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Financial Issues This forum is for discussing any of the financial issues involved in your divorce.

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Old 02-12-2013, 08:05 PM
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Default Debt at time of marriage - good or bad?

I've been reading numerous posts on here, trying to make heads or tails of this... I'm looking at the calculation of net family property on form 13.1 and it makes no sense to me at all...

My question- if I had debt coming into the marriage, does that work out in my favour in the end when I calculate my net family property, or does it work against me? Is it advantageous to have as high a 'value' going into a marriage as possible, basically? (and therefore debts would count against this value??)
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Old 02-12-2013, 08:27 PM
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It's most adventageous to just be truthful and not fudge the numbers looking to get ahead.

That way, you don't look bad when you get called on it.
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Old 02-12-2013, 09:24 PM
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It is best to have very low debt (or no debt)

It is best to walk in with tons of assets, even if those assets no longer exist (eg a car that died years ago)

While you don't want to outright lie, if you "forget" a debt or two, you will not suffer any penalty for it. At worst it will be remembered by your ex and you will have to include it. If the ex remembers the debt, don't deny it, that would be lying, and that could get you in trouble, but you don't have to bring it to your ex's attention.

Family law doesn't give any points for being a good person. Quite the opposite. When I first filled out my financials, I was completely honest and fair. I got a rapid lesson on the finer points of "fair" when it comes to family law. It took me months to got out of the negotiation hole I dug for myself by not leaving any financial "wiggle room". My ex lied like a banshee, without any consequences. "oversights" were just "fixed" as I found them.
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Old 02-12-2013, 09:27 PM
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I believe Orleans Lawyer commented on a post not too long ago about this...
If I remember correctly it went something like this...

If you had $20K DEBT coming into the marriage and $40K equity leaving the marriage, you have a net gain of $60K

If your partner had no debt coming into the marriage and had $40K equity leaving the marriage, their net gain would be $40K...

Which means you would be on the hook for paying them $10K (the difference between your $60K and his $40K/2)

But as Blink stated... be honest... if your not, you will get caught.
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Old 02-12-2013, 10:54 PM
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Quote:
Originally Posted by Berner_Faith View Post
I believe Orleans Lawyer commented on a post not too long ago about this...
If I remember correctly it went something like this...

If you had $20K DEBT coming into the marriage and $40K equity leaving the marriage, you have a net gain of $60K

If your partner had no debt coming into the marriage and had $40K equity leaving the marriage, their net gain would be $40K...

Which means you would be on the hook for paying them $10K (the difference between your $60K and his $40K/2)

But as Blink stated... be honest... if your not, you will get caught.
I'm not sure what OL's take was, but this is not the way it works.

Net debt is equal to $0 before or after marriage. The Family Law Act requires ASSETS to be split.

Your assets going into the marriage are subtracted from your assets coming out, to yield your net gain in assets during the marriage. That is the whole of it.

If you had no assets coming in, there is nothing to subtract. If you have no assets coming out, there is nothing to split.

In your example, if one had 20k debt coming in, then your NFP on the date of marriage would be $0. If you then had $40k coming out, the net gain during the marriage would be $40k, not $60k.

A more extreme example would show why considering the debt would be impossible. Let's suppose one had $100k debt on the marriage date. Working hard to pay it off, there is $40k in assets at separation. According to your method, there was a gain of $140k during the marriage.

However $140k does not exist, it is not there to be split. Only $40k exists. Assuming the other spouse has nothing, this would require the party to go $30k into debt in order to provide the spouse with a $70k settlement. The Family Law Act is simply not written that way.
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Old 02-12-2013, 11:03 PM
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Quote:
f Alice came into the marriage with 10k in assets and left with 110k in assets, no debts at either time, her NFP is 100k.

If Bob started the marriage with 40k in debts and left with 10k in debts, his NFP is 30k. Equalization is 35k, Alice to Bob.

If Bob started the marriage with 40k in assets and left with 10k in assets, his NFP is (10 - 40 = (-30)) = 0. Equalization is 50k, Alice to Bob.
Maybe I am not reading it right, but from Orleans Lawyer's example, even though Bob still has $10k in debt, his NFP is $30k, not $0... He basically gained value during the marriage, even though he is still in the negative?
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Old 02-12-2013, 11:28 PM
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I think it had to so with using marital assets to pay off personal debts brought into the marriage. The person with the debt benefited from the marital finances in paying it off.

Or something like that?
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Old 02-13-2013, 12:14 AM
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My understanding is that net assets are split until there are no more assets left.

