Understanding Asset Division
Equalization of Net Family Property
| Step |
Calculation |
| 1 |
Value assets at separation date |
| 2 |
Subtract debts |
| 3 |
Subtract assets brought into marriage |
| 4 |
Calculate each spouse’s NFP |
| 5 |
Higher pays half the difference |
Example Calculation
| Item |
Spouse A |
Spouse B |
| Home equity |
$200,000 |
$200,000 |
| RRSP |
$150,000 |
$50,000 |
| Car |
$20,000 |
$15,000 |
| Debts |
-$30,000 |
-$15,000 |
| Current value |
$340,000 |
$250,000 |
| Minus brought to marriage |
-$40,000 |
-$30,000 |
| Net Family Property |
$300,000 |
$220,000 |
| Difference |
$80,000 |
|
| Equalization payment |
$40,000 |
A pays B |
What’s Included
| Usually Included |
Usually Excluded |
| Home |
Inheritance (often) |
| Investments |
Gifts to one spouse |
| Pensions |
Assets before marriage |
| RRSPs/TFSAs |
Personal injury awards |
| Vehicles |
|
| Business interests |
|
Matrimonial Home
| Rule |
Details |
| Special treatment |
Both spouses share equally |
| Regardless of |
Whose name on title |
| Regardless of |
When purchased |
| Exception |
Some provinces vary |
Child Support
Federal Guidelines
| Paying Parent Income |
1 Child |
2 Children |
3 Children |
| $40,000 |
$371 |
$595 |
$767 |
| $60,000 |
$542 |
$873 |
$1,130 |
| $80,000 |
$728 |
$1,143 |
$1,469 |
| $100,000 |
$916 |
$1,419 |
$1,799 |
| $150,000 |
$1,340 |
$2,017 |
$2,503 |
Amounts are monthly and vary by province.
Additional Expenses (Section 7)
| Expense |
How Divided |
| Childcare |
Proportional to income |
| Medical/dental |
Proportional to income |
| Education |
Proportional to income |
| Extracurriculars |
Often shared |
Tax Treatment
| Type |
Tax Treatment |
| Child support |
Not taxable/deductible |
| Special expenses |
Not taxable/deductible |
Spousal Support
Advisory Guidelines
| Duration of Marriage |
Support Duration |
| Short (0-5 years) |
0.5-1 year per year married |
| Medium (5-20 years) |
0.5-1 year per year married |
| Long (20+ years) |
Indefinite possible |
Amount Calculation
| Formula |
Range |
| Without children |
1.5-2% of income difference Γ years married |
| With children |
More complex, higher amounts |
Example (No Children)
| Factor |
Amount |
| Higher income |
$120,000 |
| Lower income |
$40,000 |
| Difference |
$80,000 |
| Years married |
15 |
| Range |
$18,000-$24,000/year |
| Duration |
7.5-15 years |
Tax Treatment
| Type |
Payer |
Receiver |
| Spousal support |
Tax deductible |
Taxable income |
Dividing Registered Accounts
RRSP Transfer
| Rule |
Details |
| Transfer to ex-spouse RRSP |
Tax-free rollover |
| Requires |
Written agreement or court order |
| Form |
T2220 |
| Direct transfer |
Required for tax-free |
TFSA Transfer
| Rule |
Details |
| Transfer |
Tax-free |
| Doesn’t affect |
Either spouse’s room |
| Document |
Written agreement |
Pension Division
| Type |
Treatment |
| Defined benefit |
Usually divided at retirement |
| Defined contribution |
Often split immediately |
| Government pensions |
CPP credits can be split |
CPP Credit Splitting
| Rule |
Details |
| Automatic |
For married (some provinces) |
| Application |
May need to apply |
| Period |
During marriage/cohabitation |
| Effect |
Equalizes pension credits |
Matrimonial Home Options
Common Approaches
| Option |
Considerations |
| Sell and split |
Clean break |
| One buys out other |
Need financing |
| Keep jointly (temporary) |
Until kids older |
| One stays (temporary) |
With support adjustment |
Buyout Calculation
| Factor |
Amount |
| Current value |
$600,000 |
| Mortgage owing |
$300,000 |
| Equity |
$300,000 |
| Buyout (50%) |
$150,000 |
Protecting Yourself
| Action |
Why |
| Gather financial documents |
Know what exists |
| Separate bank accounts |
Your own finances |
| Monitor credit |
Check for new debts |
| Change passwords |
Protect yourself |
| Consult lawyer |
Know your rights |
Documents to Collect
| Document |
Purpose |
| Tax returns (3 years) |
Income proof |
| Bank statements |
Asset tracing |
| Investment statements |
Values |
| Mortgage documents |
Liability |
| Pension statements |
Division |
| Business records |
If applicable |
Tax Considerations
Year of Separation
| Status |
Rule |
| December 31 rule |
Status at year end |
| Separated 90+ days |
File as single |
| Child credits |
Usually to resident parent |
| Spousal credit |
No longer available |
Canada Child Benefit
| Change |
Action |
| Custody change |
Notify CRA immediately |
| Shared custody |
Both may receive |
| Primary care |
Primary parent receives |
Principal Residence
| Rule |
Details |
| One per family |
While married |
| After separation |
Each can designate one |
| Transfer exception |
Tax-free to spouse |
Legal Costs
Typical Expenses
| Process |
Typical Cost |
| Mediation |
$5,000-$15,000 |
| Collaborative divorce |
$15,000-$30,000 |
| Negotiated settlement |
$15,000-$50,000 |
| Contested litigation |
$50,000-$200,000+ |
Ways to Reduce Costs
| Approach |
Benefit |
| Mediation |
Much cheaper |
| Collaborative law |
Usually cheaper |
| Do homework |
Organized documents |
| Pick battles |
Not everything worth fighting |
Creating Separation Agreement
Key Elements
| Section |
Covers |
| Children |
Custody, access, support |
| Support |
Spousal, duration |
| Property |
Division, home |
| Debts |
Who pays what |
| Pensions |
Division approach |
| Insurance |
Requirements |
Getting Independent Legal Advice
| Why |
Protection |
| Each get own lawyer |
Advice independent |
| Review agreement |
Before signing |
| ILA clause |
In agreement |
| Enforceability |
More likely |
Moving Forward
Financial Reset
| Task |
Action |
| New budget |
Single income reality |
| Update beneficiaries |
Remove ex-spouse |
| Update will |
New estate plan |
| Insurance review |
New needs |
| Credit rebuild |
If needed |
Documents to Update
| Document |
Change |
| Will |
New beneficiaries |
| Power of attorney |
New person |
| RRSP/TFSA beneficiary |
Remove ex |
| Life insurance |
New beneficiary |
| Employer benefits |
Update |