How do you divide the assets when you Separate?

How to divide assets when you separate in Ontario.

The Basics of Splitting Assets on Divorce

 

Often you hear, “when you’re separating, you have to split everything equally with your spouse”. If only this were true, the process of dividing assets in Ontario would be much easier.

Alas, this is not the case.

There are a few key points to understand when looking at divorce and sorting out your assets.

First, there are two key dates to be considered.

The first key date is generally not disputed, being your date of marriage. There are lots of witnesses to that day. And records from whatever government married you. Most of the time that’s somewhere within Canada. The marriage certificate sets that issue straight and is a document you can easily get. That’s your beginning date for the financial division.

The first date (date of marriage) is the start date of calculating what is know as the Net Family Property under the Family Law Act of Ontario.

You need to calculate your Net Family Property number. Hopefully (for you) it is not zero. It is likely going to be a different number for your spouse. The two different numbers get equalized, but that’s a bit further along in the blog post.

Once you have the date of marriage clear, you then need to get a clear picture of the assets you owned on that date.

You need a financial snapshot of your assets. If you had any debts, they need to be deducted from your assets. It’s easier to explain if we make up some fictitious people. Let’s use Harry and Sally (all apologies to the movie fans). Harry and Sally got married 10 years ago. Let’s say that the only thing Harry owned when he married was a car and he had a student loan outstanding. Whether the car died 5 years after marriage or not is not relevant to the question of what Harry owned on the date he got married. The law wants to know what the value was on that date 10 years ago. Harry luckily has the receipt for the purchase which was only 2 weeks before he got married (let’s say his Dad gifted him the money to get the car because he was so happy that Harry was finally moving out of his basement). The car was worth $15,000. Then let’s say Harry owed $5,000 in student loans (let’s say he only took a few courses and did not finish college as that is a low number for most student loans). Assuming Harry owned nothing else but some milk crates that he was using for a coffee table in his dad’s basement apartment, he’s got a date of marriage value of the car minus the student loan ($15,000 – $5,000) of $10,000.

Next you need to know Sally’s assets and debts on the date of marriage.

Let’s say she was better at saving her money than Harry and she had $25,000 in the bank on the day she married Harry. She was taking the bus and didn’t own a car. She had read financial planning books, managed her money well and had no debts.

To recap, Sally had $25,000, because she had no debts, and Harry had a net of $10,000 on the date of their marriage. The law says you get to deduct where you started from -the value as of date of marriage- from the total of your assets at the end of the financial relationship.

Let’s see how this plays out.

Ten happy years went by, but unfortunately in the last few months, both have fallen out of love and want a separation.

The second key date is to determine their date of separation.

Let’s assume it was April 1. The law says you must find out what assets and debts existed for both as of their date of separation. The legislation calls it the Valuation Date. It’s the date that all assets and debts (those of each spouse in their own names) get calculated. It’s akin to freezing (if you will, they’re not really frozen) all assets and debts on that day. It’s a snapshot in time.

We’re keeping Harry and Sally’s life simple to get the idea of the basics. No children, no house, no complicating things for either of them.

As of the date of separation, Harry did well financially and has paid off his student loan and upgraded his car. The couple had rented an apartment as they can’t afford to buy a house in the city. It’s much too expensive. Being renters, they saved more. As of separation, Harry had a $50,000 car, $50,000 in a tax-free savings account and $5,000 in antique old diner memorabilia.  He loves old style diners and acquires antiques over the years. He had started reading those financial planning books and had copied some of Sally’s tricks to save his money too.

Sally considered acting but in the end became an author, published some books and made a healthy profit. She has $250,000 in the bank. She has no car because she still loves taking the bus.

At the date of separation, Sally has $250,000 in assets in her name and Harry has $105,000. If you did not know about the date of marriage issue, you would assume that if Sally has $145,000 more than Harry then she would have to balance that with Harry by giving him $72,500, which would leave them both with $177,500. That is the trap to watch out for. That is not how the law works.

You have to deduct where they each started from first.

Sally’s real Net Family Property is her date of separation value minus her date of marriage value. You have to do the same for Harry.

Her real Net Family Property calculation is $250,000 (her date of separation number) – $25,000 (her date of marriage number) = $225,000. Sally’s net family property number (before other adjustments – the story does not stop here) is $225,000.

Harry’s real number is $105,000 – $10,000 = $95,000.

If there are no exclusions, then the difference between them would be $225,000 – $95,000 = $130,000. This means Sally has $130,000 more than Harry. To balance, she needs to pay one half of the $130,000 to Harry, being $65,000. If she does this, they each end up with $160,000. Even.

Assuming no exclusions apply. We will leave that for another blog post. If you need help to calculate this in your situation, call us.