Example:

Spouse A: 100k debt into marriage, no debt at end of marriage
Spouse B: No debt into marriage

Couple has 40k in assets. My understanding is that spouse B would pretty much get the entire 40k, but would not actually be able to extract any more from spouse A. Getting all the assets is the most spouse B can pick up.
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Old 02-13-2013, 12:36 AM
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I take his point, but I can't find any source for it. My copy of Canadian Family Law (Payne 2011) just notes that judicial opinions have differed on the issue.
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Old 02-13-2013, 09:10 AM
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Quote:
While you don't want to outright lie, if you "forget" a debt or two, you will not suffer any penalty for it.
This is very, very wrong. If you are caught lying in a sworn financial statement, and opposing counsel is competent, you may spend the rest of the time in court burning for your lies.

Judges take a very dim view of people lying under oath. You can claim oversight later, but if the debt is substantial it is less credible that you forgot it while if it is nominal it is of little value to exclude it.

Quote:
Net debt is equal to $0 before or after marriage. The Family Law Act requires ASSETS to be split.
What you are referring to is this:
Quote:
Net family property not to be less than zero
(5) If a spouse’s net family property as calculated under subsections (1), (2) and (4) is less than zero, it shall be deemed to be equal to zero. R.S.O. 1990, c. F.3, s. 4 (5).
However, keep in mind that when it states that Net Family Property shall not be less than zero:
Quote:
“net family property” means the value of all the property, except property described in subsection (2), that a spouse owns on the valuation date, after deducting,...
There is no net family property on the marriage date. There is only an end net family property.

Quote:
If you had no assets coming in, there is nothing to subtract.
Please review CanLII - 2000 CanLII 22733 (ON SC) , specifically:
Quote:
The Debt Entered Between Husband and Father Prior to Marriage

Evidence

[35] In his testimony, Mr. Belgiorgio hesitantly admitted that he incurred a debt of $60,000.00 to his father in the summer of 1988, prior to his marriage to Mrs. Belgiorgio. Mr. Belgiorgio made it clear that he felt the debt was his responsibility alone, and that it was repaid to his father’s estate with proceeds from his inheritance.
Analysis

[36] Counsel for Mrs. Belgiorgio suggests that Section 4(1) of the Family Law Act would include debts incurred prior to marriage in a spouse’s net family property. The section reads:

“Net Family Property” means the value of all the property, except property described in subsection (2), that a spouse owns on the valuation date, after deducting,
(a) the spouse’s debts and other liabilities; and
(b) the value of property, other than the matrimonial home, that the spouse owned on the date of marriage, after deducting the spouse’s debts and other liabilities, calculated as of the date of marriage;

[37] The question of whether debts brought into a marriage should be considered in calculating a spouse’s net family property under the Family Law Act has been considered in a number of cases in this jurisdiction; and recently in McDonald v. McDonald reflex, (1995), 17 R.F.L. (4th) 258 (Ont. Gen. Div.). In McDonald, Rutherford J. found at p. 260:

In Jackson v. Jackson reflex, (1986), 5 R.F.L. (3d) 8, Kent L.J.S.C. proceeded, without any elaboration, to treat and include the respondent husbands’ net pre-marital debt position in the net family property calculation with the mathematical effect I have already mentioned, namely, that those debts became additions to his net family property. In an annotation to the judgment of Fleury U.F.C.J. in Menage v. Hedges (1987). 8 R.F.L. (3d) 225, (at 229) James G. McLeod suggests that the case supports the Jackson v. Jackson proposition that a negative pre-marital property value deduction translates mathematically into an addition to net family property. I don’t think the case supports the proposition at all. In Menage, Justice Fleury was dealing with a husband whose pre‑marital assets were substantially greater in value than were his debts. At page 256, Justice Fleury concluded that the husband’s net property at marriage had a value of $52,208. Menage v. Hedges is not a net pre-marital debt case at all.

Interestingly however, when Justice Fleury then turned to the specific exclusions to be deducted under section 4(2) of the Family Law Act from net family property, he declined to include certain debts in the calculation of “property… that was acquired by gift or inheritance from a third party after the date of the marriage.” He concluded that a debt owed to a third party cannot be property that a spouse owns on valuation day, stating that “a debt is not a property within the meaning of the Family Law Act.”
Because of the contest in which Justice Fleury makes that statement, I do not take it as meaning that a party cannot be found to have a negative value of property at the date of marriage, at the step in the net family property calculation described in subsection 4(1)(b) of the Family Law Act. As I have already suggested, I think it is fair for the net debts a party brings into a marriage to be accounted for at the time net family property is equalized upon a break-up of the marriage.

[38] I agree with the analysis of Rutherford J. Mrs. Belgiorgio’s contribution toward eliminating Mr. Belgiorgio’s debt should be properly reflected in the equalization payment. I find that this debt should be included in the calculation of Mr. Belgiorgio’s net family property.
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