The BC Family Business Valuation Lawyers at MacLean Law routinely assist their medium to high net worth family business owners in valuing and fairly dividing their BC family business, partnership or professional practice. It takes specialized knowledge from our seasoned and stellar family lawyers to ensure your business is properly divided and in a way that ensures it is not crippled by any division or buy out of the other spouse. Our BC Family Business Valuation Lawyers will make sure all tax discounts, disposition costs, latent taxes, contingencies, outstanding debts for unpaid management contributions, impact of estate freezes and calls on the company income are properly consider by business valuators, mediators and judges. Hiring top BC family business division lawyers is critical early on or even prior to separation if their are relationship breakdown clouds on the horizon.
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BC Family Business Valuation Lawyer, Lorne MacLean, QC
How Can Our BC Family Business Valuation Lawyers help You?
Our MacLean Law BC Family Business Valuation Lawyers have established principles related to unequal division of family businesses in the BC Supreme Court and recently set new law in Canada on establishing and valuing a broker’s book of business as family property. Our tenacious lawyers know that taxes diminish the value of any company and that other discounts can apply which other lawyers may be unfamiliar with. We are proud of our ability to create cutting edge relationship exit strategies as seasoned BC Family Business Valuation Lawyers.
What Date Is used to Value a BC Family Business That Increases After Separation?
Trials in BC take 6-12 months on average to be heard by a BC Supreme Court Judge if the parties are unable to settle their family law dispute. Real estate and BC companies can rise in value after separation. Our clients often wonder if the date of separation or the date of trial is what is used for the valuation date. In BC generally the settlement date or trial date NOT the separation date is used.
In a recent case of Blair v. Johnson 2015 BCSC 761, the BC Supreme Court made the first detailed analysis of what valuation date is properly used under our new Family Law Act. The court held it was not significantly unfair to use the trial date for valuation of shares in a business that rose significantly in value after separation. The court held the husband who had worked very hard AFTER SEPARATION to increase the value of the business had to share the trial date increased value not the value at separation BUT the court did divide the business 70/30 in his favour based on his greater post separation efforts.
For those of you who love a detailed analysis of the new law I have extracted the key portions and bolded the really important parts for you:
Valuation Date
[57] Mr. Blair argues the court should exercise its discretion pursuant to s. 87 of the FLA and depart from the hearing date as the valuation date for the increased value of the shares. He proposes the court rely instead upon the date of separation. He objects to the use of the hearing date because to do so introduces tremendous uncertainty into the valuing of family property. His point is the date of valuation should not be subject to the uncertainties surrounding the availability of trial dates. In this case, the parties consented to an adjournment of the first trial dates because additional time was required for the completion of the business valuation. Mr. Ghanavizchian, however, was not asked to estimate the value of the shares as of any earlier hearing date.
[58] Mr. Blair provided no analysis of s. 87 or what considerations ought to guide the court in deciding when to depart from valuing family property on the date of the hearing.
[59] Ms. Johnson submits Mr. Blair has the onus of convincing the court that the date of valuation should be other than the date of trial and there is no compelling reason to do so.
Jurisprudence
[60] The wording of s. 87 does not contain any criteria with which to guide the court’s discretion to depart from the hearing date as the date of valuation. It appears to have attracted little judicial attention thus far in relation to family property. In K.M.J. v. J.H.D.N., 2014 BCSC 1895, Mr. Justice Betton valued some of the family debt at separation in circumstances where one of the parties had significantly reduced family debt after separation and prior to the hearing date. Applying the modern approach to statutory interpretation, he interpreted s. 87 in the context of its surrounding provisions, including s. 95. He commented at para. 140, “some of the challenges with interpretation seem to arise from the drafters’ decision to deal with property and debts together”. He noted that family property can take many forms and the idea that parties should, as a starting point, share in fluctuations in value caused by market trends is easily understood. In the case of debt, however, a decrease in value is almost never the result of passive market trends (para. 143).
[61] Justice Betton identified the intention of s. 95 as removing elements of judicial discretion in the first instance but providing for the ability to avoid “significant unfairness”. At para. 154, he concluded s. 87 provides a mechanism to use a different valuation date, if necessary, where s. 95 is not applicable, offering the example of family property disposed of in good faith prior to the hearing date such that s. 95(2)(g) would not apply. Section 87 may be used to select the disposition date as the valuation date to ensure the other spouse is not deprived of the value of their interest in that property (paras. 154 – 155). He then suggested that either s. 87 or s. 95 might apply to a given set of circumstances, stating: “The peculiar circumstances of each case may drive the selection of which section to use and the date to be selected” (para. 156).
