Separation and Corporate Issues: Why Business-Owning Couples Need Immediate Legal Advice

When separating parties own corporations or hold shares in a privately owned business, it is essential to recognize that unique legal and financial complexities may arise. In many cases, a corporation’s governing documents—particularly shareholder agreements—contain provisions that are triggered by a relationship breakdown between shareholders. These provisions can significantly affect ownership rights, ongoing participation in the business, and the valuation and transferability of shares. For this reason, obtaining legal advice immediately upon separation is critical to protecting one’s interests and ensuring that any required steps are taken promptly.

Most shareholder agreements are designed to regulate the internal relationships between owners and to safeguard the stability of the business. To achieve this, they often include specific clauses addressing what happens if a shareholder experiences a major life event, such as death, disability, bankruptcy, or separation and divorce. These are sometimes referred to as “triggering events.” When separation or divorce is listed as a triggering event, certain mechanisms may automatically come into play. For example, the agreement may require a shareholder to offer their shares for sale to the corporation or to other shareholders. Alternatively, the corporation may have the option—or the obligation—to redeem those shares. These provisions aim to prevent unintended changes to ownership and to avoid disputes about whether a spouse could claim an interest in the business or influence its operations.

Because these rights and obligations may arise immediately upon the date of separation, it is crucial that an individual involved in a separation seeks legal advice as soon as possible. Delay can result in missed deadlines or missteps that may compromise one’s position. A lawyer can review the shareholder agreement, corporate bylaws, and any related contracts to determine what provisions apply and what actions, if any, must be taken. They can also help assess how the shareholder agreement interacts with family law principles relating to property division, equalization, or valuation of business interests.

Another reason early legal advice is important is that share redemptions, buy-sell requirements, and valuation mechanisms set out in shareholder agreements may differ significantly from what might be expected in a family law context. For example, the agreement may prescribe a particular formula for valuing shares or mandate a specific process for determining fair market value. This valuation may not align with the valuation used for family property division. Understanding these differences allows parties to plan strategically and to negotiate from an informed position.

In short, separation involving business ownership introduces legal considerations that go well beyond standard family property issues. Shareholder agreements can materially influence how shares are treated, transferred, or valued following a separation. Consulting a family law lawyer promptly helps ensure that parties understand their rights and obligations, comply with any contractual requirements, and protect their financial and legal interests throughout the separation process.

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If you’re considering separation or divorce in British Columbia, we invite you to contact us to see how Greg Lilles Law can help you achieve a fair and peaceful resolution.