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  • Planning Divorce to Minimize Financial Impact

    If someone is contemplating divorce and wishes to minimize the negative financial impact, what strategies and plans should be underataken? Let's say there is at least several months but no more than 2 years, until proceedings commence.

    Should one try to remove as much cash from accounts as reasonably possible? There is only one joint line of credit account, which is at $0. Should one start borrowing from the line of credit? There are no other joint accounts.

    Should one try to minimize their income? Should one try to show negative cashflows and maximize expenses and withdrawls?

    One party is self-employed, runs their own company, but has erratic income, how is the child support payments calculated for children 18 and 20 years old? The business income is like feast or famine, and is highly unpredicatable. The personal income follows the company cashflow. The other party has a nice steady reliable pension income. The retirement just commenced last year.

    In the past, several years ago, common family expenses had been shared and pro-rated based on each party's income. Would this sharing of expenses continue after divorce and for what period of time?

    Finally, the other party is expecting an inheritance, within the next 6 months to year. Let's say they put the inheritance into a new account, but withdraw monies from it to pay for the children's education. Would that new account then be classified as a family account and be subject to equalization? How could the new account funds become subject to equalization?

  • #2
    Hi cigar,

    Should one try to remove as much cash from accounts as reasonably possible?
    Should one start borrowing from the line of credit?
    IMO, one should not do this. Firstly, I find it would be morally incorrect to do something like this. Your spouse is entitled to half of what is in the joint account. As you may know, all assets and debts are divided based on the values at the date of separation. So, while one could clean out the joint account, rack up the LOC and then announce that they would like to separate, doing this may come back to haunt you. Your spouse would likely claim an unequal division of the parties' net family property as a result. If your spouse is successful, at the end of the day you will still end up with the same amount you would have been entitled to had you not cleared the bank account and incurred debt on the LOC, but I think your credibility will take a huge hit

    Should one try to minimize their income?
    Again, not a good idea from a moral standpoint. Also, if you maintained a certain income throughout the marriage and then reduce it drastically, there is a very good chance you would get income imputed to you. So, you could end up paying spousal support based on an income you no longer have. Purposely being underemployed would also have an effect on your credibility.

    One party is self-employed, runs their own company, but has erratic income, how is the child support payments calculated for children 18 and 20 years old?
    That's a tough question, and many separations have become very drawn out because of situations like this. What would likely happen is the court would consider the self-employed person's income over the past few years and, through careful examination, impute a certain income on which child support should be based.

    The other party has a nice steady reliable pension income. The retirement just commenced last year.
    The recipient's income does not come into play in regards to child support. This is because child support is the right of the child, so only the support payor's income is considered. The other spouse's income would, however, come into play when determining spousal support.

    In the past, several years ago, common family expenses had been shared and pro-rated based on each party's income. Would this sharing of expenses continue after divorce and for what period of time?
    I am assuming you are talking about expenses regarding the children and not daily household expenses. Upon separation, the only shared expenses would be special or extraordinary expenses (aka section 7 expenses). The following would normally NOT be considered special or extraordinary:

    (1) all customary and recurring expenses, such as clothing, food, supplies, and transportation to and from school, and
    (2) any school event that costs less than One Hundred Dollars ($100.00).

    Special or extraordinary expenses, which include expenses such as day care, post-secondary education, private school tuition and extracurricular activities, are normally either shared equally or by percentage based on your combined incomes.

    the other party is expecting an inheritance, within the next 6 months to year. Let's say they put the inheritance into a new account, but withdraw monies from it to pay for the children's education. Would that new account then be classified as a family account and be subject to equalization? How could the new account funds become subject to equalization?
    Inheritances would NOT be included in a party's net family property, but only if the monies are kept separate from other property. Also, you must be able to trace the funds from when you inherited them. So, you cannot be gifted $20,000.00, sink it into the matrimonial home and then exclude it from your net family property later. IMO, I believe inheriting monies and depositing them into its own account would be a sufficient way to exclude the funds from one's net family property.

    Lindsay
    Last edited by Lindsay; 07-10-2006, 10:37 AM.

    Comment


    • #3
      More questions

      Quote:
      Should one try to minimize their income?


      Again, not a good idea from a moral standpoint. Also, if you maintained a certain income throughout the marriage and then reduce it drastically, there is a very good chance you would get income imputed to you. So, you could end up paying spousal support based on an income you no longer have. Purposely being underemployed would also have an effect on your credibility.

      The drastic reduction in income was initially based on factors beyond one's control, like being fired due to a company merger. After the initial firing, it has been difficult to find employment at the same level, so rather than being under-employed there has been very little employment at the same level, where fired, and consequently much less income, for about 2 years now. How does the court impute and income and decide if this is the correct approach? How can a court decide if the person should have taken a lesser more steady job, to earn more income? There is only reality and everyone can concoct theories what may have occurred or could occur. Is it better to take the lesser position job or is it better to wait for a job at the same level, which may never arise? How long should one wait for the same level job?

      In regards to the morality of the strategies, I won't address that since it can become a long drawn out debate. I can see that some people's morality is very narrow or focused, while others have a more global perspective. Based on what has been written in this web site, it seems the Ontario Courts have a very narrow thought pattern, almost ridiculous. From my viewpoint to impute income that doesn't exist is absolutely ridiculous, the judge must be on drugs.

      In regards to spousal support, how is it determined? Would there be any spousal support payments if both parties had worked throughout the marriage? Is the support calculated based on earnings or expenses?

      Comment


      • #4
        Hi cigar,

        Is it better to take the lesser position job or is it better to wait for a job at the same level, which may never arise?
        OK, I see what you're saying now. I suppose it really depends on the circumstances. If it is extremely unlikely that you will be able to secure a position with your previous income in your area of expertise, then the court will take this into consideration. The court may ask for your job search efforts as well as other research to prove that your chances of you securing a new position at the same salary are minimal.

        If you know that a new job at the same income level may never arise and you decide to remain unemployed well knowing this, the court may view this as being purposefully unemployed, possibly resulting in income being imputed. BUT, this depends on the circumstances. If you were an astronaut for the only space agency in Toronto that recently went under, you would obviously be overqualified for some positions. Many other factors may come into play as well. It's really something that you need to speak to your lawyer about in detail.

        In regards to the morality of the strategies, I won't address that since it can become a long drawn out debate.
        I understand. I don't know what you have been through and I don't know what is to come. If every party made decisions based on moral standards, our forums wouldn't be very popular

        From my viewpoint to impute income that doesn't exist is absolutely ridiculous.
        Please keep in mind that this works both ways. If you have a spousal support obligation, the court may impute an income to your wife. They may do this based on the fact that she has a certain education and certain work experience, and as such she has a duty to make reasonable efforts to secure employment (which would result in a smaller difference in the parties' incomes and as such reduce your spousal support payments).


        In regards to spousal support, how is it determined?
        That's not an easy question to answer! Spousal support is based on a payor's means and the recipient's need. The amount of support is generally determined by analysing the parties' incomes, but there is more to it than that. The court would examine the roles of the parties throughout the marriage and would take into consideration whether one party helped the other advance in their career, what each party's household duties were, the length of the marriage, etc. Take a look at what Jeff has to say on spousal support on his Ontario divorce website.

        Lindsay
        Last edited by Lindsay; 07-11-2006, 11:55 AM.

        Comment

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