How Your Debts Can Actually Help Your Property Claims in Your Separation or Divorce in Ontario!
In this video, we will discuss specifically what’s included in your net family property and your spouse’s net family property to determine which spouse must pay an equalization payment to the other spouse.
Hi, my name is Thomas O’Malley. I’m an experienced family lawyer in Durham Region and the GTA.
What property must be included in your net family property?
You must list every type of property that you own.
Your spouse must also list every type of property that they own.
Property includes every type of personal property and real property or real estate.
If you or your spouse have any type of ownership in any type of property, you both must reveal this.
Property includes practically anything that has commercial value-anything that can be bought or sold. This includes any interest in any type of business, stocks, bonds, mutual funds, copyrights, trademarks, inventions.
Your pension with your employer forms part of your net family property.
If your spouse has been with a company for a number of years, your spouse’s pension could be worth thousands of dollars.
Significantly, the courts have concluded that a professional licence and degree, such a medical degree or a law degree, do not fall within the definition of “property” for the purpose of calculating a spouse’s net family property.
The second step in calculating your net family property is the deduction of all debts and liabilities that you have on valuation date.
You should claim every debt and liability that you have to reduce your net family property. The lower your net family property, the better it is for you whether you will be paying an equalization payment to your spouse or you will be receiving an equalization payment from your spouse.
For example, Jack’s assets on the valuation date are worth $140,000. His debts on the valuation date amount to $60,000. There are no other deductions. Therefore, his net family property is $80,000.
Jack’s wife, Heather, has net family property worth $30,000. Jack’s equalization payment to Heather is $25,000 (($80,000-$30,000) divided by 2).
However, if Jack’s debts are even higher on the valuation date, his net family property will be lower than $80,000.
For example, Jack’s total debts on the valuation date amounts to $100,000. His net family property is now $40,000 ($140,000-$100,000).
Jack’s equalization payment to Heather is now $5,000 (($40,000-$30,000) divided by 2). The big difference in the equalization payment is that Jack’s debt on the valuation date are much higher in this second example.
You can also see that the payment you receive will increase, the lower your net family property.
Your net family property will be lower, the greater the amount of debts that you deduct from the assets that you own on the valuation date.
For example, if your net family property is $65,000 and your spouse’s net family property is $100,000, your equalization payment is $17,500. However, if your net family property is $55,000 and your spouse’s net family property is $100,000, your equalization payment is $22,500.
You should carefully examine your financial situation on the valuation date and list every debt and liability that you have on the valuation date. Common debts include the mortgage debt, loans, including car loans, and credit card debts.
You can deduct outstanding income tax liabilities from your net family property.
You should also remember to deduct tax liabilities for any asset on which you have to pay tax when you sell the asset or dispose of the asset. In other words, you only want to use the “after-tax” value of an asset. The after-tax value is especially important when you value assets such as RRSPs.
In one case, the RRSP had $63,000 in funds. However, the RRSP was only valued at $44,000 since the value of the RRSP was discounted by 30% to take into account the tax liabilities when a spouse cashed in the RRSP.
To claim an after-tax value for an asset in order to lower the actual value of the asset, you must meet two criteria: (1) evidence that the asset will be disposed of on a particular date and (2) evidence that the asset will attract tax consequences or costs when the spouse disposes of the asset or the spouse is deemed to dispose of the asset.
You can also deduct the costs for disposing of property when you can show that the sale or transfer of the property will occur in the future. For example, the court in one case permitted a real estate agent’s commission of 5% and legal fees of $1,000 to reduce the actual value of the matrimonial home for purposes of calculating the spouse’s net family property when the spouse proved that the matrimonial home would have to be sold to get the proceeds from the sale of the matrimonial home to pay the equalization payment.
Make sure you spend some time with your family lawyer discussing this important issue in your separation or divorce.
If you have any questions about your separation, divorce or family law case and you would like our help, there’s a few ways to contact our office. You can leave a message on my Facebook law office page, visit my website at www.canadiandivorcelegaladvice.com, or call me directly at 905-434-8837. We would be happy to speak to you.
Oh, by the way, did you know you can protect your family law rights and get essential information on settling your family law issues with your former spouse with the daily indispensable family law advice and tips at my FREE Facebook group?
Click here for more information: Durham Region Separation and Divorce Legal Support Group
Thanks for watching this video.