Business Valuation for Divorce

The Facts About Business Valuation for Divorce in Canada

Business value can increase, decrease, or collapse depending on the transferability and survivability of intangible assets.

Appendix: Bibliography of Authority

References supporting the identification, transferability, and valuation of intangible assets in Canadian divorce proceedings.

The following independent global institutions provide the empirical foundation for the 68% Intangible Asset Midpoint used in this forensic business valuation for divorce. These authorities confirm two critical realities:

• Intangible assets now represent the majority of business value, and
• That value is conditional it may or may not survive separation from the operating spouse.

The Scale of Global Assets and the Divorce Valuation Paradox

In 2026:

• Approximately 68% of business value is intangible.
• In many divorces, that 68% is either overstated or entirely missed.

Why?

Why Traditional Valuation Approaches Fail in Divorce

Market Approach

Fails when sales are hypothetical or when the business is unsaleable without the operating spouse.

Asset Approach

Assumes assets retain value independent of operation often false in divorce.

Income Approach

Projects earnings without testing their dependency on a specific individual. When owner-dependence exists, projected income may be fiction.

Forensic Valuation Requires Identification and Survivability Testing

Intangible assets cannot be assumed. They must be:

• Identified
• Measured
• Weighed
• Stress-tested for survivability post-separation

That is the purpose of the Eric Jordan 25 Factors Affecting Business Valuation, applied together with the 5 Senses Inspection Report. This methodology does not presume value. It proves or disproves it.

Experience Is Not Optional It Is Biological

Determining whether a business survives the loss of its owner cannot be done from a spreadsheet. Neuroscience confirms that expert judgment under complexity relies on the Gut-Brain Axis, developed only through long-term hands-on business operation. A practitioner who has never operated a business may lack the biological capacity to detect fragile, person-dependent value regardless of credentials.

1. The World Bank Group

Primary Reference: The Changing Wealth of Nations 2024: Managing Assets for the Future

Key Findings

The World Bank’s Comprehensive Wealth framework demonstrates that in high-income OECD economies, intangible capital accounts for approximately 70%–80% of total economic wealth. This includes human capital, institutional knowledge, operational systems, trust networks, and organizational continuity.

Application to Divorce Valuation

• In divorce, this establishes that the majority of business value is not physical but it also raises a second question: Does that intangible value belong to the business or to the individual spouse?
• A valuation that assumes all intangibles are divisible overstates value.
• A valuation that ignores intangibles entirely understates value.
• Only forensic identification can determine which outcome is correct.

2. McKinsey Global Institute (MGI)

Primary Reference: The Rise and Rise of the Global Balance Sheet

Key Findings

Since the 1990s, investment in intangible assets (software, IP, data, proprietary processes) has grown more than three times faster than investment in physical assets.

Application to Divorce Valuation

• This validates the weighting of Factor #4 (Proprietary Systems) and Factor #15 (Proprietary IP) but with a crucial caveat.
• If these systems reside in the mind, relationships, or personal execution of the spouse, they may not be transferable to the business entity.
• In such cases, the intangible value may collapse upon separation, leaving only tangible assets behind.

3. UBS / Credit Suisse Global Wealth Reports

Primary Reference: Global Wealth Report 2024–2025

Key Findings

Global asset value now exceeds USD $500 trillion, with increasing reliance on intangible networks of trust, customer loyalty, and experiential continuity to sustain market prices.

Application to Divorce Valuation

• This supports the 5 Senses Inspection Report, which determines whether customer trust is:
• Institutional (attached to the business), or Personal (attached to the operating spouse)
• Only institutional trust is divisible marital property.

4. OECD

Primary Reference: OECD Compendium of Productivity Indicators (2025)

Key Findings

The OECD identifies Knowledge-Based Capital (KBC) as the primary driver of modern productivity and explicitly acknowledges that traditional financial statements “hardly detect” organizational and reputational assets.

Application to Divorce Valuation

• This creates a legal obligation, not an option.
• If traditional accounting cannot detect these assets, then a divorce valuation must use a methodology capable of identifying, testing, and stress-testing them including whether they survive the hypothetical exit of the operating spouse.

Appendix: Glossary of Forensic Valuation Terms

(Divorce-Specific – 2026)

1. Knowledge-Based Capital (KBC)

Definition: Intangible assets that generate future economic benefit without physical embodiment.