[62] Very recently, in Slavenova v. Ranguelov, 2015 BCSC 79, Mr. Justice Savage relied upon the s. 87 analysis in K.M.J. in relation to family property. He found it appropriate to order that the parties’ real property be valued at the date of separation, rather than at the date of trial. At paras. 52 – 53, he stated:
[52] It is generally agreed that the various real property assets at issue in this proceeding have gone up in value since separation. It is also the case that the claimant has been solely responsible for the preservation and maintenance of those properties, and has paid down debt. In this case, immediately after separation the respondent left for Bulgaria. As all of the family property was either in Canada or the United States, the claimant has managed all of the family property since separation, paid the mortgages, paid taxes, arranged rentals, and collected the rents. These efforts of the claimant were of value.
[53] … In short, the FLA provides two alternate routes to address potential unfairness that may arise from a party’s post-separation contributions, namely s. 87 and s. 95. Under s. 95 a court can order reapportionment to address any “significant unfairness” that may arise from an equal division of property and debt in light of the spouse’s post-separation contribution. Alternatively, under s. 87 the Court may depart from the date of hearing or agreement as the valuation date.
Codification of the Common Law
[63] The well-established modern approach to statutory interpretation requires the words of an Act to be read in their entire context and in their grammatical and ordinary sense, harmoniously with the scheme of the Act, the object of the Act, and the intention of the legislature: Bell ExpressVu Limited Partnership v. Rex, 2002 SCC 42 at paras. 26. The discussion found in Hansard between the Minister of Justice and Leonard Krog, the opposition critic, offers limited assistance in understanding the legislator’s purpose in enacting s. 87. The Minister described s. 87 as a “big step forward” because the Family Relations Act, R.S.B.C. 1996, c. 128 [FRA] did not provide any guidance on setting a valuation date and there had been considerable criticism of the broad judicial discretion to determine the date: BC, Legislative Assembly, Official Report of Debates (Hansard), 39th Parl., 4th Sess., Vol. 28/No. 8 (23 November 2011) at 1620 (Shirley Bond). In the Family Law Act Transition Guide, the Ministry of Justice provides the same explanation for s. 87 and the following commentary:
… It codifies how and when the value of family property and family debt is determined. Except in relation to benefits under a pension plan, the presumptive valuation date is the date of trial or the date of agreement, unless otherwise provided for in an agreement or order. The Family Relations Act did not provide any guidance on valuation date. However, s. 87 is consistent with the principles that have emerged in case law about valuation date of family assets (see, for example, Blackett v. Blackett (1989), 22 R. F.L. (3d) 337 (B.C.C.A.)) (at 3-128).
[64] In other words, it seems the legislator intended for s. 87 to codify the common law developed under the FRA which provided the valuation date was, presumptively, the trial date. In Blackett v. Blackett (1989), 40 B.C.L.R. (2d) 99 (C.A.), the Court of Appeal overturned the trial judge’s decision that the husband should pay compensation to the wife using the date of separation to value shares in a company found to be a family asset. Madam Justice Southin ordered the trial date to be the date of valuation, stating at 103 – 104:
When an asset is determined to be a family asset, the Court must ask itself whether s. 51 should be invoked. For that purpose, it is often necessary to have some idea of the value of an asset as at the triggering event for whether or not there is to be a variation of the right given by s. 43 must be determined by the facts existing when that right came into existence. It is then, and then only, that the right can be unfair.
But when the Court considers what to do by way of a compensation order under s. 52, it is the value at date of trial which is significant for it is at that point that one spouse is having taken away a vested interest and the other spouse is paying for that vested interest.
The reason is simple. Section 43 gives the wife an undivided one-half interest in the shares – not an undivided one-half interest in the value of the shares at the date of the triggering event or at any other date. …
[65] Not long after, in Gilpin v. Gilpin (1990), 29 R.F.L. (3d) 250 at 253 (B.C.C.A.), the Court of Appeal observed numerous authorities made it clear “having regard to the issue of fairness that unless there be reason to the contrary the valuation date for family assets including the matrimonial home should be chosen as of the date of trial” (emphasis added).
