“The value of our home and stocks goes up and down, how can we determine our overall asset? How would that impact my divorce settlement?”
When there is a breakdown of the marriage with no reasonable prospect of reconciliation, the family property has to be valued and equalized (or divided).
A major difference between marriage and a common law relationship is the fact that there is no family property in a common law relationship. When a common law relationship terminates, the property is divided by ownership only. A party cannot share in the partner’s property (except when a trust interest or unjust enrichment can be raised).
On the date of separation (valuation date), the value of all of the family property is calculated at fair market value. We basically take a snapshot of all the items owned and debts in existence, and put a value on them at the close of business on the valuation date.
Net family property under the Family Law Act comprises of all the property in the spouse’s name, or held jointly. The spouse is responsible to pay the cost of valuation of their assets. After deducting the existing debts and the value of the property the spouse had brought into the marriage, we arrive at a net family property value for the spouse.
Once the net family property of each party is determined, the spouse with the larger net family property pays half the difference to the other spouse. No specific property is rewarded or divided unless agreed to.
Most items are easy to value. For bank accounts, stocks, RRSP’s, debts, credit cards, mortgages, etc., we get a statement showing the value as of valuation date.
Some assets, like property, pensions, and businesses have to be valued by professional appraisers (unless the parties can agree on a value themselves).
If property is owned jointly at the time of separation and the value changes prior to settlement or trial, the jointly owned property can be re-valued again.
It is important to give frank and fair disclosure of assets and debts in your sworn financial statement, which is prepared to prove your net family property. Failure to provide complete disclosure will give grounds to re-open the equalization at a later date.
A recent case has varied the valuation date value for certain assets. The case states that a market driven decline in a spouse’s assets post-separation may be considered as a factor in determining whether equalization of the net family property (based on valuation date value) is unconscionable.
This could affect the value of a business or stock portfolio that has dropped significantly after the separation brought about by factors beyond the spouse’s control.
In arriving at a final net family property for each party, the costs of disposition of certain assets have to be determined and deducted from their value. Common examples are real estate commission and legal fees on the sale of property; tax consequences of equalizing RRSP’s; and capital gains taxes on the sale of cottages.
When sufficient liquid assets are not available for a lump sum equalization payment to be made, or if it would create hardship on the payor spouse, the court can order that the equalization payment be paid in installments over a period of up to 10 years with interest.
Stanley J Potter is a Toronto-based family lawyer offering legal services for divorce and separation, child custody and co-parenting applications, child support, spousal support and other family law matters.