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  • Equilization payment - reckless

    Scenario:
    A and B got married 5 years ago.
    Both entered marriage with $0 net worth. (no assets, no liabilities).
    Today they separate:
    A has $(30K) net worth - no assets, ($30K) liabilities.
    B has $10K net worth - $10k assets.

    Normally, the NFP would result in NFP payment by B to A of $20K. But let's say A generated the $30K debt by recklessly gambling behind B's back, and the full $30K is purely related to gambling. Also, let's say, that A actually lost $100K over the 5 years gambling, but the debt is only $30K (was able to finance the other $70k through his income). In other words, if A hadn't gambled at all, his net worth would be $100K. Finally, let's assume A's credit is in shambles, and there's no way he can get new debt from anywhere or anyone.

    Given this case, assuming proof is there and judge says its "reckless", would/could a judge actually order an equilization payment from A to B over-and-above, instead of just leaving A with his 30K debt and leaving B with her $10K net worth? i.e., would/could a judge force A to go bankrupt even though he's agreed to keep his $30K debt and move on? Secondly, would going bankrupt alleviate A from having to pay such NFP payment, even if judge made it payable over like 10-20 years?

    tx

  • #2
    Originally posted by Fat Mike View Post
    Scenario:
    A and B got married 5 years ago.
    Both entered marriage with $0 net worth. (no assets, no liabilities).
    Today they separate:
    A has $(30K) net worth - no assets, ($30K) liabilities.
    B has $10K net worth - $10k assets.

    Normally, the NFP would result in NFP payment by B to A of $20K. But let's say A generated the $30K debt by recklessly gambling behind B's back, and the full $30K is purely related to gambling. Also, let's say, that A actually lost $100K over the 5 years gambling, but the debt is only $30K (was able to finance the other $70k through his income). In other words, if A hadn't gambled at all, his net worth would be $100K. Finally, let's assume A's credit is in shambles, and there's no way he can get new debt from anywhere or anyone.

    Given this case, assuming proof is there and judge says its "reckless", would/could a judge actually order an equilization payment from A to B over-and-above, instead of just leaving A with his 30K debt and leaving B with her $10K net worth? i.e., would/could a judge force A to go bankrupt even though he's agreed to keep his $30K debt and move on? Secondly, would going bankrupt alleviate A from having to pay such NFP payment, even if judge made it payable over like 10-20 years?

    tx
    You can't divide up money that isn't there. If the money was earned and spent, even if it was behind one spouse's back, it still isn't available to divide. B could maybe argue that (s)he shouldn't be responsible for A's remaining debt and escape with the $10k intact, but that's probably the best that could be hoped for. And it would require pretty solid proof that the $30k debt was incurred solely in A's gambling and not ever spent for the family.

    Pretend it isn't gambling for a moment. What if A had overspent like crazy on spa treatments? The money is still gone with no material assets to show for it, but no judge is going to say that A owes B compensation for spending all that money on pedicures instead of something divisible.

    Comment


    • #3
      Great. Thank you. Let's assume A walks away with the $30K loss to pay himself and NFP is settled.

      Let's say they make the same salary, or A maybe slightly more than B by like 10K. Both work full time. Presumably, I assume the judge would compensate for B's loss through the NFP process (i.e. the loss of the potential $100K) by throwing in a huge alimony payment to even the score? Assuming that's allowed in this case? Living together for 8, married for just under 5. I can just see the massive alimony payment to punish A for his behaviour.

      Comment


      • #4
        Originally posted by Fat Mike View Post
        Great. Thank you. Let's assume A walks away with the $30K loss to pay himself and NFP is settled.

        Let's say they make the same salary, or A maybe slightly more than B by like 10K. Both work full time. Presumably, I assume the judge would compensate for B's loss through the NFP process (i.e. the loss of the potential $100K) by throwing in a huge alimony payment to even the score? Assuming that's allowed in this case? Living together for 8, married for just under 5. I can just see the massive alimony payment to punish A for his behaviour.

        Umm, no. We live in a no fault divorce jurisdiction. Because there is no fault, there is no reason for penalty. Further, spousal support is determined on a compensatory basis (ie. Spouse B reduced their earning potential for the betterment of the family by being a stay-at-home parent, or quitting their job to relocate due to job opportunities for the spouse) or a non-compensatory basis (ie. Spouse A makes $150,000 a year and Spouse B makes $35k a year). You mentioned in a hypothetical example that each spouse makes the same money, which would eliminate non-compensatory spousal support from the equation.