66] In N.M.M. v. N.S.M., 2004 BCSC 346, Mr. Justice Joyce summarized the relevant principles as follows:
[76] From my review of the forgoing authorities I distill the following principles:
- Because it was the triggering event that gave each spouse a prima facie equal interest as tenants in common in each family asset, the circumstances at that date should be considered to determine whether an equal division would be unfair.
- Generally the spouses share any increase or decrease in value of a family asset that occurred after the triggering event because their interests in the asset vested.
- Valuation at the date of trial was generally appropriate when considering the mechanism under s. 66 to achieve the division of family assets, for example, by dividing the assets in specie by vesting the assets in the names of the parties or by vesting an asset in the name of one party in exchange for an order compensating the other for the divested interest.
- Generally the appropriate date for valuing family assets was the trial date, however there was a discretion to fix another date, not earlier than the triggering event, if it was necessary to achieve fairness.
- Discretion may have existed to reapportion assets or to vest title in one spouse while awarding the other compensation taking into account events following the triggering event where for example, the conduct of one party caused the asset to increase or decrease in value and it would have been unfair and unjust to ignore those events.
- Where it was established that one spouse disposed of a family asset or caused it to decrease in value significantly, the court could order compensation for that loss. The compensation was based on the loss in value, which necessarily involved determining the value of the asset prior to the loss.
[67] In Berg v. Berg, 2012 BCCA 92 at para. 15, the Court of Appeal affirmed the trial date was the appropriate valuation date in cases where the court took away the interest of one spouse in a family asset and ordered the other spouse to pay compensation for it. In N.A.J. v. P.L.J., 2014 BCSC 948 at para. 236, Mr. Justice Harvey expressed the view that while the court retained the discretion to determine the valuation date so as to achieve “substantial fairness”, Blackett remained the “default position”, particularly where reapportionment was being sought by one of the parties.
[68] As can be seen, the court’s discretion to depart from the date of trial was exercised in the context of the reapportionment provision of the FRA on the grounds of unfairness. In other words, if dividing an asset or fixing a value at a certain date would be unfair, having regard to the factors set out in s. 65(1), then different shares could be fixed: Rutherford v. Rutherford (1981), 30 B.C.L.R. 145 at 154 (C.A.). As a practical matter, fixing a valuation date other than the date of trial was also a remedy where reapportionment of the parties’ interests at the time of trial was impossible or inappropriate. If s. 87 is intended to codify the common law developed under the FRA, which carried with it the threshold of unfairness for reapportionment and departing from the date of trial as the date of valuation, the question arises whether unfairness remains an appropriate threshold for departing from the presumptive valuation date under the FLA.
[69] Section 95 of the FLA requires significant unfairness on specified grounds before the court may order an unequal division of family property. To the extent that s. 95 and s. 87 may provide alternate routes to address the substantial unfairness that would arise from awarding parties equal shares in family property valued at trial, it seems to me the significant unfairness threshold should also be met before the court departs from the date of trial as the valuation date pursuant to s. 87. To conclude otherwise would allow for an earlier valuation date resulting in a radical departure from an equal division as of the date of trial in circumstances where the significant unfairness threshold under s. 95 is not met. I say this leaving aside circumstances where it is necessary to set an earlier date because family property has been sold etc. or debt eliminated prior to the hearing. It is important to bear in mind the basic principle of equal entitlement (and responsibility) found in s. 81 that is integral to the division of family property regime in the FLA.
Conclusion on Valuation Date
[70] The respondent in this case, however, has not persuaded me it would be unfair, let alone significantly unfair, to value the increase in the value of shares as of the trial date. While the respondent argues, and I agree, Ms. Johnson contributed very little directly or indirectly to Mr. Blair’s businesses over the course of the whole relationship, at the time of separation and up to the end of July 2013, Integral’s secure line of credit remained in place. Ms. Johnson’s consent and cooperation was necessary for Mr. Blair to obtain the line of credit because she was the registered owner of the matrimonial home. Valuing the shares as of the date of separation would, in my view, improperly ignore this contribution. Although the trial of this matter was previously adjourned, the respondent chose not to seek the opinion of Mr. Ghanavizchian as to the value of the shares on those earlier dates.
