Whether a spouse who has been treated as a 50% shareholder of a company that they jointly built should be entitled to a 50% division of same, even if the limitation period for equalization has run out.
This trial involved the division of a business that was built together by two spouses. The parties started the company together and when they separated the business was not divided, although their family law issues were mostly resolved. After separation, both spouses continued working in the business, being paid equal compensation and equal dividends from the company. When the relationship took a turn, the limitation period for seeking equalization of net family property had run out. The husband terminated the wife’s employment and refused to authorize dividends from the company. The trial was held to determine the percentage of the company held by each of the parties and the value of same so that husband could buy the wife out of the business. There was discrepancy as to the percentage of shares actually owned by each spouse as the share registry demonstrated that the husband held 70% of the common shares and the wife held 30%, despite parties building the business together. The husband argued that the shareholdings demonstrated the correct division, and the wife was seeking a 50% ownership. However, there was evidence to support the wife’s claim, including correspondence noting that the wife had a 49% ownership interest and the husband held 51%, in addition to the dividends being paid out to the wife that reflected a 50% ownership.
The judge noted that the behaviour of the parties following the separation was very telling as to what the shareholdings were in the company including the facts that (1) the wife did not claim equalization, as she believed she was a 50% owner and (2) that the husband ensured he and the wife were treated equally in terms of income and dividends. The wife’s compensation being equal to the husbands demonstrated the understanding that both parties were equal shareholders since 2011, which caused the wife to rely on equal treatment and therefore not pursue the claim for equalization. The wife was not barred from bringing the claim due to the limitations period running out as the judge noted that a reasonable person would not have commenced a lawsuit while they were being treated as a 50% shareholder of the company. The judge therefore concluded that the wife held 50% of the shares of the company.
The judge also commented that had she not determined that the wife was a genuine 50% owner, she would have also found that based on good conscience, 20% of the husband’s shares in the company were subject to a constructive trust in favour of the wife. In addition to the two general ways that a constructive trust is found, wrongful act/gain and unjust enrichment, the judge confirmed that “the umbrella of good conscience” should, at times, encompass more than these two circumstances.
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