March 25, 2015
By Nathalie Boutet
Engineers are not immune from the devastating impacts of marriage breakdown, but using "collaborative negotiation" can help ease the division of assets and the impact on your business.
This article is from the March/April 2015 print issue, page 38.
Engineers have it made. According to a 2010 study from Radford University in Virginia, engineers are among the professions with the lowest divorce rates. They also rank amongst professions with the top-paying starting salary in Canada.
Still, with the Canadian divorce rate continuing to hover around 30-40% of first marriages in the general population, some engineers are bound to suffer a family breakdown, which can devastate a lifetime of hard work.
This article summarizes matrimonial property laws and how they can affect your busines. It then describes best practices for completing a legal separation.
Canadian provinces and territories create what is often referred to as “community of property” where the net value of certain assets acquired during the marriage are divided equally on separation.
Assets acquired by gift or inheritance are not shared with a separating spouse provided they are not co-mingled with other property.
To ensure a spouse’s compliance with family law obligations, Canadian family laws convey significant powers to the court, including vesting assets into the name of the other spouse, ordering the partition and sale of property, or making a preservation order against the business.
If the non-title spouse becomes the owner of shares in the other’s business through a vesting process, that spouse will have access to the financial statements of the corporation and will have the right to vote on matters affecting the shareholders. If the separation is litigated in court, sensitive and private financial and business information filed with the court will become public and accessible by anyone, including competitors. This can have devastating impacts on the operations of a corporation or a partnership.
Common law spouses
Depending on the province or territory, common law spouses are generally classed as spouses who live together for two or three years.
In some provinces such as Saskatchewan and Nova Scotia, common law couples have the same rights as married couples to divide their marital assets upon a marital breakdown. But in the majority of the provinces and territories, common law couples do not have the same rights and the division of assets on separation can become even more complicated than for married couples. Normally each common law spouse keeps the assets in their respective name. However, a spouse without title could make a claim against the assets of the other if they can establish that they made some contribution towards the value of the assets of the other spouse. This becomes complicated and costly.
Processes for legal separation
A mistake professionals make is not to research what legal separation process is best suited to their situation before embarking on it.
There are generally six legal processes available to separating families: (1) spouse-to-spouse negotiation, (2) collaborative negotiation, (3) mediation, (4) traditional negotiation, (5) arbitration, and (6) court.
Going to court is a last resort because people have no control over the outcome. Also, their personal and sensitive business information becomes public, and judges have the power to make seriously disruptive orders.
Collaborative negotiations and mediation are much better suited for resolving marital disputes, especially for families that have a high net worth and when there is a business involved. In these private out-of-court systems, separating spouses can constructively address their personal, business and financial affairs, craft solutions that are personal to them and their business, and find more attractive tax and financial solutions. For example, the separating couple could work together to design their spousal support arrangement to maximize the tax deductions possible for the support payor in cases where there is a high income earner and a low income earner such as a stay-at-home parent. The collaborative law lawyers or mediator will likely recommend the use of jointly retained, neutral professionals such as certified business valuators to limit disputes and contain professional fees.
Collaborative negotiation differs from traditional negotiation in that collaborative lawyers are trained in the most advanced negotiation system called “interest based negotiation,” a methodology inspired by the Harvard University model, with high standards and ethics.
By contrast, in traditional negotiation, because there are no negotiation protocols or code of conduct, spouses frequently end up being subjected to bullying tactics, such as the threat that the matter will be taken to court unless a proposal is accepted.
Spouse-to-spouse negotiation occurs when the spouses discuss their issues and try to resolve them by themselves. This is only recommended in simple cases where there is a high degree of trust between the spouses.
Going through a divorce is a devastating experience that impacts the emotional and financial well-being of the family. Everyone benefits when it’s done amicably.
Nathalie Boutet is a family law lawyer and negotiation expert whose practice focuses on keeping divorces out of court. She is based in Toronto. www.boutetfamilylaw.com or firstname.lastname@example.org.