If you are facing a divorce, what most normal people caught up in the emotional turmoil want is to just get it over with and move on with their lives. They want to reduce the pain, avoid costly battles and possibly their exes, and minimize the time devoted to negotiating a settlement. If this is you, you may be tempted to deal with the bare minimum and only what you have to do. You think that over time when things settle down between the two of you, you can “sort through the rest” or maybe it just will go away and solve itself or no longer be important — but that’s not always realistic. There’s benefits of addressing divorce issues now, because…
It may come to haunt you in the future.
There will never be a perfect time to address issues. There is no such thing. Whether now or five years later, you will have to face the memories that will remind you of what was and could have been. In my opinion, it is far better to do it now versus later.
5 Benefits of Addressing Your Divorce Issues Now Versus Later
1. It will cost you less in the long run
In Ontario, the division of net worth takes place as of the valuation date – in layman’s terms, your date of separation. If you choose to determine five years later what your assets and liabilities were at separation, it will be more time consuming and costly to find documentation to support the values of those assets. In the absence of valid and readily available documentation, estimates and values may require negotiation or determination by professionals, which can be costly.
2. Statute of Limitations for Division of Net Family Property
In Ontario, you have two years from the date of divorce and six years from the date of your separation if not divorced to settle your division of assets. To protect your rights, you would need to file an application within that timeline in the courts to preserve your right to settlement. Your former spouse may not be agreeable to go beyond these timelines, and costly litigation may result. This risk is avoided if the settlement is done close to separation.
3. Spouses are usually more cooperative
If a partial separation agreement has been entered into addressing key issues – like the matrimonial home – there may no longer be an incentive to get back to the table to address other issues. I have a client who has just approached me to mediate a settlement for the remaining assets that had not been addressed at the time the home was sold. They have been separated five years. She is finding reluctance on the part of her former spouse to reopen discussions. Pensionable assets are at stake that if addressed in the division of assets with the home would now already be divided. Their agreement, which was a quick and dirty agreement, only picked a number for child support but no mechanism for variation due to changes in income, employment, or other material changes. Their agreement purposefully ignored key things that are now becoming an issue such as post-secondary education, which is an extraordinary expense. The payor spouse after five years of status quo has little incentive to now revisit paying more. The mediation will be more challenging.
4. Leverage is not lost
Most partial agreements I see deal with the selling of the matrimonial home. Divorcing parties have moved out of the matrimonial bedroom or house and want to establish new households independent of one another. As such, selling the home is first. There are laws around unduly delaying the consent of selling the home, but often holding back on selling the home and tying it to the settlement of all terms creates urgency for couples to stay at the table and complete all negotiations. Most couples need the net proceeds of the home to buy their individual homes. The urgency is driven by not having to live together for a long transition period or to have the cost of temporary living arrangements if one party has moved out. The urgency is gone if the home has been sold and the proceeds shared.
5. Means to Pay the Net Equalization Payment
In addition to the benefit described in #4, the proceeds from the matrimonial home are often used to pay the Net Equalization Payment or a portion of it. The net equalization payment is made by a spouse to balance the equal division of the couple’s net worth at the time of separation. If the cash or individual assets of a payor spouse are spent or used subsequent to the separation, the recipient spouse now has to chase the payor spouse for payment of an equalization payment. It becomes a collection issue, which may not have been a problem had the settlement not been piecemeal.
These are only a few of the benefits addressing divorce issues and doing things now versus later. Like my client, avoiding the pain, effort, and cost of a complete settlement will likely result in more time, cost, and pain in the future and to your children.
Written by Mary Krauel, CPA, CA, EMBA, CDFA, owner and senior negotiator of PRM Mediation