Dealing with the emotional and financial aftermath of a separation can be overwhelming. There are concerns about where a spouse is going to live, what is going to happen to the children, and how the separation is going to impact the family finances. In addition to these concerns, each spouse is experiencing a loss and the tremendous emotional toll that a separation can take.
The ‘Simple’ Separation
In the ideal situation, the legal advisors will work closely with the separating spouses’ financial advisors, such as accountants and financial planners, to devise a plan that will work for everyone. Many separated spouses, however, are hesitant to involve these types of professionals because of a concern about the cost and a belief that their situation is “simple.”
In my experience, there is no such thing as a simple separation agreement. While you can have situations where the parties are amicable and have come to an agreement, putting the agreement together in writing and ensuring that the agreement adequately addresses the subtle nuances of that particular separated family is not necessarily what one would define as simple.
When Children Are Involved
Many separating spouses feel that they have relatively straightforward finances and, therefore, do not need to complicate matters by involving professionals. However, even when there is relatively little to divide by way of assets, other issues, such as the children’s parenting schedule, or the payment of child or spousal support can necessitate the involvement of accountants and financial advisors.
Surprisingly, the parenting schedule can affect the tax benefits each spouse is entitled to receive and the credits they are able to claim on their income tax return. In addition, the payment of child or spousal support can have an impact on tax benefits and credits.
RRSP’s & Investments
There are also tax implications associated with the division of investment accounts such as RRSPs, of which many people are not aware. If you remove funds from an RRSP to pay out your spouse, income tax is payable. However, if you transfer funds between RRSP accounts pursuant to a Separation Agreement or Court Order, provided the correct forms are completed, spouses can avoid paying income tax at the time of transfer.
Given these potential avenues for unintended consequences, even in the simplest of cases it is important for separated spouses to obtain advice from their accountants and financial advisors. While it may seem like an unnecessary expense at a time when finances are tight, it may prevent further expenses down the road if something unintended happens when Revenue Canada gets involved.
Businesses or Partnerships
In situations where the separating spouses have businesses or partnerships, the importance of involving financial advisors and accountants is even more pronounced. When there is a business involved, whether incorporated or not, there are complicated taxation issues that need to be considered. Depending on how the spouses divide a corporate asset, there can be tax payable by the spouses. Ideally, your legal advisor will work closely with your accountant in order develop creative solutions to minimize any tax payable.
When companies are involved, it may also be necessary to obtain expert opinions regarding the value of a business or partnership. There may also be a need to obtain an expert opinion regarding the cash flow available to a spouse for the purposes of determining the appropriate child or spousal maintenance. The spouses’ legal advisors will normally work together to arrange these types of opinions to ensure they are done correctly.
Working Together in Separation Agreements
In the end, if the spouses can work with their legal advisors and financial advisors together as a team to devise an agreement that works for everyone, the result will usually leave the spouses in a better financial position. While it will involve an expense at the outset, this expense should be seen as an investment to avoid spending more in the future.
The information provided above is for educational purposes only. This information is not intended to replace the advice of a lawyer or address specific situations. Your personal situation should be discussed with a lawyer. If you have any questions or concerns, contact a legal professional.The information provided above is for educational purposes only. This information is not intended to replace the advice of a lawyer or address specific situations. Your personal situation should be discussed with a lawyer. If you have any questions or concerns, contact a legal professional.