NL Court of Appeal refuses to divide ‘business asset’ between separated couple

The Newfoundland and Labrador Court of Appeal has refused to divide a proprietorship classified as a business asset of a separated couple because the evidence presented was insufficient for the judge to make a proper distribution.

In Shannahan v. Clowe-Shannahan, 2022 NLCA 57, James Shannahan and Michelle Clowe-Shannahan owned a proprietorship known as M & L Enterprises, which started operating in 2017 under Michelle’s name. M & L had a business account at the Mount Pearl branch of Scotiabank, which was also under Michelle’s name.

A fire broke out in the parties’ house shortly after the business started operating. At the time of the incident, Michelle was in Calgary, and she suspected James was somehow involved in the fire. Michelle wanted nothing further to do with the relationship, so the parties separated.

The home insurers paid the parties approximately $58,000. James claimed that Michelle had spent or redirected the funds to M & L’s business account and to her personal account. He also alleged that transfers between the two accounts were frequent, and the funds were intermingled for business and personal purposes. The amount in the two accounts was $122,536, and James asserted that he was entitled to half of it. Michelle, on the other hand, claimed that James had already been partially reimbursed for the insurance claim, and that M & L had debts to be set off against the value of M & L’s assets.

Business or matrimonial asset

The trial judge characterized M & L as a business asset, but the judge refused to divide the assets or debts of the proprietorship between James and Michelle because the evidence before her was insufficient to enable her to make a proper determination.

The matter was raised to the appeal court, which ruled that it was immaterial whether M & L was characterized as a business asset or a matrimonial asset. The court explained that had M & L been characterized as a business asset, James would have been required to establish that he had “contributed work, money or money’s worth in respect of” the proprietorship in Michelle’s name in order to be entitled to relief. On the other hand, had M & L been characterized as a matrimonial asset, James was presumptively entitled to an equal division of its assets.

In any case, Michelle had agreed that James was entitled to a one-half interest in the business. The appeal court concluded that the characterization of M & L was not material and did not affect the trial judge’s decision whether or not M & L’s assets or debts should be divided equally between the parties.

Valuation of proprietorship

Despite ruling that M & L’s assets or debts should be apportioned equally between the parties, the evidence before the trial judge was insufficient for her to determine the net value of M & L. The judge said it was “impossible to divide either the assets or debts of this business.”

As a result, the judge could not equally distribute M & L’s net value between the parties. The appeal court noted that neither party called the bookkeeper who had been paying the bills and preparing the payroll and concluded that, regardless of whether M & L was a matrimonial or a business asset, the judge needed reliable evidence of M & L’s assets and liabilities in order to determine its value for purposes of equal division between the parties.