Family Law... Section 18 and Business Assets

Tuesday, December 12th, 2017
Posted in: Family Law by Kay Rhodenizer, Counsel

Kay Rhodenizer – December 2017

NONE OF YOUR BUSINESS????

For married couples and registered domestic partners in Nova Scotia, the starting principle in the Matrimonial Property Act on separation/divorce is that business assets in the name of only one partner are not shared, unless a reason to do this can be found under Section 13 or 18 of the Act.

Typically, successful Section 13 claims may result in an award of a share of business assets (or money equivalent to the shareable value) when a partner has made an indirect contribution to the business. Most frequently this is a partner who can show that s/he assumed a disproportionate amount of childcare and/or household responsibilities (perhaps while also working outside the home) that allowed the other to spend more time developing the business.

Section 18 claims are usually based on direct contributions and can result in a money award.  Judges ask:

1]         Was the contribution significant or only “casual?”

Occasionally answering the business phone, running a few business errands or planning/hosting client dinners or office parties are often not enough to result in compensation.

2]         Did the claimant agree to incur a risk for the business?

Examples of risk might be mortgaging the family home to provide funds to the business, or pledging other family assets as collateral for business debts.  Judges will look at the amount and duration of the risk and whether any family assets were lost due to business reasons.

3]         Was the claimant paid for services when they were provided and if so, were the payments reasonable?

This is often assessed by asking what the business would have paid a third party for the same work.  Partners who “income split” for tax purposes often find themselves addressing this, whether or not the reported income was actually paid.

4]         If the claimant made a significant contribution and wasn’t paid, did the business pay for other things that benefited him/her?

In one case, a husband did significant unpaid work but didn’t receive compensation because the wife’s business paid for family vacations, household expenses and other larger purchases and provided him with significant money to build up his separate career.

Section 18 claims turn on each family’s unique history.  We welcome your inquiries about how this law might apply to your situation.

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