How Will a Book of Business be Treated in Divorce?
When you and your ex-spouse decide to divorce, family property will be divided pursuant to the Family Property Act, Alberta. If you or your ex have a “book of business” or “book of clients”, you may wonder what the courts say about dividing the book of business between the parties to a divorce.
Based on the Canadian and Alberta case law, courts typically treat a book of business as family property subject to the presumption of equal division (see for example, RD v LWD, 2019 ABQB 703; Sarkozi v Pereira, 2012 ONSC 4011; LMJ v RGJ, 2015 SKQB 136; Jones v Jones, 2017 SKCA 46; SRM v NGTM., 2014 BCSC 442; Lightle v Kotar, 2014 BCCA 69).
The only exception to this approach provided within the case law is where the evidence establishes that a spouse’s book of business has no positive value, and is therefore not a family asset to be considered for division (see SRM v NGTM, 2014 BCSC 442).
When determining the fair market value of the book of business, courts do reduce the overall value by taking personal income tax into account. When the owner spouse has the ability to take the clients away with him or her, from the company at which they are employed, the book will have a higher property value for distribution (SRM v NGTM, 2014 BCSC 442).
The Alberta case law clarifies that to avoid “double dipping” income for support purposes should be reduced where the payor spouse’s income is related to their book of business. On this issue, in RD v LWD, 2019 ABQB 703, the Honourable Madam Justice L. Bernette Ho ordered as follows:
[155] Because LDWM (LD Wealth Management book of business) is being valued and distributed as matrimonial property, both Mr. Manek and Mr. Jack (the two experts) agreed that $175,000 per year should be used as the father’s annual income on a go forward basis for the purposes of determining support to guard against creating a “double dipping” issue. I accept this position and direct that the mother’s spousal support should be set on the basis of the father having an annual guideline income of $175,000 on a go forward basis. The father’s counsel provided SSAG ranges based on the father having an income of $175,000 per year, and the mother having an income of $40,000 per year. The low end of the range for spousal support was $3,881 and high end was $5,175 [text in brackets added].
In AAG v JLG, 2019 ABQB 17 the Honourable Madam Justice M.H. Hollins declined to adjust the Father’s Guideline income to include the percentage of revenues retained by the company as argued by the wife, for one of the following reasons:
[11] The percentage of revenues retained by the company for the benefit of the previous employee are not part of the Father’s line 150 income on his tax return. While that alone would not be determinative of whether or not to include those revenues in his Guideline Income, the bottom line is that he does not and cannot opt to receive them. To order support paid now as though he was receiving and otherwise using that money would be unfair to him and would complicate the Mother’s future requests for recalculation once the Father’s actual income includes the future increased revenues [emphasis added].
It therefore seems that Alberta courts will reduce the payor spouse’s income on a go-forward basis to account for the valuation and distribution of the book of business in family property distribution.
In cases involving complex financial aspects, it may be helpful to engage an expert to provide evidence to the court. If you have questions about property division in divorce, the experienced family lawyers at Vogel LLP can assist you.