In Ontario, when two people enter into a marriage, each spouse becomes automatically entitled to an equal share of the profits of that marriage. This means that when you divorce, you and your spouse will need to begin dividing your assets so that each of you ends up with half the value of all property accumulated during the marriage. Be aware that in Ontario, this equal division of property does not automatically apply to a common-law couple.
Dividing property is never as easy as it seems, especially if there are notable assets such as houses, pensions, multiple bank accounts, vacation properties, investment accounts, and self-owned businesses. Deciding which spouse should get what can be confusing, even in the best situation. Here is a list of Do’s and Don’ts to consider when dividing your assets:
Do: Get Organized
Gather your documents together and make records of financial statements, credit card statements, car registrations, and the like. If you don’t have a clear idea of what property you have, you’ll never be able to separate it all.
Don’t: Separate Your Assets Without a Financial Disclosure
The financial disclosure process may seem tedious and exhausting, but it is extremely important! Financial disclosure ensures that both spouses have truly listed all of their assets and from before the marriage and at the date of separation. A Financial Disclosure Statement provides you with the information you need to make wise financial decisions and is a key component of making your separation agreement “legal, binding and enforceable” before the courts.
Do: Order a Formal Pension Valuation
You may be tempted to just take your pension while your spouse keeps theirs, but this ignores the actual valuation of each pension according to the terms of your marriage. Two Pensions can seem the same according to your Pension Statement but have drastically differing values according to a Pension Valuation. When you order a formal pension valuation, you will receive a valuation for family law purposes that informs you of the true value of your pension.
Don’t: Forget about Tax Implications, Realtor Fees and Mortgage Penalties
Its not just about transferring an asset from one spouse to the other. Some of your assets may be taxed now while others will most definitely be taxed when it is sold.
With regards to selling, remember it will cost to sell your home. If you are intending to keep the home, consider the realtor fees which can account for tens of thousands of dollars.
Lastly there likely will be a mortgage penalty if you are selling your home or refinancing for the purposes of buying out a spouse. This amount will either be a 3% interest differential or three months interest, depending on whether you have a fixed mortgage or a variable mortgage.
Do: Talk to a Professional
A Certified Divorce Financial Analyst (“CDFA”) is trained to maximize the value of your assets and to help you avoid nasty tax implications, while planning for your financial future. Consider speaking to an expert before you begin dividing your assets.
Don’t: Forget About Benefits Plans
If you were previously covered under your spouse’s benefits plan, you likely will not be any longer. This means that you will need to plan and budget for items such as dental, medications and eyeglasses.
Do: Think About Your Next Mortgage
Be aware that the new rules with respect to mortgages may prevent you from qualifying for a mortgage. For the payor of support, support will be considered as a debt and will lower your qualifying income. For the recipient of support, if spousal support makes up too great a portion of your income you will be declined. There are many creative financial solutions to this scenario.
Don’t: Forget About Gifts and Inheritances
Gifts and inheritances may be excluded from your net family property calculation and may not be considered matrimonial property as long as it wasn’t co-mingled into the marriage’s assets and did not go towards the matrimonial home in anyway.
The Unofficial Rules of Divorce:
- Divorce gets prickly, even in the most amicable situation
- It’s often less about the legalities and more about the money
- People make expensive mistakes because they don’t make a plan
- Before you do anything, understand your rights, obligations & complexities