A corporation is a business structure that is legally separate from the people who own it, called shareholders. Unlike an unincorporated business, a corporation can own property, take on debt, enter into contracts, and earn income in its own name.

When spouses separate, it is not the corporation itself that is divided. Instead, what is divided is the value of the shares owned by one or both spouses.

Corporations can range from small family run companies to large businesses with multiple shareholders, employees, and complex financial structures. Because of this, dividing corporate interests in a separation is often more complex than dividing other types of property.

In British Columbia, corporate interests are treated as property under the Family Law Act and must be addressed when spouses separate.

If shares in a corporation were acquired during the relationship, the value of those shares is generally considered family property and is subject to equal division, regardless of whose name the shares are in or who runs the business.

If a corporation was started before the relationship began, the value of the shares at the start of the relationship is usually considered excluded property and remains with the original owner. However, any increase in the value of the shares during the relationship is considered family property and is divided equally.

Before a corporation can be divided, it is important to understand how it is owned.

Some spouses hold a controlling interest in a corporation, meaning they own enough shares to control decisions. Others may hold shares without control, particularly in corporations with multiple shareholders.

If you hold shares but do not control the company, those shares are treated like any other investment and can be listed as property in your Separation Agreement.

If you or your spouse hold a controlling interest, only the portion of the corporation actually owned by that spouse is included in the division.

When both spouses own shares, the share structure must be clearly documented, including how many shares exist and how many each spouse owns.

Valuing a corporation is often one of the most complex steps in a separation. Corporate value is not determined by income alone. It requires a careful review of the business as a whole.

Valuation typically considers:

• Corporate assets and liabilities
• Income and expenses
• Retained earnings
• Goodwill, meaning the value of the business beyond its physical assets
• Future earning potential

Because of this complexity, corporate valuations often require professional assistance. Valuations can be expensive, but you should at least speak with your accountant to get some initial understanding of value and see if it is worth obtaining a more in-depth valuation.

When dividing a corporation, it is essential to focus on net value, not just gross value.

Corporate debts and liabilities reduce the value of the shares and must be taken into account. These can include loans, lines of credit, unpaid taxes, leases, and other financial obligations.

Taxes are also a critical consideration. In some cases, selling shares or restructuring ownership can trigger capital gains tax or other tax consequences. Even if no immediate sale is planned, future tax exposure can affect what the shares are truly worth.

A proper valuation will often account for these liabilities and tax considerations so that the value used for division reflects what the shareholder would reasonably retain after debts and taxes are considered.

This is one of the main reasons professional advice is so important when dividing corporate interests.

Because corporate valuation involves accounting judgments, tax rules, and financial projections, many couples rely on professionals.

An accountant can help analyze financial statements, identify corporate debts, and estimate tax implications. A professional business valuator can provide an independent valuation, which may be necessary for larger or more complex corporations or where there is disagreement.

While professional valuations involve cost, they often reduce conflict and uncertainty by providing a shared and defensible understanding of the corporation’s value.

What matters most is that both spouses understand how the value was calculated and agree that the number used in the Separation Agreement reflects a fair net value.

There are several ways spouses may choose to divide corporate interests in a separation.

In many cases, one spouse buys out the other’s shares and continues to operate the business. Transfers of shares between spouses can often be done on a tax deferred basis, but you should confirm this with your accountant.

Some spouses choose to continue owning the corporation together. This requires very clear agreements about management, decision making, income distribution, and exit options. In corporations with other shareholders, consent from those shareholders may also be required.

In some cases, shares may be rolled into a new company as part of a corporate reorganization, sometimes referred to as a butterfly transaction.

This approach allows assets to be divided between spouses without forcing a sale and without triggering immediate tax consequences. It can be a useful option when spouses both want to retain ownership interests but operate independently.

Because these transactions are complex, they must be structured with the help of an accountant or tax professional.