Application of s. 95(2) Factors
[71] Invoking s. 95(2)(a), (c) and (f), Mr. Blair seeks an unequal division of the increased value of the shares on the grounds of significant unfairness based on the following circumstances:
a) the entire relationship including the marriage is just over nine years, a short to medium length marriage;
b) neither spouse contributed in any meaningful way to the career or career potential of the other (in the case of Mr. Blair the value of his companies);
c) the appraised value of the companies increased very dramatically between 2012 and 2014. All of this increase in value occurred after the separation of the spouses. It is submitted that the increase in value was attributable to Mr. Blair’s efforts and not merely market forces;
d) it cannot be said the earning capacity of Ms. Johnson has been affected in any way at all by the responsibilities and other circumstances of the relationship; and
e) it would be significantly unfair not to re-apportion the increase in value of the shares of the companies in Mr. Blair’s favour because the establishment of the companies, and their financial success, is entirely the result of Mr. Blair’s assistance with no meaningful contribution from Ms. Johnson.
[72] Conversely, Ms. Johnson argues Mr. Blair has failed to prove how much, if any, of the post separation increase in the value of the shares was due to his efforts as opposed to market trends and has not established Integral would have enjoyed the same results without the secured line of credit taken out in 2012. She points to Mr. Blair’s evidence that he told the banker he needed the line of credit for Integral’s upcoming contracts. She notes the line of credit was in use for seven months of the 2013 fiscal year and some of the 2014 year, both highly profitable periods for Integral. She also identifies the absence of any evidence from Mr. Blair proving the (new) contracts he testified led to increased revenues for Integral in 2013 and 2014. According to Ms. Johnson, Mr. Blair has conceded Integral’s profitability is determined by the market forces of the oil industry, having repeatedly admitted the oil market determined good and bad years for the company.
[73] I regard the length of the parties’ relationship as a neutral factor here.
[74] In Remmen, the court found that in order to determine if it would be significantly unfair to divide family property equally, the family property must first be notionally divided, taking into account the exclusions, in accordance with the FLA (para. 47). I have already determined $57,000 is the value of the excluded property to be deducted from the value of the shares in arriving at the value of the family property here: the increase in the value of the shares. As discussed above, Mr. Ghanavizchian provided a range of values for the shares in Alberta Co. as of the 2014 valuation date. Accepting the thrust of his opinion evidence that the mid-point should be used if a single point of value must be selected, I value the shares in Alberta Co. at $5,075,000. Accordingly, the increase in value to which the parties are presumptively entitled to share equally is $5,018,000 or $2,509,000 each.
[75] In order to consider whether a significant unfairness would arise from an equal division due to a significant increase in the value of the shares caused by Mr. Blair pursuant to s. 95(2)(f), I must also determine the value of the shares at the time of separation. Using the midpoint provided by Mr. Ghanavizchian for the 2012 valuation, I value the shares in Alberta Co. at the time of separation at $630,000.
76] There is no dispute that the dramatic increase in the value of Alberta Co.’s shares between the 2012 and 2014 valuation dates was driven by increased revenues for Integral. Other than faulting Mr. Blair for not separately proving the existence of new contracts, Mr. Blair was not challenged about the accuracy of his evidence regarding the nature and sources of revenue for Integral during that time. Nor was there any dispute about the evidence provided by Mr. Blair regarding the importance of his role in generating work for Integral through his key client contacts, relationships and his First Nations status. Management employees provided this same information to Mr. Ghanavizchian. Consequently, he identified Integral’s reliance on Mr. Blair for a significant portion of its business (80 to 90%) as a negative factor in selecting a multiplier for both the 2012 and 2014 valuation of that company’s operations.
[77] Mr. Blair testified that, in 2013, Integral began to do much more modular work than they had in previous years for two companies other than their main client, Suncor. The company also started the Fort Hills project which provided labour to Suncor. The Fort Hills project generated $3.6 million in 2014. He estimated that in 2012, 53% of Integral’s business was with Suncor and by 2014 this had grown to just over 70%. Mr. Blair identified his and the company’s First Nations status and the company’s positive safety records as factors in obtaining the work. Mr. Blair attributed approximately $500,000 in revenues for 2014 to the rental and sale of tents. While there can be little doubt that Suncor’s demand for labour was driven by market forces, it chose Integral to provide that labour. Based on the evidence, I find that in addition to market forces, which will always be at play for resource based businesses, Mr. Blair’s role in the operations of Integral – his expertise, key client contacts and relationships within the industry – contributed significantly to the dramatic increase in the value of Alberta Co.’s shares between the 2012 and 2014 dates, particularly with respect to obtaining the Suncor project and with respect to the rental and sale of tents. While Mr. Blair’s role in the company was just as critical in 2012, I do not regard s. 95(2)(f) as requiring a spouse to cause an increase in the value of family property by a new means after separation.
