How does business succession work in Newfoundland and Labrador?

Handing a business on at death in Newfoundland and Labrador involves three provincial statutes. The Wills Act sets the formalities a will must meet. The Family Law Act decides how a surviving spouse can claim a share of property, and it treats business assets as a category of their own. The Family Relief Act lets certain dependants ask a court for provision from the estate even when a will says otherwise. BDC describes succession planning as identifying the contributions and responsibilities attached to key roles and preparing for someone else to take them on. This guide covers Newfoundland and Labrador only, and it describes what each Act says rather than how your business would be treated.

What a valid will requires

Under section 2(1) of the Wills Act, a will is invalid unless it is made in writing. It must also be either in the handwriting of the testator and signed by the testator, or, where it is not written and signed that way, signed by the testator in the presence of at least two witnesses, who sign in the testator’s presence. Section 2(1.1) deals with what “in the presence of” can include, so read it in full if a will is signed remotely. The Act is about form. It does not say who should lead a business after the owner or how the shares should be held.

Business assets are carved out of matrimonial assets

The Family Law Act defines “business assets” as property primarily used or held for or in connection with a commercial, business, investment or other income or profit producing purpose. Its definition of “matrimonial assets” includes real and personal property acquired by either or both spouses during the marriage, with exceptions, and business assets are among them. The Act also has a separate rule for the shares of a corporation that owns property which would be a matrimonial asset if a spouse owned it. Whether an owner’s shares fall on one side of that line depends on how the company and the shares are used, which a Newfoundland and Labrador lawyer can assess.

A contribution claim against a business asset

Section 29 of the Family Law Act gives the spouse who did not own the business a different route. Where one spouse has contributed work, money or money’s worth in respect of the acquisition, management, maintenance, operation or improvement of a business asset of the other spouse, the contributing spouse may apply to the court. The court then orders payment of compensation or awards a share of the other spouse’s interest in the business asset, in accordance with the contribution. It assesses the contribution without regard to the spousal relationship or the fact that the acts making up the contribution are those of a reasonable spouse in the circumstances. For an owner, that means a spouse’s work in the business is a matter the Act itself speaks to.

One year after death, and in addition to the will

Under section 21(1), where one of the spouses has died, either spouse is entitled to apply to a court to have the matrimonial assets divided in equal shares, and section 22 lets the court divide unequally where equal shares would be grossly unjust or unconscionable, having regard to the factors it lists. Under section 21, an application is not to be brought after the earliest of the periods the section lists, and for a death one of those periods is one year after the first spouse’s death. The Act adds that the rights a surviving spouse has under it are in addition to rights arising on intestacy or by will. An estate planning a business hand-over should therefore expect a will and a Family Law Act claim to coexist.

Dependants can apply under the Family Relief Act

The Family Relief Act lets a dependant, defined as the deceased’s spouse, cohabiting partner or child, apply where the deceased died testate without making adequate provision in the will for the dependant’s maintenance and support, or intestate with a share that is inadequate. A judge may order that adequate provision be paid from the estate. Section 14(1) says no application may be made except within six months after the grant of probate or administration, and section 14(2) lets a judge, where the judge considers it just, allow an application at any time as to a portion of the estate still undistributed. For wider planning, see how succession works for a family business in Canada.

Questions to take to a Newfoundland and Labrador lawyer

• Do my shares or assets count as “business assets” under the Family Law Act, or as matrimonial assets?
• Has anyone, including a spouse, contributed work or money to the business in a way section 29 describes?
• Who will track the one-year period in section 21 and the six-month period in section 14 of the Family Relief Act?
• Does my will provide for the dependants who could apply under the Family Relief Act?
• Is my will signed and witnessed as section 2 of the Wills Act requires?