Divorce and Your Business: What a Tradesperson Should Know

When a marriage or common-law relationship breaks down, a self-employed tradesperson has more on the line than most, because the business is both a livelihood and, often, a family asset that has to be valued and divided. The short version: how your business is treated depends heavily on the province you live in, family-property law is provincial, and Quebec runs an entirely separate civil-law regime. This is one area where doing it yourself is a false economy. This guide explains the shape of the problem so you can have a sensible first conversation with a family-law lawyer, not replace that conversation.‍‌​​​‌​‌‌‌‌​​​‌​​​​‌​​​​‌​‌​​‌‌​‌‍

Why your situation is more complicated

For an employee, the financial picture in a separation is mostly salary and shared property. For a self-employed tradesperson, the business itself is an asset that someone has to put a number on, and that is rarely simple.

• The business may be a family asset. Depending on the province and when the business was built, its value may be part of what gets shared on separation.
• Valuing a trades business is genuinely hard. Much of its worth can be tied to you personally, your skills, your reputation and your relationships, which is harder to value than tools and a van. Disputes over the number are common.
• Your real income is contested. The same write-offs that lower your tax can make your reported income look low, and a spouse, or a court, may argue your true income for support is higher than your tax return shows.

How property division works, in broad strokes

Family-property law is provincial, so the rules differ across the country, but most provinces outside Quebec share a broad pattern.

• Most provinces divide the growth in value during the relationship. Commonly, the increase in the net value of property over the course of the marriage is shared, rather than every asset being split down the middle. How a business and its pre-relationship value are treated varies by province and by the facts.
• Common-law couples are treated differently from married couples in several provinces, and the property rules that apply to a married couple do not automatically apply to a common-law one. Whether and how the business is shared can turn on this.
• Quebec stands apart. Quebec's family-patrimony and civil-law rules are their own system, and the way a business is treated there does not follow the rest-of-Canada pattern. If you live in Quebec, your starting point is Quebec-specific advice.

Because the province and your marital status change the answer so much, treat the points above as a map of the terrain, not a rule for your case.

Support payments and your income

Separate from dividing property, there may be spousal support and, if there are children, child support. For the self-employed, the sticking point is almost always what counts as income.

• Reported income is a starting point, not the final word. Courts can and do "add back" certain deductions and look at the cash actually available to you, so an aggressively minimised tax figure may not hold up for support purposes.
• Keep clean records. Clear, honest books help you as much as anyone. A messy paper trail invites the assumption that you are hiding income, which rarely ends well.
• Child support follows federal and provincial guidelines based on income; the harder question for a self-employed payer is simply establishing what that income really is.

Protecting the business through it

There are sensible, lawful steps, ideally taken before trouble, but useful even during a separation.

• A domestic contract. A marriage contract or cohabitation agreement (a prenup or its equivalent) can set out in advance how a business is treated if the relationship ends. It must be done properly, with independent legal advice on both sides, to hold up.
• Keep business and personal finances separate. Tangled accounts make it harder to show what is genuinely business value and easier for the business to be drawn into the personal pot.
• Get a proper valuation. If the business has to be valued, a qualified business valuator gives you a defensible number rather than a guessed one.
• Do not hide assets or income. It is the fastest way to lose credibility with a court and can carry serious consequences. Transparency is the stronger position.

Common mistakes

• Assuming the rules are the same everywhere. They are not. Your province and whether you were married or common-law change the outcome, and Quebec is its own system entirely.
• Treating your tax return as your provable income. For support, a court can look past it to the cash actually available. Plan on that.
• Going without a lawyer to save money. A trades business is a complex asset. A family-law lawyer who understands self-employment pays for itself.
• Hiding income or moving assets. It destroys credibility and can backfire badly. Be straight.

Spotted something wrong or out of date? Email us at hello@kilnguides.co.uk.

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