During a marriage breakdown, a couple will make a decision to co-operate to minimize the joint tax bill, or will make a decision to begin a dispute with each other. Separating and divorcing can be time consuming and expensive. Not agreeing is expensive.
Many couples start off by trying to work things out and try to talk through the division of matrimonial assets. If both sides are willing to co-operate and work together, costs can be minimal.
If you decide not to agree on the many aspects of separation, you will each need your own lawyer for independent legal advice.
The value of all of your property is included in the division of assets. Property includes your home, contents, vehicles, second property’s shared by the family, RRSPs, savings, stock portfolio’s etc.
The value of assets will be taken on the date of separation. Any liabilities will be deducted, including mortgage, lines of credit, family loans, credit card debt and unpaid taxes.
The net amount is assets minus liabilities. The net amount is divided evenly between the spouses. The net amount is also net of legal fees.
Under current tax rules, child support is not taxed as income to the recipient or deducted from income by the paying parent. Spousal support payments are deductible to the payer and taxable to the recipient if they meet a number of well-defined and strict criteria.
When parents divorce, they want to continue to share their responsibilities as parents equally. Joint custody means that both of you have custody of the children. In other words, you both continue to share in making all the major decisions concerning the children (about discipline, school, major outings, holidays etc). If there is joint custody, there are typically many different living arrangements. Children may live with each parent about the same amount of time or live mostly with one parent.
RRSPs that were accumulated during the marriage can be equalized using a tax-free rollover. A legal government form a T2220 is used for this spousal rollover. This avoids any taxation when the registered investments are transferred between spouses.
Pensions from employers will become part of the division of assets.
Canada Pension Plan (CPP) credits that were accumulated over the years that you were together will be equalized. Check out www.servicecanada.gc.ca for additional details.
Review your will. An existing will is revoked if you get married. If you get married again, a new marriage will give your new spouse legal rights to your estate, possibly spousal support and a share of your matrimonial assets.
Review your beneficiary on your life insurance and RRSP’s.
To legally end your marriage, your need a divorce, which is an order signed by a judge under the federal law called the Divorce Act. The marriage is not over until a judge gives you a divorce order at the end of the process.
Over 80 percent of divorces in Canada are based on one-year separation; you and your spouse have lived separate and apart for one year with the idea that your marriage is over.
Deciding to end a marriage is difficult. You have to deal with the huge emotional issues and make many tough decisions. You also need to know your legal rights and responsibilities.
Click here to learn more at the government Service Canada website.
Doreen Smith is a Certified Financial Planner with Capri Wealth Management Inc. Doreen can be reached at 250-869-3825. www.DoreenSmith.ca.