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Do-it-yourself divorce planning can end up costing spouses much more than they save in legal fees.
The weeks and months after a separation can be a time of great financial strain, and I understand why divorcing spouses are keen to limit their expenses. However, the division of property is not an area where you can afford to cut corners. Reliable legal advice is a necessity to ensure you get your fair share from the equalization process.
As a family law lawyer, clients often call me in to fix problems with divorce settlements they negotiated on their own, only to discover that the agreement left them short-changed because they didn’t understand their legal entitlements.
It was tricky to narrow down the plethora of overlooked property issues in a DIY divorce, but below is a list of the top five I’ve come across. Working with an experienced family lawyer will ensure that none of them trip you up in your own divorce.
Pensions may not be the first thing that many people think of when they hear the word property, but they are often among the largest assets in any separation. It’s not unusual for a pension to be valued in the hundreds of thousands of dollars, which typically puts it second in value only to the matrimonial home.
To complicate matters, the laws governing divorce require a specific and technical type of pension valuation, which means that the number appearing at the bottom of the annual statement does not paint the full picture of the value of the pension for the purposes of equalization.
For most pensions, the "family law value” of the pension must be determined by the pension plan administrator. Other pensions need to be valued by an actuary. Family lawyers will ensure each spouse’s pension is properly valued for a fair division of property.
On a related note, many separating couples like to keep things as simple as possible with an “I’ll keep what’s mine and you keep what’s yours” approach to assets such as Registered Retirement Savings Plans and Tax-Free Savings Accounts.
This type of arrangement seems fair and reasonable, in principle, but it can cause issues for self-represented spouses because of the different tax consequences that apply to each investment or savings account.
Without taking into account the proper tax treatment, you can end up with a skewed assessment of what the RRSP or TFSA is truly worth. Also, if one spouse has been able to contribute significantly more to their RRSP and TFSA during the marriage — while the other spouse used their income to pay for more of the family expenses — this kind of division can be quite unfair.
Before you agree on a “what’s mine is mine and what’s yours is yours” division of property, talk to a family lawyer about the equalization of your net family property to find out if you are entitled to an equalization payment from your spouse.
When it comes to property division, the instinct for many couples is to simply split the possessions they have at the time of their separation.
However, that approach doesn’t always make sense, and if one person entered the marriage with significantly more assets than their spouse, Ontario family law will usually give that spouse credit for the value of their date of marriage property when it comes to dividing the property at the end of the union.
Still, the rules are full of technicalities and exceptions, which means that self-represented parties are likely to lose out if they are not aware of their legal rights.
Things get particularly thorny when real estate is involved because the precise treatment of that property will depend on several factors, including when it was purchased, the names of those on title, and whether or not it qualifies as a matrimonial home.
Many people have an inkling that an inheritance bestowed on one spouse gets special treatment in family law, but a little knowledge can be a dangerous thing, and individuals risk damaging their interests if they make decisions without knowing their legal rights.
In some cases, it may be possible for one spouse to receive an inheritance during the marriage that they do not have to share with their spouse on separation. However, determining whether a particular bequest will be subject to equalization requires a full assessment of when and how it was made and what the funds were used for.
While former spouses spend the bulk of their energy debating how to divide their property, they tend to pay less attention to the flip side of that coin: debts.
To understand how particular liabilities should be split in a divorce, it’s important to consider the purpose of each debt and for whose benefit it was incurred. For example, a line of credit secured on the jointly owned matrimonial home could be used to purchase property or invest in a business held in the name of only one spouse.
The precise timing of any transactions before, after or during the marriage will also be critical to understanding whether both parties should be held liable for the debt.
Releases are a critical part of any legal settlement, and not only in family law. The idea is that the parties to a contract make the agreement final by “releasing” certain rights that may attract liability from the other.
However, releases are often overlooked by non-lawyers. For example, I once acted for a client who wanted to avoid paying monthly spousal support to his ex-wife. Before I got involved, he had signed a separation agreement — without the benefit of any legal advice — which did not require him to pay spousal support but which also gave up any rights for him to share in his former spouse’s pension.
My client believed that in exchange for giving up his right to share his former spouse’s pension, he would never be required to pay spousal support to his former spouse. But the Separation Agreement he signed did not include a spousal support release, which meant that legally, the door remained open for her to make a claim for spousal support, which was exactly what he wanted to avoid.
If you are facing a separation or divorce, it’s important to understand your legal rights and obligations before signing any legal agreements. If you would like to schedule a consultation with me, click here.