Dividing Assets and Debts

How are assets and debts divided?

Your assets and debts are called ‘property’ and include everything you own, not just real estate ‘property’.

The first step is to determine your current net worth at a moment in time. This includes items in your name, their name, joint names, and perhaps, some things that are in your name but are held in trust for someone else such as an older parent.

You then need to allocate your net worth (not the actual items) into three buckets.

#1: Exempt Assets

Values that will not be divided are called ‘exempt assets’. This might be pre-relationship property such as the RRSP you came into the relationship with, gifts from other people (such as the antique ring from your grandmother), money you received in an insurance settlement for personal injury in a car accident, or an inheritance that was left for just you. It is possible that an exempt asset may lose some or all of its exempt status depending on what you did with it during the marriage – and some remaining value will then be divided with your spouse. Of course, because anyone could say ‘I had $1,000,000 when I came into the marriage’, the person who stands to benefit from the exemption must be able to show that it actually happened and it makes up some portion of the current net worth. If it was all spent during the marriage, it has a value of $0 today and there is no remaining value in the current net worth to exempt from division. Most people also agree to not divide certain assets such as their children’s RESP’s and bank accounts.

Increase in value of exempt assets. Suppose the RRSP that you brought into the marriage has increased by $10,000 during the marriage. How should that be divided? Sometimes the increase is 100% exempt, other times it might be shared equally, and sometimes it is a negotiated split such as 70%/30%.

#2: Increases in Value of Exempt Assets

#3: Everything Else

If it is not exempt from division (#1), and is not an increase in exempt values (#2), then everything else, by default, is relationship property to be shared equally. This includes company pensions, cars, house equity, savings, investments, etc.

Date of Valuation: Another consideration is whether it would be fair to use today’s values. Support your spouse ran up the credit card since you separated and it went from $0 to $50,000 today. Should you be responsible for ½ of the $50,000 in debt? In a similar fashion, suppose they had kept a bank account that had $10,000 balance at the time of separation and since then they have spent it. Most people believe using the current value would be unfair and some type of adjusting entry should be done. There are many different circumstances that can be recognized to make the numbers more fair.

Taxes: There are tax considerations, pension valuations, and business valuations that can add more complexity.

Additionally, choosing which assets and debts you take can have a profound effect on your future savings and ability to retire. Our mediators have a variety of degrees/certifications/training such as MBA, Registered Family Mediator, Chartered Mediator, legal education, Divorce Financial Analyst, Certified Financial Planner, Certified Financial Analyst, etc.. We can help you evaluate various options that impact your future financial well being.

We have found most people who divide their assets without assistance make significant errors. If a CRA auditor had problems doing this — is this something you should take on yourself?

Click *here* for a list of financial records/documents you should begin to gather.