The breakdown of a marriage often triggers a complex web of financial issues, particularly when one spouse is a business owner. The recent British Columbia Supreme Court case of Tyrell v. Tyrell offers a valuable lens through which to examine these challenges, specifically concerning property division, spousal support calculations, and the intricacies of valuing privately held corporations.
This blog explores the key legal principles in Tyrell v. Tyrell and its implications for individuals navigating separation and divorce in BC.
Spousal Support and Property Division at the Heart of Long-Term Marriage Breakdown
The parties were married for 28 years and had two children together, both of whom were adults at the time of the proceedings. The wife (the claimant) had been a stay-at-home spouse during the marriage, while the husband (the respondent) worked as an architect.
Several issues were disputed, including the division of family property and debt and whether the wife was entitled to spousal support.
Division of Family Property and Debt in BC
Under British Columbia’s Family Law Act, family property is divided equally between spouses. “Family property” includes all real and personal property owned by one or both spouses on the date of separation. It can also include property acquired after separation that is derived from family property. Family debt includes financial obligations incurred by a spouse during the relationship and debt incurred after separation if it was used to maintain family property.
Parties Disagreed on Division of Professional Business and Car
In this case, the parties disagreed on the value of the family property. The husband argued that his company, David Tyrell Architect Inc. (“DTA”), had no value. He further argued that even if the company had some value, it should be valued as of the date of separation. On the other hand, the wife argued that DTA should be included in the division of family property and should be valued as of the trial date.
Ultimately, the court agreed with the wife and valued DTA as of the date the parties began to separate their finances. In doing so, the court looked at the company’s financial statements and tax returns and valued the company at approximately $104,000 (the wife’s share being $52,000). The court also ordered the wife to sign all corporate year-end documents for the company from separation to the present and until she relinquishes her shares in the company.
Another issue in dispute was the valuation of a Volkswagen Tiguan owned by DTA. The husband provided evidence of the car’s depreciated value, while the wife provided proof of the car’s current value based on Autotrader research. Ultimately, the court split the difference between the two proposed values and valued the vehicle at $23,500.
Complexities in Valuing a Business in a Divorce
When one spouse owns a business, it can be challenging to determine its value. Several different methods can be used to value a business. In this case, the court ultimately valued DTA as of the date the parties began to separate their finances.
One of the difficulties in valuing a business is that its value can fluctuate depending on several factors, such as the economy, the industry, and the management. This is why it is essential to consider all relevant factors when valuing a business in a divorce.
Critically, the Court acknowledged the complex tax implications of this valuation, urging the parties to reach an agreement to adjust the equalization payment to account for the taxes payable on the corporate funds. This aspect of the decision provides a roadmap for how courts may approach similar valuations, emphasizing the importance of considering tax consequences.
Husband Unilaterally Reduced Voluntary Spousal Support Payments
In addition to property division issues, the wife sought spousal support from the husband. She argued that she had been a stay-at-home spouse for most of the marriage and could not support herself financially.
The husband disagreed with the wife’s claim for spousal support. When he moved out of the family home in 2019, he began making voluntary monthly payments of $6,000 to the wife as support. In 2023, he unilaterally reduced the spousal support payment.
Wife Entitled to Ongoing Spousal Support
The Court found the wife was entitled to spousal support. In reaching this decision, the Court considered the length of the marriage, the roles each spouse had played in the marriage, and the wife’s reduced ability to earn income due to her health issues. The Court noted the wife had been diagnosed with breast cancer in 2017 and had undergone chemotherapy, radiation treatment, and a double mastectomy.
However, the Court agreed with the husband that the wife’s withdrawal from the couple’s line of credit in 2020 should be taken into account. As such, the Court ordered that the amount of spousal support be reduced by $2,200 (the amount of her withdrawal). The Court also declined to make a declaration that past payments made by the husband to the wife were for spousal support (and thus shifted the tax burden to the wife). It ordered that future payments under the order would be taxable in the hands of the wife and could be shown as a deduction on the husband’s tax return.
