Today marks the beginning of British Columbia's Phase 2 following the COVID-19 shutdown. While some businesses have thrived through online forums, many are opening their doors for the first time in months, forced to tackle compliance with updated health and safety protocols, WorkSafeBC Guidelines, and restrictions on space to accommodate social distancing.
In the last eight weeks, many businesses have been negatively impacted - which will undoubtedly have a ripple effect into family law.
In family law disputes in BC, business valuators are frequently retained to conduct Joint Expert Reports to determine the fair market value of a spouse's interest in a business, so family assets can be divided. The valuation date of the business (and all family property for that matter) is required to be as of the date the parties' agreement is made, or the date of trial.
However, the reality is that businesses are valued as of the date specified in the Joint Expert Report. The documents used to determine the business's value vary, but they most frequently consist of its recent corporate tax returns and financial statements. COVID-19 has thrown a wrench into the valuation process, as business owners have utilized capital, liquidated assets, or obtained loans from the Government to stay afloat. Thus, the business' most recent year-end figures may have changed dramatically in the past eight weeks.
Courts across the country are already anticipating the impact of COVID-19 upon businesses in family law disputes. For example, in a recent case from Ontario, Jayawickrema v. Jayawickrema, 2020 ONSC 2492, the Court declined to make an order for an otherwise required equalization payment, noting the following (at paras. 96-97):
- since the trial concluded, the COVID-19 pandemic has decimated the global economy;
- it was inferentially clear from the wife's evidence that her business involved students and, quite possibly, people in close contact with each other. Public Health guidelines and restrictions have likely impacted the wife's ability to operate her business, pay the mortgage on its premises and thus fund any equalization payment;
- the wife owned realty that was sold after the valuation date and the proceeds used, in part, to fund a business likely affected by the global health and economic crisis; and
- the court was not prepared to make a equalization order without evidence and submissions from the parties.
The important take-away is that COVID-19 is a factor that must be considered in any business valuation and/or Joint Expert Report. A downward impact driven by pure market forces on a business's value requires careful consideration and legal advice in the context of family law. If you are a business owner, or the spouse of a business-owner in the midst (or the outset) of a family law dispute, please contact us for more information.
Originally published May 19, 2020
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