"Reapportionment" of the Increase In Value of a Company

The court considered the question of reapportioning the increase in value of a company in the case of Kuhlberg v. Hall, 2015 BCSC 2230 (CanLII). 

In that case, the parties began cohabiting in November or December 2008 (para 17). The company in question provided mechanic services to companies operating in the oil and gas industry (para 31). The respondent started the company in 2003. The company started out as a proprietorship but was incorporated in 2008. Sometime after the relationship began, the respondent began to do some bookkeeping services for the company. The claimant received a $4,000 monthly salary from the company including occasional bonuses (para 37). The claimant stated that she spent 7 to 10 hours per week attending to payroll, invoicing, tax remittances and general correspondence with the company's accountants (para 38). In support, the claimant produced a large number of emails which purported to be her communications on behalf of the company to accountants and other professionals, including some emails that were originally addressed to respondent but that the respondent had forwarded to the claimant to handle (para 39). 

The court found that the parties lived in a marriage-like relationship from December 1, 2008 to September 15, 2013, a period of just less than 5 years (para 74). 

A business appraisal for the company was completed. The respondent took issue with the valuation in relation to the issues of goodwill and the tax rate (para 78). However, the court accepted the values as indicated in the report because the report was jointly obtained and the author of the report did not attend at trial for cross-examination (para 79). The court did, however, consider the issue of goodwill in the context of reapportionment (para 80). 

When considering the issue of reapportionment, the standard to be met is s. 95 of the Family Law Act in that it must be "significantly unfair" (para 137). The court then reviewed several cases on the issue of "a spouse's contribution to the career or career potential of the other spouse" as set out in s. 95(2)(c). The court commented that , "The realty [sic] of most relationships is that each partner contributes in different ways to the joint enterprise and there is unlikely to be precise equality of contribution, particularly financial contribution" (para 139). Ultimately, On the facts of the case, the court found that the claimant did not make a meaningful contribution to the respondent's career as referred to in s. 95(2)(c) (para 148). The court ultimately reapportioned the increased value of the company 100% in the respondent's favour for the reasons as set out in paras 150 and 151 below: 

[150]     I am satisfied that this is a case in which it would be significantly unfair to divide the increased value of JHM equally between the parties and that the value should be reapportioned 100% to the respondent. I come to this conclusion for the following reasons:

a) The parties’ relationship was of a relatively short duration, which is a factor specifically referred to in s. 95(2)(a)  In A.M.D. v. K.R.J., 2015 BCSC 1539 (CanLII), Madam Justice Sharma held that a relationship of four years and three months was of “short duration” which was a “strong” factor in favour of reapportionment;

b) The business was started by the respondent in 2003, before the parties met, and was built solely through his efforts and expertise;

c) To the extent that there is any goodwill attached to JHM, the evidence is clear that it is generated solely as a result of the respondent’s personal involvement and efforts;

d) JHM commenced working for Continental Pipeline, now its principal client, in 2007, again before the parties met. Contrary to the claimant’s assertion, she had no role in obtaining or maintaining that client.  Again, it cannot be said that the claimant made a significant contribution to the respondent’s career or business within the meaning of s. 95(2)(c);

e) While, as noted, the claimant was more involved in JHM than the respondent was prepared to acknowledge, her involvement and contribution were far less than she asserted. On this point, it is worth noting that JHM had outside bookkeepers and accountants on retainer for virtually the entire time that the claimant was involved with the company; and

f)  For her relatively minimal contribution, the claimant was paid $4,000 per month. Between 2010 and 2013, she was paid approximately $200,000 from JHM, an amount which significantly exceeds the value of the work done by her. The respondent’s evidence was that currently he averages about $150 per month in outside bookkeeping costs. The claimant was also reimbursed through JHM for her fuel costs, which the respondent estimates amounted to about $21,000 between 2010 and 2013.

[151]     These factors, combined with the fact that the claimant will receive a significant financial benefit from her share in the two residential properties, for which she made a minimal financial contribution, support the conclusion that it would be significantly unfair to afford the claimant an equal, or any, share of JHM. Again therefore, the value of JHM will be reapportioned 100% to the respondent.

Full case found below: 

https://www.canlii.org/en/bc/bcsc/doc/2015/2015bcsc2230/2015bcsc2230.pdf

Family Law Act found below:

http://www.bclaws.ca/civix/document/LOC/complete/statreg/--%20F%20--/Family%20Law%20Act%20[SBC%202011]%20c.%2025/00_Act/11025_00.htm