Tag Archives: divorce

The Four Basic Steps to Matrimonial Property Division

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(c) Patriot Law, 2016

When couples decide to separate and divorce, there are many issues to be dealt with.  One of these issues is how to deal with the property and debts of the relationship.

In Alberta, the legislation that deals with this for married persons is the Matrimonial Property Act.  The basic scheme involves determining the value of all property and debts, and then dividing it between the spouses.  Most property acquired during the marriage is divided equally,  (There are some exceptions, to be dealt with in another post.)

There is a simple process that we use to plan for the equal distribution of matrimonial property.  It has four basic steps:

  1. Inventory.  You start by making a list of all of the property and debts involved.  The assets include real property (your home), vehicles, bank accounts and investments, RRSPs, pensions and the like.  A business (whether a sole proprietorship, a partnership or a shares in business corporation) is also an asset.  The debts include mortgages, line of credit, vehicle loans and so on.  This first step is important, but not usually difficult.
  2. Valuation.  The next step is to take each item in the inventory and assign a value to it.  This step is important because when all of the values of the assets and debts are sorted out, we can then know the “net” value of the property (assets minus the debts) to be equally divided.  Some values will be known (for example, a savings account balance or the balance owing on a mortgage).  Some values may have to be determined, such as the value of a home or of a business owned by one of the spouses.  When the spouses cannot agree on the value to be assigned to a particular item, valuation by a disinterested third party with some relevant expertise is the best option.  Of course, there will be some expense involved in getting a valuation.
  3. Allocation.  The next step in the process of matrimonial property division is to decide what to do with each asset and debt.  There are two parts to this step.  First, you need to decide whether an asset that physically exists (such as a the home or a vehicle) will be distributed as it is (“in kind”) or whether it will be sold and converted into cash.  Second, you need to decide who gets which assets and debts by allocating them to one spouse or the other.  This includes assets that have been sold.  There may be a good reason to sell an asset and equally divide the proceeds of sale, but (contrary to the common misconception) it is not necessary (or desirable) to do this for every asset.  This part of the process allows for the most creativity by the spouses, and increases the potential for a “win-win” result: both spouses may be able to walk away with the mixture of assets and debts that is most beneficial for their future plans.
  4. Equalization.  Once you have done the allocation of the property and debts, you need to equalize any imbalance between the net amounts that each spouse receives from the allocation.  Each spouse is entitled to 50% of the net value of the property as a whole.  Therefore, if one spouse gets more than half of the net value of the property in the allocation process, then that spouse has more than he or she is entitled to.  The fix is a cash payment from the spouse who got more to the spouse who received less, in an amount to equalize them.  Here is a simple illustration.  If the net value of the matrimonial property is $800,000 in total, then each spouse is entitled to $400,000.  If the wife receives net property worth $600,000 and the husband receives net property worth $200,000 when allocating the assets and debt, then the wife will need to pay an equalization payment of $200,000 to the husband so that they both end up with their equal shares.

Overall, it has been our experience at Patriot Law that taking a methodical approach to the division of matrimonial property makes the process easier to understand and to simpler to resolve.

 

We Love it When a Plan Comes Together

Lawyers 2013

At Patriot Law Group, we are big fans of having a plan. When we are helping clients deal with a separation, we create an individualized plan for each client and we have the client review and approve the plan before we accept a retainer.

This planning process ensures that the lawyer is on the same page as the client and that they are both directing their efforts towards meeting the client’s goals. The plan also acts as a road map for both the firm and the client; at all times, we know where we are and where we’re going. It can become a touchstone to re-orient oneself when things get a bit hairy. I once saw a sign in an administration office that read “When you’re up to your ___ in alligators, it’s hard to remember that your primary objective was to drain the swamp.” The plan makes sure we stay on task.

At first blush, making an individualized plan might seem unnecessary. How complicated is getting separated, really? Why bother with a plan? After all, there can only ever be four issues to resolve in a separation:
1. Who are the kids going to live with?
2. Who pays child support and how much will the payments be?
3. Is there a claim for spousal support?
4. How will the property be divided?

You would think that with just four simple issues, separations could be reduced to a flowchart: Married couple getting divorced –> the two kids will stay with Mom –> and Dad will pay child support to Mom –> and the spouses agree that no spousal support is needed –> and there will be an even 50/50 split of the property. Bingo, there’s your separation agreement.

Easy-peasy lemon squeezy, right?

The thing is, people’s lives are interesting and messy. They generally refuse to be shoe-horned into rigid categories. People have families without getting married. They have adopted children and step-children. They have obligations to the children they have from previous relationships. The plan has to address the realities of the client’s individual situation.

Outside of their individual family situations, people also have different needs and goals. Some people need financial support for their children immediately. Some people want to share equally in the parenting of their children. Some people don’t care if they are entitled to spousal support, they just want a clean break and a fresh start. We can’t guarantee outcomes, but we can craft a plan that maximizes a client’s chances of achieving a successful end result.

Of course, it takes two to tango. Every couple has its unique relationship dynamics, whether the couple is together or separating. During separations, some people cooperate, some people fight and some people hide. The client’s plan has to address how the other partner is likely to react.

Every separation ultimately boils down to a combination of the same four issues but the way the issues present themselves requires a considered and individualized approach.

What’s the alternative?  Well, there is a good military saying:  “If you fail to plan, you plan to fail”.

Posted by Brian Jalonen