Asset Protection Strategies an Ontario Divorce

Divorces can place a high financial burden on both parties and the decisions made in the early stages of the process can impact their future finances.

Ontario family law outlines how property and debt must be divided during divorces but many divorcing spouses wonder whether it’s possible to protect their assets to improve their financial position when they go their separate ways.

The asset protection strategies discussed below highlight a few simple proactive measures you can take to protect your financial interests if you’re heading for a divorce.

The Family Law Act of Ontario and the federal Divorce Act outline the rules for splitting property when a marriage is dissolved and the parties go their separate ways.

The law in Ontario states that property acquired during a marriage must be split equally when a marriage ends for any reason. The family law system aims to facilitate this to reduce the chances of financial hardship for either partner, with rules for property division working alongside (but separately from) spousal support and child support laws.

However, in reality, if a couple agrees and neither party is coerced, they can divide their property any way they want in a separation agreement.

The value of property acquired during the marriage (the marital estate or net family property) is subject to division along the lines of Ontario’s “equalization” scheme.

The Family Law Act defines net family property as the value of all property that a spouse owns on the date of separation, after deducting the spouse’s debt and liabilities, and date of marriage assets or debts. This includes properties, savings, retirement accounts, pensions, investments, home contents, and so on. All such property must be divided equally, regardless of whose name is on the legal title.

Any assets brought into the marriage and even some acquired during the marriage (such as gifts and inheritance) may be excluded from calculations concerning the marital estate.

Otherwise, all property acquired during the marriage (and even the increase in value of property brought into the marriage) may be factored into the property division calculations during a divorce.

Note that the matrimonial home can only be deducted from your net family property value if you have a marriage contract that addresses it—whereas, an investment property may be deducted without any domestic contract.

Note too that if the value of a spouse’s assets on the date of marriage is greater than at the date of separation, an economic loss during marriage would mean that no equalization payment would be necessary.

You cannot avoid the need to share marital assets equally with your spouse in a divorce—and you shouldn’t attempt to do that. However, the following asset protection strategies can be used to make a favorable outcome more likely:

1. Understand the net family property value

The Ontario law is clear on what the net family property includes—and what can be excluded from calculations.
Familiarize yourself with these assets and try to arrive at a net family property value. Any assets that should be excluded or cannot be traced should be noted—as should any debts, such as credit cards, loans, and mortgages. Also, bear in mind the exception outlined above for the matrimonial home.
Remember the value of the net family property includes all property owned by a spouse on the date of separation, after deducting the spouse’s debt and liabilities, and date of marriage assets or debts. To claim a date of marriage deduction, a spouse must prove the value of their claimed assets and debts on the date of marriage.

2. Create a financial inventory

Once you have an understanding of the relevant marital assets, create a comprehensive inventory. A simple spreadsheet will do but make sure that it is detailed—with information on real estate, bank accounts, investments, pensions, retirement accounts, and personal belongings.
The inventory can be shared with your spouse and any issues flagged. This can provide a basis for property division negotiations during the divorce.

3. Keep accurate records

Maintaining detailed records of your finances is an essential asset protection strategy.
Ideally, as soon as you are thinking of separation (and even more ideally, throughout the entire marriage), you should keep and file any bank statements, tax returns, mortgage papers, and other relevant financial documentation.
This will help you prepare for full financial disclosure and protect your assets from unnecessary division during the equalization process and the divorce settlement negotiations.

4. Don’t miss pension plans and retirement accounts

For many couples, pension plans and retirement accounts, such as RPPs and RRSPs, are major assets that contribute greatly to the net family property value. They should not be an afterthought.

In Ontario, you can protect these assets during a divorce by understanding more about the specific deductions and calculations that apply when dividing retirement assets. This can become complex and it’s generally best to seek the counsel of a qualified family lawyer for advice.

5. Work together towards an amicable solution

Most divorces in Ontario are settled by a process of collaboration, negotiation or mediation rather than divorce litigation. When discussing property division with your spouse, look for viable “win-win” solutions that provide an equal share of the net family property for each of you.
The alternative is to dig your heels in and dispute matters, which usually increases stress, delays, and costs.

6. Be transparent

Don’t be tempted to try to conceal assets during a divorce. Full financial disclosure is legally required when spouses divide property so if you hide assets and these are later discovered, you could pay a hefty financial penalty.

Being open and honest about your assets and debts is the right strategy in the long run and can help preserve the relationship after the marriage ends, which may be necessary if you have children.

7. Seek legal advice from a property division lawyer

Dividing property can become complex. Many assets cannot be simply divided down the middle like a marital home, investment property or the family vehicle(s).

Lawyers with experience in these matters can help couples develop creative solutions to their financial division issues.

It’s worth noting that some couples avoid many of the traditional problems associated with dividing assets with another asset protection strategy: a marriage contract. Prenuptial or postnuptial agreements have become more common in recent times as people get married later in life, having already accumulated assets. A qualified family lawyer can help you develop a marriage contract that protects your assets during divorce if necessary.

For informed legal advice about retirement assets during a divorce, speak with an experienced family lawyer at Amiri Family Law. Book a consultation for advice on your legal options.