Equalization payment question

[BlueDressInToronto]

What happens if an asset worth about $60,000 has dropped in value since the separation (to near zero). Is an equalization payment still awarded based on the full amount, even if the person has no money to pay?

[arabian]

Obviously more information is required regarding the asset - what is the asset?

[Rioe]

What happens if an asset worth about $60,000 has dropped in value since the separation (to near zero). Is an equalization payment still awarded based on the full amount, even if the person has no money to pay?

It usually is the value of an asset on the separation date (also called valuation date) that is used for division in equalization. When the marriage breaks up, you kind of freeze the financial picture as of that date, but it takes time afterwards to determine exact values and decide on the division of that frozen picture.

If one person deliberately drove the value of an asset down by not maintaining it, why should the other person lose money because of that? Conversely, if one person put effort and money into maintaining or improving an asset after separation date, why should the other person benefit financially from that?

If an asset has diminished in value after separation date, the 'lost' half share of it would have to come out of some other asset instead, or maybe lead to unequal division of debt, or the person who has to pay might need a bank loan, etc.

If it was really just bad luck that dropped the asset in value, the two people involved could perhaps negotiate something to account for that.

[BlueDressInToronto]

It is an investment in a small business but sales are way down...

[Headwaters1]

I too own a small business. And I think you have to accept the principles Rioe provided above. If the asset was underperforming it is the responsibility of the person running the business to account for it.

You could see the arguement by the opposing side that this business was purposely tanked in order to devalue it temporarily.

The best arguement a small business might have in that scenario was that if it relied heavily on them to drive sales, that the effect of the divorce itself impacted them heavily and emotionally and therefore the business focus was lost and performed badly.

Honestly. A tough sell. But as always everything in family court appears to be case by case.

[BlueDressInToronto]

We are not involved in the business at all.

I will do my financials and see what happens.

Thank you.

[ottawa_divorce_dad]

If neither party is involved in the "asset", the best way to address it would be for both parties to take equal "shares" in the asset and do with their share whatever they please. That way neither party is penalized for something they couldn't control.

Of course, if one party controlled that asset since the date of separation, it would not be unreasonable for the other to challenge such a split. Even if the asset was shares in a publicly traded company (say Blackberry) ... and there is bad news coming out of the company ... the controlling party can be reasonably expected to be taking actions to reduce or minimize losses. If those actions were not taken, the other party would have a fair argument to make, IMO.

[piggybanktoex]

Unless he/she sold the shares and the company zooms upwards.....then compensation is demanded....you can't win for trying....

[stripes]

Do you have an agreed date of separation (or date of valuation)? If so, why would you not use the value on that date when calculating equalization? The only exceptions I could think of would be if the value on the date of separation was unusually high (maybe this is a seasonal business or one which is subject to boom-and-bust cycles?), and the current, lower, value of the asset is more typical of its actual value over a span of years; or if something disastrous happened that was completely unpredictable and outside the control of either party (e.g. a meteor hit the business the day after the insurance lapsed).

If the loss of value of the asset means that one party (presumably the one that has the asset now) won't have the cash to meet the equalization payment, perhaps the two parties can work something out whereby non-cash resources like pension credits are transferred instead, or paid out over a long period of time, kind of like equalization on the installment plan.