        According to your post Spouse A had the potential to have more equity at the date of separation. But potential and reality are two very different things. People are entitled to spend their money however they deem fit, even if it is reckless. If Spouse B doesn't like it, they can leave.

        We don't punish people for being bad with money. That isn't what the law is about, especially not family law.

        About the only thing Spouse B could argue is that the $30k in gambling debts should be attributed to Spouse A, as Spouse B was unaware of the debts, the debts did not benefit the family and that they didn't contribute to such debts.

        Comment


        • #5
          Originally posted by Rioe View Post
          You can't divide up money that isn't there. If the money was earned and spent, even if it was behind one spouse's back, it still isn't available to divide. B could maybe argue that (s)he shouldn't be responsible for A's remaining debt and escape with the $10k intact, but that's probably the best that could be hoped for. And it would require pretty solid proof that the $30k debt was incurred solely in A's gambling and not ever spent for the family.
          I actually think it's easier than that. On date of separation there is no notion of "A"s money and "B"s money. There is simply the "family" money which is $(20)k.

          The NFP would show BOTH parties have a "negative NFP" of $(10)K. If both parties are Negative, equalization is stopped in its tracks.... so each person would have what they have.

          Comment


          • #6
            This is amazing. thanks guys. A little more to add on here - adding to the scenario.

            Let's say A has a pension worth $100K. So now A net worth is $70K, while B is still $10. Normal NFP calc would say A owes B $30K, but, since he a loan of $30K which lets say can be proved to be all gambling, the NFP payment becomes $45K. Again, I want to ensure i'm getting this right. In this situation, A still has net worth of $25K after the NFP payment. There is no way B can use the "potential income" argument proving A lost way more than just the $30K debt and use that argument to go after A's remaining $25K net worth? I just want to make sure.

            Comment


            • #7
              Originally posted by Fat Mike View Post
              Great. Thank you. Let's assume A walks away with the $30K loss to pay himself and NFP is settled.

              Let's say they make the same salary, or A maybe slightly more than B by like 10K. Both work full time. Presumably, I assume the judge would compensate for B's loss through the NFP process (i.e. the loss of the potential $100K) by throwing in a huge alimony payment to even the score? Assuming that's allowed in this case? Living together for 8, married for just under 5. I can just see the massive alimony payment to punish A for his behaviour.
              Nope. Nope. Nope.

              Spousal Support has NOTHING to do with reckless depletion. If they both make about the same salary, nobody is entitled to anything in the way of SS. Maybe if one of the spouse's career really suffered a setback because of the marriage? But if one of them quit a higher paying job because of the marriage, that was just stupidity and now they have to suffer the consequences for that marital decision.

              Divorce and spousal support isn't about punishment. A judge isn't going to make any decisions with the goal to punish anyone. B isn't going to be compensated for A's gambling losses through the court system. The only way that could happen is if A make a voluntary offer to keep them out of court.

              You might want to re-read your first thread to refresh yourself about our advice to you then, as it doesn't seem like it has sunken in very well.

              http://www.ottawadivorce.com/forum/f...46/#post193291

              Is your Ex scaring you about how much she's going to make you suffer? Don't fall for it.

              You were married. You became one financial entity. That financial entity made BAD financial decisions during the marriage. You are now divorcing. The CURRENT financial picture is being divided back into two pieces. How you got to that point is not relevant.

              Comment


              • #8
                Originally posted by Fat Mike View Post
                This is amazing. thanks guys. A little more to add on here - adding to the scenario.

                Let's say A has a pension worth $100K. So now A net worth is $70K, while B is still $10. Normal NFP calc would say A owes B $30K, but, since he a loan of $30K which lets say can be proved to be all gambling, the NFP payment becomes $45K. Again, I want to ensure i'm getting this right. In this situation, A still has net worth of $25K after the NFP payment. There is no way B can use the "potential income" argument proving A lost way more than just the $30K debt and use that argument to go after A's remaining $25K net worth? I just want to make sure.
                Why would you leave that out??

                Talk to the pension people and find out how much of that pension was earned while the parties were married. Say it's $50k, leaving A with a net worth of $20k. Add B's $10k and the marriage has a net worth of $30k. They divide that up to be $15k each. Easily done by transferring $5k from A's pension to a locked in RRSP for B.

