What is property?
In Ontario family court, property refers to both assets and debts. When dividing property, both things of value (assets) that a spouse owns or has an interest in either on their own or jointly with another person, and financial obligations (debts) are accounted for.
Property includes the following items:
- Car and other vehicles
- Home and other real estate
- All personal items such as clothing, jewellery
- Household items such as appliances, furniture, electronic equipment
- Employment bonuses or severance
- Bank accounts, RRSPs, investments, insurance policies, pensions and other financial assets
- Any businesses you own
- Mortgages, loans, credit card balances
Why is it important to value property in a separation?
The value of the property can change over time. The value used is its fair market value (FMV) of the property at the time the partners separate with no possibility of reconciliation known as “valuation date”.
How do you value assets?
The FMV is the amount someone would reasonable pay for the asset in the open market at the time of separation. You do not use the original purchase price or replacement value.
- For houses, it is important to use a professional appraisal.
- For vehicles, use Canadian Black Book or Kelley Blue Book.
- For bank accounts, use exact account balance on separation
- For RRSPs, TFSAs use financial institution statements
- For pension, request a formal pension valuation
- For businesses, get a business valuation from an accountant or business valuator
- For furniture and contents, estimate resale value
- For debts, list all debts and balances on the separation date (credit card, loans etc,)
How do you value investments in divorce?
Investments which are not tax-deferred are listed with the fair market value on date of separation (DOS).
How do you determine the value of investments that are tax-deferred (not tax free)?
- You get a statement from your financial institution that shows the fair market value of all RRSPs on the DOS.
- You subtract any tax liability. A tax adjustment is applied to reflect the future taxes owed when the RRSP is eventually withdrawn. Common approach is to subtract 20-30% (depends on your marginal tax rate)
- The net RRSP value (after tax) is included in the person’s net family property (NFP) for equalization.
Example:
RRSP value on DOS is $50,000
Estimated Taxes = 25% of $50,000 = $12,500
Net Value=$37,5000 (used in property division)
Can One Exclude Property that is Normally Included as part ?
Yes! A domestic contract can exclude certain property, that is normally equalized. For a domestic contract to be effective, it must be in writing, witnessed and signed.