Determining Income for Support: Beyond Line 150
A significant aspect of the case revolved around determining the husband’s income for spousal support purposes. The Court recognized relying solely on his Line 150 income (from his tax returns) would not accurately reflect his financial resources. Instead, the Court scrutinized DTA’s pre-tax income and added back certain expenses that provided a personal benefit to the husband, including meals, a portion of employee benefits, amortization, a share of occupancy costs, and vehicle and phone expenses.
The Court’s action in doing so reinforced the principle that it can “lift the corporate veil” to ensure a fair assessment of income for support calculations, preventing business owners from artificially minimizing their reported income.
Key Takeaways from Tyrell v. Tyrell
Tyrell v. Tyrell is a complex case arising from the end of a long-term marriage and involving intricate property division and spousal support considerations. Some central points from the decision include:
Equal Distribution of Family Property
While the court can order an unequal division of family property in rare cases, the default is for it to be divided equally between spouses, even if one spouse did not contribute financially to acquiring that property.
In this case, the wife had been a stay-at-home spouse for the majority of the marriage. However, the Court found she was entitled to a share of the family property, including the husband’s company (DTA). This is because family property is defined as all real and personal property owned by one or both spouses on the date of separation. It can also include property acquired after separation that is derived from family property.
Property Valuation Dates
The date for valuing family property and debt is the date of the hearing unless it would be significantly unfair to value the property as of that date (as was determined for the division of the husband’s business).
Valuating a Business for Property Division
Accurately valuing a private corporation in a divorce is a complex undertaking. Engaging a qualified business valuator experienced in family law matters is critical. They can objectively assess the company’s worth, considering factors like its assets, liabilities, earnings, and market conditions. This valuation is essential for ensuring a fair division of property.
Proactive, Full Financial Disclosure
Open and honest financial disclosure from the outset is crucial. Parties should gather all relevant financial documents, including tax returns, bank statements, investment records, and business financial statements. This transparency helps streamline the process, avoids costly disputes, and builds trust between the parties. Failure to disclose information can lead to negative inferences by the court and potentially impact the outcome of the case.
Additionally, meticulously maintaining documentary evidence is essential. Keep detailed records of all financial transactions, including bank statements, credit card bills, receipts, and tax returns. These records will be crucial in proving your financial position and supporting your claims in court.
Spousal Support Claims After a Long-Term Marriage
In long-term marriages where one spouse has been a stay-at-home parent, the non-earning spouse may have a claim for compensatory spousal support. This helps compensate the non-earning spouse for the economic disadvantages arising from the marriage, often due to their sacrifices for the family. They also may be able to claim non-compensatory spousal support, which focuses on alleviating the economic hardship resulting from the marriage breakdown.
Ultimately, in determining entitlement to spousal support, the courts will reference the Spousal Support Advisory Guidelines and a variety of factors, including the length of the marriage, the roles each spouse played, and their respective financial circumstances.
Holistically Looking at Income for Support
Courts will scrutinize all sources of income, not just what is reported on tax returns. In cases involving business owners, the court may examine the company’s finances, including pre-tax income and expenses. Be prepared to explain business expenses and demonstrate their legitimacy. Personal benefits disguised as business expenses may be added back to income for support purposes.
Contact Meridian Law Group in Vancouver for Trusted Advocacy in Family Law Disputes
For over three decades, the family and divorce lawyers at Meridian Law Group have provided strategic guidance and strong advocacy in family law disputes, including complex property division and spousal support. The firm takes a personalized approach, offering innovative legal solutions that go beyond expectations and achieve results for clients.
Conveniently located across from the courthouse in downtown Vancouver, Meridian Law Group represents clients across B.C., Canada, and internationally. To consult with an experienced family lawyer or schedule a confidential consultation, call (604) 687-2277 or contact us online.
