Dividing High-Value Corporate Real Estate of Family Business in Divorce

Parties looking to get a divorce may have run a business together. After the breakdown of the marriage, the parties need to determine how to divide the property, including the business or businesses that operated during the marriage. 

This can be a complex issue after the business has grown significantly and its value has increased. It is often necessary to seek assistance from expert valuators to help value the business for property division purposes. Even with expert valuators, their opinions may differ significantly, and the court will need to reconcile the differences or give more weight to one over the other. 

In this post, we will discuss the case, Bidulock v. Bidulock, 2018 ABQB 474, which involves parties who owned high-value family businesses to be divided. In this case, there were significant differences between the expert valuations. This case provides insights into the court’s considerations in weighing the expert evidence, which can assist parties in understanding how the court makes a decision regarding the division of high-value matrimonial property. In particular, this post will explain how a court considers expert valuations for appraising real estate owned by a family business. 

Both wife and husband involved in family businesses 

In Bidulock, the parties were married for 24 years. During the marriage, the parties operated numerous businesses. One of the main businesses at issue was Power Merchants, a motorsports dealership started by the husband a few years before the marriage. The business held a retail-commercial building and leased another industrial building referred to as the “Boathouse” owned by the parties’ numbered company. 

Both parties ran the business together. The wife was also responsible for caring for their children and the matrimonial home. After separation, the wife continued to work for Power Merchants for approximately five more years. 

The Boathouse property was also owned by a numbered company in which the husband owned 51 per cent and the wife owned 49 per cent. 

Other than specific exemptions, the husband conceded that the wife was entitled to half of the marital property, including the abovementioned businesses. 

The revenue from Power Merchants ranged from $10 million to $5 million per year, depending on the economic circumstances at the time. 

Experts reached different valuations for parties’ businesses 

The businesses, Power Merchants and the numbered company were valued by two experts, who arrived at values that differed by $3.3 million. The court found that much of the discrepancy arose from different valuations of the real estate and inventory held by the businesses. 

Different appraisals of real estate 

Each of the business valuators used the results of different real estate appraisers. 

There was a difference of approximately $650,000 for the real estate valuations between the different appraisers. Ultimately, the court preferred one appraiser’s valuations over for the following reasons:

1. One of the experts held a designation requiring a higher education level. The court also found that his report involved a more sophisticated and detailed analysis due to his further education and qualifications. 

2. That expert also had more expertise in commercial real estate, the type of real property in the Bidulock case. The other expert’s expertise was more limited concerning commercial real estate. 

3. One of the experts also had particular expertise in real estate appraisals in the jurisdiction of the properties at issue. 

4. The expert also used a method that focused on comparing the real estate with sales of other properties in the same jurisdiction. The court found that this was an effective way to compare and provide a value for the real estate. This was done to a lesser degree in the other report. 

5. The expert whose report was accepted also used a different valuation approach to serve as a check on his primary approach. 

6. It also needed to be clarified why one of the experts did not use a consistent approach to value all of the properties. The court found that this undervalued some of the properties. 

7. As the owners held the properties for a long time, the court considered that it would be unlikely to be used for other purposes, such as rent or investment. Therefore, the Direct Sales Comparison Approach was more appropriate and was used in the expert report that the court ultimately accepted. 

8. In the expert report that the court did not accept, it was unclear why the expert focused on comparing the real estate at issue with one property with a significantly lower value. This comparison led to the real estate at issue being undervalued, which the court did not accept. The expert’s report accepted by the court involved specific criteria for comparing the properties with others, which limited subjectivity in the expert’s analysis. 

9. Some of the data used in one of the approaches needed to be updated, which led to a lower value. 

10. For one of the properties, the court found that ongoing maintenance was likely necessary, which would affect the value. In the accepted report, the court found that the expert did not incorporate a high enough amount to be set aside for one of the properties that required further maintenance. The court adjusted the value accordingly. 

The court accepted one expert’s report over the other due to issues in one of the reports, which undervalued the properties. The court found that the properties were valued at $2 million. 

Key Takeaways 

If real estate is a key component of a business to be divided as matrimonial property, it can be a complex matter that requires the assistance of expert valuators. The court can consider which approaches the experts to adopt and how appropriate they are in a particular circumstance. For instance, in the Bidulock case, the court found that the Direct Sales Comparison Approach was more suitable than the Income Approach, as the properties were held for a long time by the owners and would likely be used for the same purposes rather than for rent or investment. Also, the court may consider if similar comparisons are available in the same jurisdiction, which can be helpful, as in the Bidulock case. Ultimately, the court will undertake a highly analytical approach to assess expert reports with competing results. The court may end up accepting one, both, or none of the reports as a baseline and make adjustments as needed. 

Mincher Koeman Lawyers in Calgary and Canmore Can Assist with Matrimonial Property Division Involving Real Estate in a Family Business

In some cases, spouses may work together to build up a family business that will need to be divided upon divorce. The business may also own real estate, and it is important to provide evidence of the valuation so that the court can make a determination on property division. The valuation and division of property held by a family 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.