If I sell my business before separating, how does Ontario’s Family Law Act treat the sale?

Many owners ask whether they can sell a business before a divorce or separation. Ontario’s Family Law Act measures what each spouse owns on a valuation date, and it gives a court tools to deal with property that is run down. Family law in Canada is partly federal and partly provincial or territorial, according to the Department of Justice Canada. This page covers only the property rules in Ontario’s Act.

How the Act counts a business

Under section 5(1), when spouses are separated and there is no reasonable prospect that they will resume cohabitation, the spouse whose net family property is the lesser of the two is entitled to one-half the difference. Net family property is the value of the property a spouse owns on the valuation date, less deductions, apart from excluded property listed in section 4(2). The valuation date is the earliest of five listed dates, and the first is the date the spouses separate with no reasonable prospect of resuming cohabitation. The Act’s main definition of spouse covers people who are married to each other, or who entered a voidable or void marriage in good faith.

What a court can do about a sale or depletion

In an application under section 7 or 10, section 12 lets a court, if it considers it necessary to protect the other spouse’s interests under the property Part, make an interim or final order restraining the depletion of a spouse’s property. Section 40, in the support Part, does the same for depletion that would impair or defeat a support claim. Section 5(6) allows an award of more or less than half where equalizing would be unconscionable, and one factor listed is a spouse’s intentional or reckless depletion of net family property. Section 5(3) addresses spouses who are still cohabiting where there is a serious danger of improvident depletion. None of them names a sale as such, though section 5(6)(h) lets the court weigh any other circumstance relating to the disposition of property. Whether a given sale falls within them is a question for the court and your lawyer.

What you will have to disclose

In a property application, section 8 requires each party to serve and file a statement, verified by oath or statutory declaration, of property and debts. It also requires particulars of property the party disposed of during the two years before the statement, or during the marriage, whichever is shorter. Rule 13(3.3) of the Family Law Rules adds documents to serve on the other party, unless the court orders otherwise: for a sole proprietorship, the business’s financial statements and the party’s personal tax returns for each of the three years before the valuation date; for an interest in a corporation, documentation showing the number and types of shares held on that date.

Creditors are a separate question

Ontario’s Fraudulent Conveyances Act makes a conveyance made with intent to defeat, hinder, delay or defraud creditors or others void as against them. Section 3 protects a conveyance made on good consideration and in good faith to a person without notice or knowledge of that intent. Reading it alongside the Family Law Act is a job for a lawyer. For the wider timing questions, see when to sell your business.