Substantive Legal Content

Family Law and Family Business

Spouses often both own shares in a corporation that operates a family business, sometimes because they are both active participants in the business, and sometimes as part of an income splitting or creditor protection plan.

Spouses rarely enter into shareholder’s agreements, which is quite understandable from a family perspective, but not so much from a legal perspective. This state of affairs can create a legal mess upon divorce.

Three (of many) things to think about:

1.           Although for married couples, family law might “equalize” the value of shares held by the spouses (at least in Ontario), this does not mean that it will give the spouses equal rights to be involved in the business or to control the business. Which spouse has voting control of the board of directors and the corporate power to decide who will be allowed to work for the company, can be of crucial importance in the midst of a separation or divorce.

2.           Family law will not necessarily lead to one spouse ending up owing all of the shares of the corporation.

3.           For unmarried couples, things are even more complicated.
Every spouse contemplating putting shares of their corporation in the name of their spouse for income tax or creditor protection purposes should think about whether it is really a good idea, and consider whether there are better alternatives, such as using a family trust.

Every couple involved in a business together should consider having a shareholder’s agreement

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