Business Professionals & Entrepreneurs, Divorce, Property·Written on behalf of Mincher Koeman·Posted on October 16, 2023
Corporate Share Bonus Equally Divided as Family Property
During a divorce, parties must either decide how to divide their assets or have a court decide for them. Various types of property can be considered family property. Some common family assets include the matrimonial home, other real estate, and corporate shares held by one or more of the parties. These assets can be very valuable, so it is important to understand how they may be divided upon divorce. Generally, property held in one or both of the parties’ names will be divided equally unless there are reasons for unequal division.
In this post, we will discuss how the court will consider certain types of property for division purposes. In particular, we will examine how the court examines corporate shares from a party’s employer. In a key case, Martin v. Martin, 2016 ABQB 425, the court found that the husband’s valuable corporate shares received from his employer were to be equally divided. As the husband’s employer-provided these shares, it may seem surprising that the wife was entitled to the value of the shares. Also, the share bonus associated with the husband’s shares was treated as family property to be divided rather than as income.
Even if property is solely held in one party’s name, it can be considered family property to be divided
Sections 7 to 8 of the Family Property Act (formerly the Matrimonial Property Act) set out Alberta’s family property division scheme. According to section 7(1), when deciding on the distribution of family property, the court can consider all property owned by one or both parties involved.
Certain exemptions can be applied to this property, however. For instance, exempt property may include property acquired by one of the spouses before the marriage. In those situations, the other party would only be entitled to the growth of the value of that property. There will need to be evidence of the value of that exempted property at the time of marriage or when the party acquired it, whichever is later.
The value of the property to be divided will be valued at the date of trial. Understandably, there may be considerable growth in the value of some property held by the parties, including any corporate shares that one receives from the company for which they work. As discussed below, this type of property may be divided equally amongst the spouses upon a divorce.
Wife receives 50% value of the husband’s corporate shares from his employer
In the Martin case, the court decided that the wife was to receive half of the value of the husband’s corporate shares that he received from his employer. The shares were highly valued at approximately $1.5 million.
The parties were married for 27 years before separating in 2011. They were divorced in 2015. Also, the parties had three children together.
While the parties were married, the wife mainly stayed home to care for the household and the children. She did not work outside the home because she also had experienced a back injury in 1993. The marriage was traditional because the wife cared for the home and children while the husband worked.
The parties lived comfortably due to the husband’s work with his employer, Midwest Surveys Inc. The court found that the husband could focus on his work with Midwest, as the wife took care of all household and childcare duties.
Only employees could own shares because Midwest was a privately held, employee-owned company. The husband began acquiring more and more shares after the marriage began. He became the single largest shareholder of Midwest by the time of trial. In most years while working for the company, he was paid a salary bonus based on performance and a share bonus based on the proportion of shares he owned.
The husband claimed the share bonus should not be treated as family property. Instead, he argued that it should be classified as income for spousal support purposes to avoid double-counting family property and spousal support. The wife claimed that the share bonus should be considered family property, as it was not based on performance like the salary bonus and simply depended on the number of shares owned.
The court found no evidence that the share bonuses were discretionary or dependent on the husband’s performance. In other words, the share bonuses were simply based on the proportion of shares owned. Therefore, they were considered an asset rather than an income stream and would be included as part of the family property division. The share bonuses were, therefore, ordered to be equally divided alongside the value of the shares held by the husband.
Did the shares’ value come from the employer company’s sale?
Notably, the court in Martin distinguished this case from a former case dealing with corporate shares from the employer of one of the parties, Devlin v. Devlin, 2014 ABQB 616. In Devlin, the court decided that the wife would receive only 25% of the husband’s corporate shares. Most of the shares’ value came from the company’s sale, reflecting employee and shareholder contributions. In other words, the company’s value was built up by the employees’ work, such as the husband. The husband also held a significant portion of the shares from before the parties were married. The court also noted the short length of the marriage in Devlin. Given all of these factors, the court decided that it would be unfair for the wife in that case to receive half of the value of the shares, given that much of the value came from the husband’s commitment towards building up the value of the company, including before the marriage.
Corporate shares, including any related share bonuses, are considered family property to be divided. It is important to, therefore, consider the valuation of these shares and bonuses for settlement or a trial determination of family property division.
Mincher Koeman Family Lawyers In Calgary and Canmore Can Assist with Matrimonial Property Division Involving Corporate Shares
During a marriage, parties may have built up the value of corporate shares, which may need to be divided as family property upon a divorce. The valuation and division of property held by a business is a complex matter that is highly specific to the circumstances of the case, so you should speak with one of our family law lawyers at Mincher Koeman, who are experienced in assisting business professionals and entrepreneurs with issues involving property division. Our Calgary family law lawyers are dedicated to finding the best resolution for you after your divorce.
To book a consultation, please contact us online or by phone at 403-910-3000.