Appeal allowed a post-separation decline to be considered under section 5(6), but stressed that an unequal division is exceptional and the test is unconscionability, not unfairness.

Can the business's income be counted for support even if I pay myself a small salary?

Yes, it can. If your personal income does not fairly reflect the money available to you, section 18 of the Child Support Guidelines allows the court to include all or part of the company's pre-tax income. Expect the other side to ask for the corporate records that section 21(1)(f) lists.

What happens to a business owned by one spouse in an Ontario separation?