Divorce Application: KBC may be enterprise-based (divisible) or personally embedded (non-divisible). Distinguishing between the two is essential to equitable division.

2. Stranded Assets (Assets-at-Risk)

Definition: Assets that lose value when separated from the operating ecosystem that sustains them.

Divorce Application: If the operating spouse exits and the business cannot function independently, machinery, equipment, and even licenses may become stranded reducing the business to liquidation value only.

3. Operating Spirit (Going-Concern Core)

Definition: The functional DNA of a business the combination of systems, processes, and customer trust that produces earnings above industry norms.

Divorce Application: If the Operating Spirit leaves with the spouse, the going concern may cease to exist. If it remains with the entity, the business retains intangible value.

4. Intangible Residual

Definition: The value remaining after deducting tangible assets.

Divorce Application: This residual may persist, shrink, or collapse to zero depending on transferability and survivability.

5. Technical Obsolescence Risk (Factor #7)

Definition: Risk that a business’s core value driver is being replaced or is overly dependent on a single individual.

Divorce Application: Owner-dependence is a form of obsolescence risk. If the owner exits, value may disappear.

The Evidentiary Consequence in Divorce

A business valuation that:

• assumes intangibles exist when they do not, or
• ignores intangibles when they do

produces inequitable outcomes. Courts require explainable, testable evidence, not assumptions.

Conclusion

In divorce, business value is not fixed. It may increase, decrease, or collapse entirely depending on whether client relationships, systems, and revenue streams are transferable to the business or remain personally attached to the operating spouse. Only forensic valuation can tell the difference.

The Divorce Act (Canada)

1. What the Divorce Act is (and is not)

• The Divorce Act is a federal law enacted under Parliament’s constitutional authority. It applies uniformly across Canada.
• It governs only one thing: the legal dissolution of a marriage.
• It does not govern: property division, business ownership disputes, equalization of net family property, or unmarried couples (provincial matters).

2. When the Divorce Act applies

• The parties are legally married
• One spouse applies for a divorce
• At least one spouse has been ordinarily resident in a province for 1 year

If there is no divorce, the Divorce Act does not apply full stop.

3. Grounds for divorce (Section 8)

• Separation for 1 year (most common) can be under the same roof; can start retroactively; no consent required
• Adultery must be proven; rarely worth the emotional or legal cost
• Physical or mental cruelty must make cohabitation intolerable; high evidentiary threshold

In practice: 95%+ of divorces rely on one-year separation.

4. Parenting orders (major 2021 modernization)

• “Custody” and “access” were eliminated; replaced with decision-making responsibility and parenting time.
• Best interests of the child (Section 16) includes child’s needs, relationships, history of care, child’s views (age-appropriate), support for the other parent relationship, and family violence.
• There is no presumption of 50/50 parenting.

5. Child support (federal but formula-driven)

• Child support is a right of the child (not the parent).
• Uses the Federal Child Support Guidelines (table-based, income-driven, largely non-negotiable).
• Courts have limited tolerance for income manipulation or artificially depressed earnings especially where a spouse owns/controls a business.

6. Spousal support (the most misunderstood part)

• Governed by the Divorce Act plus the Spousal Support Advisory Guidelines (SSAGs) (not law, but heavily relied upon).
• Entitlement is not automatic; courts consider length of marriage, roles, economic disadvantage/benefit, self-sufficiency, compensatory vs non-compensatory claims.
• Support can be temporary, fixed-term, or indefinite (often after long marriages or age 65+).

7. Enforcement & variation

• Orders can be varied if there is a material change in circumstances.
• Enforced provincially (e.g., FRO in Ontario, MEP in Alberta).
• Common triggers: retirement, business sale, illness, significant income change, children aging out.

8. What the Divorce Act deliberately avoids

• Who owns the house
• How businesses are valued
• Equalization of property
• Division of shares or goodwill

Those fall under provincial family property law where valuation professionals enter the picture.

9. Why the Divorce Act matters financially

• Determines ongoing obligations (support)
• Drives income analysis
• Forces courts to look behind tax returns
• Creates long-term cash-flow consequences

It answers: “What must be paid, to whom, and for how long?”
It does not answer: “What is the business actually worth?”

10. Practical bottom line

• Federal law
• Marriage + divorce only
• Uniform across Canada
• Focused on divorce, children, support
• Property and business value are provincial matters