                Potential income is a stupid argument, and doesn't belong in these calculations at all. You're only dividing up ACTUAL REAL assets and debts. What coulda shoulda woulda been is just dreaming.

                Comment


                • #9
                  Originally posted by Fat Mike View Post
                  This is amazing. thanks guys. A little more to add on here - adding to the scenario.

                  Let's say A has a pension worth $100K. So now A net worth is $70K, while B is still $10. Normal NFP calc would say A owes B $30K, but, since he a loan of $30K which lets say can be proved to be all gambling, the NFP payment becomes $45K. Again, I want to ensure i'm getting this right. In this situation, A still has net worth of $25K after the NFP payment. There is no way B can use the "potential income" argument proving A lost way more than just the $30K debt and use that argument to go after A's remaining $25K net worth? I just want to make sure.
                  I don't think this is possible. Spouse B can't invent an alternate universe in which A didn't spend money on gambling and then expect assets to be divided according to this imaginary scenario rather than according to what actually happened. Once the $100K that came into the household was spent, it's gone. It doesn't matter whether A spent it on gambling or B donated it to an orphanage or A and B together spent it on world travel, it's still gone. A didn't do anything illegal by spending money on gambling - people have the right to make bad choices, and if you're married to someone, their bad choices will affect you.

                  B should be happy that s/he is no longer responsible for A's spending habits. Many of us have been surprised by how much our personal financial picture improves post-divorce, even though household income is cut in half, because we had spouses who burned through a lot of money during the marriage.

                  Comment


                  • #10
                    Co-signing

                    Thanks so much everyone - HUUUGE help here!!!

                    1 more question - forget everything else above.

                    Does anyone know how co-signed loans with parties outside the marriage are treated?

                    For example - if B's father took out a credit line during the marriage, secured by his own home to get a very low rate that B co-signed, for which A and B used solely for them, i.e, buy furniture, day-to-day expenses etc. Would that credit line be used in B's net family property calculation? There is no way that B would have ever qualified to get that loan without her father's signature.

                    Comment


                    • #11
                      As I understand it, a line of credit all by itself isn't an asset. It's not like getting a gift of money. If there's an amount owing on the line of credit in B's name - if A and B borrowed from the line of credit during their marriage and didn't repay it - then the amount that is owing is a debt which is shared between the two of them. I don't think the fact that B's father guaranteed the line is relevant - the point is that the two parties used the line of credit and thereby created a debt while they were married, which they now have to split as they are separating their finances.

                      However, I am not a financial planner and could be wrong.

                      Comment


                      • #12
                        Sorry - lets assume theres 25K on it. It's co-signed under B's name, but she would never have gotten the credit line on her own given her income. I assume the legal system would include that in the NFP since A and B took full use of the line. ** thats why i said forget all above. thanks

                        Comment


                        • #13
                          If the line of credit was issued in the name of B's father, it would be the asset (liability) of B's father and outside of matrimonial property.

                          B being a co-signer is just liable should something happen and B's father go into default on the payments.

                          If there is a second contract, like a promissary note between B and B's Father, then there could be a case that its a loan and as such is a family debt.

                          Comment


                          • #14
                            ^^^ I'm confused about this too. What exactly do you mean by "co-signed under B's name"?

                            Is the line of credit in B's father's name, and he allowed A and B use of it? In that case, any amount outstanding on the line of credit is also in his name and not part of the marital property, unless he has a separate agreement or contract between him and A or B concerning use of his line of credit. Or did he use his property as collateral to secure the line of credit, but B's name is the one that appears on the documents? In that case, I think the debt (the amount that A and B withdrew from the line of credit and spent) forms part of the marital property.

                            It doesn't really matter whether B could qualify for a line of credit on her own or not - that's all speculation - what matters is whose name is the line in.

                            Comment


                            • #15
                              Sounds as though "Bank of Daddy" financed lifestyle by way of putting home up for collateral (secured by mortgage or line of credit?) for a line of credit for the Children.

                              It would be useful to examine the loan agreement between Bank of Daddy and the Children as well as the record of payments (if any) made to the Bank of Daddy. I wonder if, with the absence of a loan agreement, it could be argued that the line of credit was a gift? On the other hand, if regular payments were made to the Bank of Daddy, then I believe the line of credit could be considered a matrimonial debt. I believe it's all in the documentation.
                              Last edited by arabian; 11-04-2015, 09:18 PM.

                              Comment

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