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Keeping Your Piece of the Pie

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11597904_sHow in your divorce you can wind up losing one of your most important investments?

For most people in Ontario their home represents one of their largest and most important investments, yet most people might be surprised how the law treats the home on marriage breakdown.

When a couple separates, their net family property (the increase in all of their assets, less their accumulated liabilities, after assets and liabilities brought into the marriage are first taken out by them) is shared equally between them.  The spouse holding the greater amount of net family property makes an “equalization payment” to the other spouse so they end up with an equal share of the pie.

However, the matrimonial home has special status.  While it might seem sensible that a spouse who paid in full for the matrimonial home and brought it into the marriage should end up with their investment back at the end of the day (as is the case with other assets brought in, above), think again!

Under the Family Law Act, it does not matter if a spouse independently purchased the home prior to the date of marriage, or made a significantly larger contribution to the acquisition of the matrimonial home before or after marriage (regardless of the source of funds, even inheritances or gifts).  Once both parties reside in the home as the primary family residence, the law provides that the value of the matrimonial home be shared equally between the parties if the marriage ends.

The current state of the law creates a serious risk of a highly inequitable result.  Consider this example:

Before Jack and Jill married, each had $300,000 in the bank.  Following the marriage, Jack used his $300,000 to purchase a home for the family. Jack and Jill later divorce.  While the law permits Jill to exclude from equalization the value of her pre-marriage bank account, Jack is required to equally share the value of the matrimonial home with Jill.   Even though Jack came into the marriage with the same amount of assets as Jill, since it was used to acquire the matrimonial home he cannot recover the full amount.

The law provides for an exception to this.  If a spouse brings a home into the marriage that becomes the matrimonial home, but it is subsequently sold, that spouse’s equity in the original home will then be exempt from equalization (in other words, that person gets to take that amount out first).

Clearly, none of this makes sense. Yet that is the state of the law. So what does this mean for you?  If you are the one who brings the home into the marriage, you should try and get it sold and buy another house for the family to live in.  But if you are the spouse who did not bring it in, you want to stay in it! Family lawyers in Ontario have been pushing for years to change this nonsensical provision of the Family Law Act.

Marriage and cohabitation agreements can sometimes assist to restrict the effect of the Family Law Act over your assets, but there are still some limits with respect to the matrimonial home.

If you are uncertain of your situation or have questions, you should contact an experienced family lawyer.  Being proactive to ensure you keep your fair share of the pie is always a good idea, in the event the unthinkable comes to pass.

Article compliments of Stephen Durbin Professional Corporation. For information contact info@stephendurbin.ca

Don’t let divorce devastate your financial well being.

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Divorce is never easy.

While the goal is to separate lives with the least impact, this does not always happen. Divorce not only affects us emotionally, but also disrupts our financial situation.

I receive many calls from women inquiring about the best way to secure their financial future through separation and divorce.

The following basic steps will get you started and help you team up with the right professionals to get the job done properly.

Your  divorce must not only address your current separation of assets, but your financial well being and take into consideration things such as retirement planning, tax implications, the long lasting impact of the division of assets including:

  • Pension benefits
  • RRSP account balances
  • Canada Pension benefits
  • TFSA accounts
  • Cash flow
  • Housing options
  • Insurance requirements
  • Company benefit plans
  • Support options

 

What do you need to do during a divorce settlement to make sure you keep on track to retire comfortably?

  1. Compile a summary of all income, assets and benefits in both yours and your spouse’s name.
  2. Determine the net values and the tax implications of any sales or transfers of assets,
  3. Review past tax returns and use them to forecast your post divorce scenario.
  4. Revise your Financial Plan to reflect the division of assets, potential loss of benefits and its overall impact.
  5. Negotiate accordingly, from a position of understanding.

These simple steps provide a basic outline of some things to consider, but it is important to consult not only a lawyer, but also partner with a qualified financial professional specializing in divorce and separation of assets to ensure you get the best professional advice throughout the process. 

In my conversations with the divorcees I work with, areas that have often been overlooked are:

  1. The understanding of how Pensions, RRSP’s and CPP benefits can be split in divorce.
  2. Ensuring the continuation of your ex-spouses company benefits and health drugs plans or compensation to offset the loss of this coverage.
  3. Ensuring there is insurance in place, with an irrevocable beneficiary designation, for continuation of child support and spousal support payments on the death of the ex-spouse.
  4. Urgently establishing your own credit.
  5. Closing joint bank accounts and other joint debt obligations and structuring your new individual accounts efficiently.
  6. Partnering with a financial professional specializing in divorce before, during and after divorce to outline the real cost of your divorce agreement and to help protect your interests.

If you are considering divorce or in the process, consult a CDFA. We are financial professionals who specialize in assessing the long-term financial impacts of divorce settlements and work with your lawyer or mediator to help analyze your settlement before it’s too late.

Following these steps and having a plan of action will ensure your retirement plans stay on track after your divorce.

If you have any questions, please contact me at heather@tridelta.ca.

Written by Heather Holjevac, CFP, CDFA, EPC, Senior Wealth Advisor, TriDelta Financial.

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