The Business of Breaking Up: Navigating Corporate Property in Alberta Divorce

Separating from a partner is challenging enough, but when family property involves corporate assets, things can quickly become complicated. This blog provides clarity on how Alberta law approaches the division of corporate assets during separation, ensuring you know your rights and obligations.

How Does Alberta Law Approach Asset Division?

In Alberta, family property division is guided by the Family Property Act and is based on fairness and equality, reflecting the contributions both partners made to the relationship. Under the Act, all property acquired during a relationship, including business interests, may be subject to division, typically on an equal basis.

Historically, family property division aimed to address inequities that arose from traditional roles, where one partner focused on career growth and asset accumulation, and the other managed household duties. Alberta law recognizes both roles as equally contributing to the family’s overall success, which underpins the principle of equal division of assets.

Corporate Assets: An Extra Layer of Complexity

If one or both spouses own shares in a corporation, those shares, and sometimes the corporate assets themselves, might be divided. Here's how different scenarios play out: 

• Jointly Operated Corporation: When both spouses actively participate in the business, asset division can be straightforward. Typically, one spouse might buy out the other's shares, or both may continue as partners. 

• Single-Spouse Operated Corporation: This scenario is more complex. Since corporations are separate legal entities, complications arise when one spouse claims entitlement to corporate-held assets. This issue historically allowed individuals to shield assets unfairly within a corporation.  

Special Considerations: Professional Corporations

Dividing a professional corporation (e.g., medical, legal, dental practices) introduces further complexities. Professional corporations are considered matrimonial property and require detailed valuations by qualified business valuators. Valuations may include:

• Fair market value of shares.

• Rental revenue if the practice operates out of a corporate-owned building.

• Cash flow and significant business expenses.

• Corporate goodwill, affecting overall valuation.

• Offers to purchase the corporation.

  
  

Required Financial Disclosure

Proper disclosure is crucial and mandated under sections 18-21 of the Alberta Child Support Guidelines. Disclosure determines corporate value and income calculations for child or spousal support purposes. A spouse must disclose:

• Personal benefits derived from corporate expenses (vehicles, entertainment, promotional items).

• A breakdown of salaries, wages, or benefits paid to individuals or entities at non-arm’s length.

• Explanations for deducted expenses claimed not to have provided personal benefit.

  
  

The Court scrutinizes expenses even if accepted by the Canada Revenue Agency, assessing their reasonableness and the professional party's control over corporate expenditures (Cunningham v. Seveny, 2017 ABCA 4).

A sample copy of what lawyers and courts refer to as Cunningham disclosure, is attached at this link.

When Courts "Pierce the Corporate Veil" 

To prevent unfair outcomes, such as a spouse hiding assets within a corporation, the Alberta Court of Appeal established a clear test in Aubin v Petrone, 2020 ABCA 13. “Piercing the corporate veil” refers to the court disregarding the separate legal identity of a corporation, holding it liable for debts or obligations of shareholders. Alberta Courts may disregard a corporation's separate legal identity if: 

• The spouse behind the corporate veil controls the corporation entirely or substantially; 

• They use this control unjustly to deprive the other spouse of rightful assets; and 

• This misconduct directly causes financial loss to the other spouse. 

  
  

Importantly, the remedy is available regardless of whether the spouse is a sole shareholder or even a majority shareholder. If the conditions are satisfied, compensation to the non-corporate spouse can include corporate shares, assets, or monetary payments.  

Key Factors Considered by Courts 

To equitably divide a corporation, Alberta courts consider factors such as: 

• Contributions to the marriage and family welfare. 

• Direct or indirect contribution to acquiring, managing, or enhancing corporate value. 

• Income, earning capacity, liabilities, and obligations at marriage and separation. 

• Duration of the marriage. 

• Acquisition of property post-separation. 

• Whether a spouse reduced the value of assets unfairly. 

  
  

Specifically, the court assesses contributions by spouses who manage households and childcare, recognizing their indirect support for the other spouse’s professional success. 

Importance of Prenuptial and Cohabitation Agreements 

One effective strategy to protect corporate assets is having a legally binding prenuptial or cohabitation agreement. These agreements, governed by sections 37-38 of the Family Property Act, clearly outline asset division in case of separation. Agreements must be: 

• Written and signed. 

• Based on complete financial disclosure. 

• Independently acknowledged by each party with legal advice. 

  
  

Protecting Your Interests 

Alberta courts aim to ensure fairness. To safeguard your business interests during a separation: 

• Maintain detailed business financial records. 

• Structure your business appropriately to limit personal exposure. 

• Consult a family law lawyer to navigate property division complexities effectively. 

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Contact Us 

At Stokes Law LLP, our experienced family and corporate law professionals guide you through this challenging process, helping protect your personal and corporate interests.  

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