During a relationship, parties may establish a family business and merge their personal and professional lives. If the parties are joint owners and the relationship fails, the future of their company adds an additional layer of complexity to their family law matter. In some cases, the business may be run from the family home, in which case issues such as the division of family property can significantly impact the business. In other cases, a party may try to seize the business assets and force the other party out. As a matter of protection, it is important that parties put measures in place during the relationship to address these issues and protect each parties’ interests.

Respondent Assumes Control of Jointly Owned Business

When a party withdraws from a personal and business partnership, one party may feel they deserve a greater portion of the profit their joint business generated. That was the case in Anderson v. McWatt. The parties lived together for 17 years and owned a joint business for 22 years. The business was a success, and it was the source of funds that the parties used to acquire several properties. However, the relationship deteriorated, and it evolved to a point where the respondent controlled the financial decisions of both their personal and business partnership. The respondent maintained that the applicant had access to financial documents, but in the judge’s view, the respondent was dismissive of the applicant’s opinions concerning financial issues. Instead, the respondent “felt entitled to assume greater ownership interests in the jointly held design businesses and the matrimonial home, without [the applicant’s] discussion or input”. Even during the trial, the respondent’s opinion was that he believed he had more to offer their business than the applicant, and that the applicant should not have anything to complain about as she benefited from his abilities.

The evidence was clear that the parties worked together and operated a successful company. The applicant left the company when she was 46 years old, and at that time she asked the respondent to provide her with her degrees and evidence of past projects. He refused to provide the requested items and testified that he viewed the items as unnecessary, out of date, and of no use to the applicant. As the judge put it, he “unilaterally decided that the Applicant did not need what she stated she needed to continue her design work”. Yet, the applicant did continue her work from the matrimonial home and incorporated her own company and received some assistance from her former employees. She was able to generate some income, but was unable to stay current with the new technologies and eventually stopped looking for employment.

Party Faces Economic Hardship from Loss of Business

The respondent’s view was that the applicant was not entitled to spousal support and had been supporting herself since leaving the company. Significantly, the parties’ relationship became one of “financial interdependence” when they merged their professional and personal lives. The applicant was primarily responsible for the household and caring for the children during the marriage, and she also contributed equally to their joint business. The respondent maintained control of the finances, which left the applicant “in the unenviable position of working to generate profits and having no control over how those profits were consumed or accounted for”. When their relationship deteriorated and the applicant left the joint business, the respondent assumed all of the profits and business assets for his own benefit under a new business name. Due to the respondent’s actions, the applicant was left without the resources she believed she needed to continue her work. The result was that the applicant experienced economic disadvantage from the marriage breakdown and was entitled to compensatory support.

The respondent was of the view that the applicant was intentionally underemployed. However, the judge disagreed and found that the applicant took steps to become self-sufficient. She provided services to a few clients she retained from the joint business and attempted to learn new technologies. Overall, she could not maintain a standard of living that was “reasonable having regard to the economic partnership she enjoyed during the marriage”. The judge noted the applicant was able to mitigate some economic hardship by drawing from her RRSP and securing debt from the matrimonial home to meet her own needs, as well as the needs of the children. Meanwhile, the respondent tried to conceal his true income by diverting some of his income, and he had a history of not paying spousal support despite a court order that obligated him to do so. Looking at the Spousal Support Advisory Guidelines, Justice Chiappetta accepted that the high range as set out by the Guidelines provided an appropriate amount of monthly support.

Respondent Deemed Sole Owner of Business After Forcing the Applicant Out

In Graczyk v. Ivach, the parties operated a landscaping business during their marriage. Both worked for the business full-time, and in 2012 they incorporated the business. Each party owned 50% of the shares. However, after the parties’ separation, the respondent husband cut the applicant out of the business. As a consequence, the applicant sought $400,000 for equalization, representing her share of the business. Determining the value of the business was complicated as the respondent failed to provide a business valuation even though he had agreed to do so at the outset of the litigation. He also failed to disclose corporate financial records, even when he was ordered to do so. Looking at the assets and collected dividends, the judge fixed the value of the corporation at $450,000 at separation. Importantly, the judge agreed with the applicant that the entire value of the corporation should be added to the respondent’s Net Family Property Statement, despite the fact that each party purportedly owned 50%. This was because the respondent seized the corporation, kept all of the assets for himself, and forced the applicant out of the business even though she was an equal partner. The judge made a declaration under section 10 of the Family Law Act that the respondent was the owner of the corporation on separation.

In addition to equalization, the applicant also sought an order that the respondent pay spousal support. In this case the applicant had a needs-based claim for support. The judge explained this type of entitlement could arise where “a spouse experiences economic hardship resulting from the breakdown of the marriage”. In this case, the parties had been equal partners in a business they established and grew during the marriage, but when the respondent took over the business it “thwarted the Applicant’s ability to earn an income in that business”. There was also evidence that he diverted work and revenues from that business to another business that he started with friends. He retained the corporate accounts and all the equipment for the business. After separation, the applicant tried to start her own landscaping business but could not finish projects as the respondent took her truck by using a spare set of keys. In 2020, the applicant was involved in a car accident and subsequently fell into a depression. It was clear the applicant experienced financial hardship from the breakdown of the marriage and the respondent’s conduct. This led to a dramatic drop in her standard of living, and her need for support was ongoing. The Spousal Support Advisory Guidelines suggested that the duration of support be 4.5 to 9 years. Considering these circumstances, the judge fixed support at 6 years, as it was reasonable to expect that the applicant would become self-sufficient after such time.

Address Business Risks Proactively Before Disputes Arise

The end of a relationship can also lead to the end of a business partnership. This can disrupt business operations and can complicate resolving family law issues, particularly when the parties are involved in contentious disputes. Accordingly, it is important for couples to contemplate their respective obligations and set specific parameters into place to avoid further disputes.

Contact the Toronto Family Lawyers at NULaw for Advice on Business Disputes Following a Relationship Breakdown

The family lawyers at NULaw in Toronto regularly advise clients on their rights and responsibilities arising following the breakdown of a relationship. When a family business is at issue, our knowledgeable lawyers will ensure you receive what you are entitled to, even if attempts have been made to push you out of the business. We will provide you with valuable information tailored to your unique situation so that you know what to expect and can make informed decisions in pursuit of resolution. To discuss your matter further or arrange a confidential consultation, contact us online or at 416-481-5604 to book a consultation.