Disposition Costs in Family Law: A Comprehensive Guide

In the complex world of valuing matrimonial assets involving a business in a divorce, a critical issue often encountered is the treatment of contingent disposition costs. Understanding Disposition Costs Disposition costs in a business context refer to expenses incurred during the sale of business assets or shares. These may include:
  • Commissions to real estate agents
  • Broker fees
  • Taxes from the sale
Due to the time value of money, these costs often need consideration at their present value. Disposition Cost Considerations There are several approaches to handling disposition costs:
  • Full Inclusion: Apply the total cost if it’s expected to be incurred immediately.
  • Exclusion: Omit the cost if it’s likely to be incurred in the distant future or if tax planning strategies will defer these costs.
  • Discounting: Apply a discounted rate if disposition is anticipated between the near future and distant future. A 50% inclusion might be used when timing is uncertain.
Case Study: Sengmueller v. Sengmueller (1994 ONCA) The landmark Canadian case, Sengmueller v. Sengmueller, introduces the “Sengmueller Discount”. This principle mandates accounting for a corporation’s disposal costs in net family property calculations under the Family Law Act. When to Apply Sengmueller Principles Disposition costs should be included if:
  • Costs are inevitable upon disposal.
  • There’s credible evidence of a disposal date.
For most assets, such as stocks and real estate, the first condition is usually met. When a disposal date is identifiable, costs are estimated and adjusted for the time value of money as of the valuation date. In cases where a disposal date is uncertain or too distant, these costs are typically not considered. Understanding and applying these principles in family law can be intricate. At Aspen Valuations, we specialize in navigating these complexities. Contact us for personalized assistance in managing disposition costs in your family law matters. Contact us
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