As an owner of a closely-held private business you likely hold
voting shares in your corporation. These shares allow you
to exercise some control over the corporation by giving you the
right to vote for corporate directors and control other important
corporate decisions, such as a sale of all or substantially all of
the assets of the corporation.
If you own your shares personally, your shares will form part of
your estate and may also form part of matrimonial property if there
is a breakdown of your marriage. The practical result of this may
be that your former spouse attains some control over the
But what if the corporation's bylaws, articles, or a
unanimous shareholder agreement ("USA") restricts the
transfer of shares to third parties? Are your shares then shielded
from an equitable division of matrimonial property to your former
What Happens to the Shares?
Pursuant to theMatrimonial Property Act
(Alberta), if there is a breakdown of the marriage, property is
distributed equitably between the spouses (subject to prescribed
The Court has a great deal of discretion and authority in
determining an equitable division of matrimonial property. For
example, the Court can order you to sell your shares and distribute
a portion of the net sale proceeds to your former spouse. The Court
can also order you to transfer some of your shares to your former
However, where the Corporation's bylaws, articles, or a USA
restricts a transfer of shares to a third party, the Courts have
generally been reluctant to order a transfer of shares to a former
Therefore, a properly-drafted USA may prevent you from being
ordered to relinquish some control over the corporation to your
former spouse. However, if your shares form part of matrimonial
property, the Court still has many other remedies at its disposal
to equitably divide the shares. In past cases, the Court has:
Ordered the shareholder spouse to make an equalization payment
to the former spouse that takes into account the value of the
Ordered the shareholder spouse to hold half of the shares in
trust for the former spouse and deal with those shares the way a
reasonable person would if they were considering the former
spouse's best interests. The former spouse would then share
in all shareholder benefits, including a payment of dividends, and
distribution of corporate property on a wind-up of the
For example, in D.B.C. v R.M.W.,2004 ABQB 954, a husband and wife purchased shares
in a corporation understanding that the shares would appreciate
significantly over time. The husband owned 39% of the voting shares
in the corporation and his wife owned 1% of the voting shares. Upon
a breakdown of the marriage, the parties agreed that the shares
should be split equally between them. However, they disagreed over
whether legal title to the relevant shares should be transferred.
The Court found that transferring the shares to the wife would be
contrary to the corporate articles and by-laws. Therefore, the
Court ordered the husband to hold half of his shares in trust for
his wife, on the following conditions:
He was to direct the corporation to provide his wife with any
money payable to her in respect of those shares;
He was permitted to exercise the vote associated with her
shares the way a reasonable person acting in his wife's best
interests would; and
He was prohibited from transferring, encumbering or otherwise
dealing with the shares he held in trust for his wife without her
There are a number of considerations to keep in mind when
structuring a closely-held private corporation, just one of which
is matrimonial property issues. Therefore, we recommend that
you contact our
Business Law Group if you wish to discuss the best way to
structure your privately-held business corporation to reduce
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
To print this article, all you need is to be registered on Mondaq.com.
Click to Login as an existing user or Register so you can print this article.
Under the Income Tax Act, the Employment Insurance Act, and the Excise Tax Act, a director of a corporation is jointly and severally liable for a corporation's failure to deduct and remit source deductions or GST.
Under the Income Tax Act, the Employment Insurance Act, the Canada Pension Plan Act and the Excise Tax Act, a director of a corporation is jointly and severally liable for a corporation's failure to deduct and remit source deductions.
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).