[78] Mr. Blair also seeks an unequal division in the increase in the value of the shares based on Ms. Johnson’s lack of contribution to his businesses throughout their relationship, relying on s. 95(2)(c). Ms. Johnson submits guaranteeing the secured line of credit for Integral in early 2012 was a significant contribution. She also points to small loans she made to Mr. Blair’s company, all of which she said were repaid with interest, except the last one provided to All Access. Mr. Blair disputes that evidence. He denied ever borrowing funds from the parties’ personal line of credit for business purposes other than $10,000 for All Access which he said was repaid. He could not recall borrowing for his businesses “on the house” prior to obtaining Integral’s secured line of credit. There are no records confirming the loans. While I do not disbelieve Ms. Johnson, Mr. Blair’s testimony was also credible. In my view, resolving the conflict in the evidence on this point is not critical to either party’s position on the question of contribution. Ms. Johnson’s main point is she put herself in some financial jeopardy by agreeing to Integral’s line of credit being secured by the matrimonial home. Her consent was necessary because the house was registered in her name.
[79] Mr. Blair confirmed Integral’s line of credit was used to pay some of its operating expenses up to the time it was paid off in July 2013, although, during a seven month period in 2013, Integral earned approximately $4,000,000 in revenues. In cross-examination, Mr. Blair testified one of the reasons he obtained the line of credit for Integral was he knew he was leaving the relationship and he wanted to protect his financial interest in the matrimonial home. He estimated the value of the equity in the home to be $800,000. He was concerned Ms. Johnson would run up the other line of credit on the house which had a limit of $1,000,000. Somehow maintaining a significant balance on Integral’s line of credit gave him a feeling of security. While I agree with Ms. Johnson that Mr. Blair’s “strategy” does not make sense, I accept Mr. Blair was being truthful when giving this evidence. I cannot and was not asked to consider Mr. Blair’s motivation for obtaining the secured line of credit, namely, his plan to leave the marriage.
[80] The other important evidence relating to the question of Ms. Johnson’s contribution was that the parties were not involved either directly or indirectly with one another’s professional lives. There is no dispute they operated their respective businesses separately. Until later in the relationship, neither supported the other. They shared living expenses equally. Integral does its business in Alberta. Accordingly, Mr. Blair was often in Alberta, given his role in its operations. Ms. Johnson never travelled with Mr. Blair on business or participated in any business related activities with him or for him.
[81] As set out above, in or about 2009, Ms. Johnson advised Mr. Blair she wished to retire. Evidently, he was surprised when she discussed this with him. Nonetheless he told her if she paid off their line of credit she could do so. In response, she stopped contributing to their shared living expenses and paid down the line of credit for some months. She estimated that during that time the balance went from about $90,000 to $60,000. After that, she stopped making those payments as well, even though she earned a net income of $118,923.24 in 2009 and $90,589 in 2010. Mr. Blair continued to support her financially until their separation and then continued to pay the mortgage until September 2013, as well as for renovations to the home that included a rental suite which has earned rental income since 2013.
[82] While I agree Ms. Johnson’s role in arranging for a secure line of credit for Integral was a form of contribution, I am not persuaded in the context of the relationship as a whole that it was a significant one. Ms. Johnson testified that she had no real plans for her retirement although she did want to write a cookbook. After she stopped working for the most part, Ms. Johnson’s lack of involvement in Mr. Blair’s businesses continued, reflecting, in my view, the extent to which the parties intended to keep their business lives separate. This was a third marriage for Mr. Blair and a second marriage for Ms. Johnson. They met at a time when both were well established in their respective fields, Ms. Johnson perhaps more so given the impact of Mr. Blair’s divorce proceedings.
[83] In all of these circumstances, including Mr. Blair’s role in causing a dramatic increase in revenues for Integral and, therefore, the value of the shares in Alberta Co. post separation and Ms. Johnson’s overall lack of contribution to Mr. Blair’s businesses throughout the relationship, I find it would be significantly unfair to equally divide the increase in the value of the shares. I order the increase to be divided 70% in favour of Mr. Blair and 30% to Ms. Johnson, resulting in values of $3,512,600 and $1,505,400 respectively.
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