Divorce Considerations for Entrepreneurs

In order to control expenses, the entrepreneur’s spouse has volunteered in the company. This assistance also allowed the entrepreneur to devote himself entirely to his professional activity while his partner took care of domestic responsibilities, including childcare. However, the question arises: in the event of the dissolution of the couple, what will happen to the company? What legal implications does marriage or civil union have for the business structure?

The Impacts of Marriage and Separation on Your Business

The act of starting a business is a significant milestone, comparable to entering into a marriage or entering into a civil union. We are fully aware of the fact that, although the affection towards your partner is undeniable, you do not necessarily want to concede a share of the company in the event of a separation. It is therefore essential not to wait for the possibility of a separation to consider your company’s backup strategies. Several measures can be implemented to ensure the sustainability of the company in the event of a marital breakdown. This is why it is wise to seek the advice of a lawyer or notary before the union, in order to adopt the most appropriate measures to protect your interests. To shed light on this issue, let’s look at the potential impact of marriage or civil union on the business. It should be noted at the outset that Quebec recognizes three matrimonial regimes: partnership of acquests, separation of property and community of property. Before 1 July 1970, the default regime was that of community of property, in the absence of a choice expressed by the spouses. From that date, the partnership of acquests regime took over as the default legal regime. Given the current rarity of community of property as a matrimonial regime, this article will focus on the other two regimes.

The partnership of acquests

The partnership of acquests is the standard matrimonial framework in the province of Quebec. In the absence of a nuptial contract, the spouses are de facto subject to this mechanism. However, it is possible to opt for this same regime when drafting a marriage contract, which is why it is important to examine it carefully to determine the applicable terms. According to the provisions of this regime, property is categorized into two distinct groups: personal property and acquired property. The former remain the individual property of one of the spouses, while the latter are intended to be divided upon the dissolution of the marriage or civil union. To properly classify a business, it is advisable to consult the relevant articles of the Civil Code of Québec, in particular article 450, accessible via the link: https://elois.caij.qc.ca/CCQ-1991/article450 . A business becomes personal property if it was obtained before the marriage or civil union, or if it was received by way of inheritance or gift. Conversely, any business acquired during the marriage or civil union is deemed to be an acquest, which implies a division at the time of separation. The income of a business, regardless of when it was acquired, is treated as an acquest. However, if the company is own property and the income generated is reinvested in it, then it is considered to be own, subject to a reward for acquired property, involving compensation when the property is divided. However, this compensation is not required if the investment is necessary to maintain the profitability of the company. It should also be noted that intellectual and industrial property rights are qualified as personal property, while the income derived from these rights during the marriage is acquired property. It is essential to understand that the rules governing the partnership of acquests can be restrictive for entrepreneurs. Without an express choice in a marriage contract, or in the absence of such a document, these rules prevail. To avoid the legal consequences inherent in this regime, the use of a marriage contract establishing the separation of property is recommended.

Separation of property

The separation of property regime offers spouses or civil union partners individual ownership of their assets, acquired both before and during the union. It is important to emphasize the imperative to expressly choose this mechanism within a marriage contract to give it legal value. If it is not possible to attest to one’s individual right of ownership over a property, a presumption of co-ownership in equal shares is established. Nevertheless, the adoption of this regime does not constitute an absolute bulwark against the claims of a former spouse. Indeed, in certain circumstances, the latter may claim a compensatory allowance. This allowance is paid by one spouse to the other in recognition of his or her contribution, often undervalued, to the family business. A typical example would be that of a wife who took on the role of secretary or accountant on behalf of her entrepreneur husband, without receiving equitable remuneration for her long-term commitment.

The legal impacts of marriage or civil union on the incorporated business

The incorporated business is an effective bulwark against the legal implications of marriage or civil union. Indeed, the creation of a joint stock company, a legal entity with its own assets, can be a relevant strategy to preserve your entrepreneurial assets. In the event that this option interests you, our firm is at your disposal to enlighten you on the benefits of incorporation, both on a general and family level. It is essential, however, to ensure that all the legal consequences of marriage or civil union are properly taken into account in a nuptial contract. Our firm also offers incorporation services in accordance with the provisions of the Business Corporations Act and the Canada Business Corporations Act. Opting for our services will free you from the complexity of legal procedures, since we will take care of the entire process of incorporating your company.