The Strategies: (10) Designate Your Children As Beneficiaries; (11) Maintain Liquidity

Estate planning, including designating your children as the beneficiaries of bank accounts, RRSPs and other investments, can be an effective way to insulate those assets from equalization. Courts have held that property specifically and expressly intended to benefit children should be excluded from a spouse’s net family property.

It is important that whatever estate planning is undertaken be done with due consideration given to the potential effects of the end of a marriage. That is, an estate plan could be open to scrutiny in the event that matrimonial litigation is commenced. As stated, the creation of a trust or a gift of property, if made after marital difficulties arose or close to the date of separation, could be viewed by a court as an intentional depletion of assets aimed at frustrating the other spouse’s claim to equalization. In such circumstances, the details of an estate plan or trust or gift could be ordered to be produced to allow the court to determine if such an allegation has any merit.

The Strategies: (11) Maintain Liquidity

This strategy is important when it becomes clear that the marriage has failed and that the wealthier spouse will have to make some form of equalization payment. The Act does not entitle a spouse to an interest in or a right to a division of any specific asset of the other spouse. That is, a payment of money will be ordered by the court. Having sufficient liquid assets on hand will avoid the necessity of selling property to satisfy the equalization payment. A forced sale is not the best way to maximize the value of any given asset.

For more information on divorce and other family law matters, please visit MyOntarioDivorce.com or BermanBarristers.com.

Sincerely,

Robert Berman B.C.L, LL.B
Founder & Family Law Lawyer

The Strategies: (8) Avoid Ownership And Joint Accounts; (9) Place Property In Trust

The law in Ontario presumes that property held by spouses jointly, including bank accounts, is to be shared equally, regardless of the source of the property.

So, for example, if a spouse who receives a gift of money during the course of the marriage deposits it into a joint bank account, he or she will only be entitled to exclude one-half of the account for his or her net family property unless the presumption can be rebutted by evidence of a mutual and contrary intention. This is so, even if the jointly held property can be traced back to the otherwise excludable property.

The Strategies: (9) Place Property In Trust

Property that is placed in trust for the benefit of your children or other loved ones does not form part of a spouse’s net family property. In a properly constituted trust, the person who provides property to the trust, the settlor, no longer has control over that property. A settlor is a person who settles property on express trust for the benefit of beneficiaries, meaning that the purpose for the trust is very well defined and specific. In some legal systems, a settlor is also referred to as a trustor, or occasionally, a grantor or donor. The trustee is the person who controls the trust property.

However, if the settlor retains or exercises control over the trust or the property itself, the court could disregard the trust and include the value of the property in the settlor’s net family property calculations. Furthermore, trusts created by one spouse after the marriage begins to experience difficulties or just prior to separation could be viewed as an intentional depletion of assets. In such cases, the value of the property could also be clawed back into the settlor’s net family property.

In addition to domestic trusts, consideration should be given to non-resident trusts, also known as offshore trusts. While the federal government has eroded the tax benefits of offshore trusts in recent years, they can afford assets a greater degree of protection from creditors than can domestic trusts, depending on the country in which the trust is resident. However, these are complex vehicles requiring competent professional advice with respect to both the laws of Canada and the offshore jurisdiction.

For more information on divorce and other family law matters, please visit MyOntarioDivorce.com or BermanBarristers.com.

Sincerely,

Robert Berman B.C.L, LL.B
Founder & Family Law Lawyer

The Strategies: (6) Maximize The Exclusion For Gifts And Inheritance; (7)) Ensure Trace-ability Of Gifts And Inheritances

The Act sets out certain categories of property, the value of which are not included in a spouse’s net family property. Specifically, gifts, inheritances, damages for personal injury and proceeds of life insurance policies received by a spouse during the course of the marriage are excluded from his or her net family property.

Importantly, the income derived from gifts and inheritances can also be excluded providing that the donor or the deceased has expressly stated that the income is to be excluded from the recipient’s net family property. Most substantial gifts and almost all inheritances are received from family members. They should be made aware that if they want you to enjoy the full benefit of the gift or inheritance, provision should be made in writing that any income derived from a gift or inheritance is to remain separate and not from part of your net family property. Failure to do so will mean that the income will not be excluded.

Gifts of property to your children or other loved ones can be an effective means of reducing your net family property. This is a sensible option particularly if you intend to make your children the beneficiaries of your estate in any event. Gifts can be made outright or through transactions such as the estate freeze. Tax and accounting advice is recommended before any decision about the structure of an intended gift is made.

*Beware: There is a potential catch to using gifts to reduce your net family property. If a court were to find that gifts were made to intentionally deplete your net family property, the value could be clawed back and become subject to equalization. Again, timing is everything.

The Strategies: (7) Ensure Trace-ability Of Gifts And Inheritances

The Act also excludes from net family property the value of property into which gifts, inheritances, damages for personal injury and proceeds of life insurance policies received during the marriage can be traced. However, these exclusions can be lost in a number of ways. As such, you will not be able to claim an exclusion if a gift or inheritance was used to purchase the matrimonial home or converted to that use. An exclusion may also be lost if the value of it cannot be accurately followed into property into which it is invested. The trail of investment must therefore be adequately documented in order to preserve the exclusion.

In addition, an exclusion could be lost completely if the property is used for communal family purposes. Case law exists to the effect that where a gift or other potentially excludable property has been invested in property for the common purpose of the family, such as a family car, the value of the gift cannot be excluded.

For more information on divorce and other family law matters, please visit MyOntarioDivorce.com or BermanBarristers.com.

Sincerely,

Robert Berman B.C.L, LL.B
Founder & Family Law Lawyer

The Strategies: (4) Increase The Equity In Your Property Prior To Marriage, Leverage Your Property Prior To Marriage, And Increase Debt During Marriage; (5) Sell Your Existing Matrimonial Home

The Act specifically allows spouses to deduct from their net family property the value of property, other than the matrimonial home, that a spouse owns on the date of marriage after deducting any debts or liabilities existing on the date of marriage. The greater the equity you have in any given asset, the greater will be the deduction you can make at the end of the day.

The converse is true at the end of the marriage. Leveraging your assets during the course of the marriage will reduce their net value at the date of separation and, consequently, the value of your net family property. Increasing your debt over the course of the marriage will have a similar effect.

Either way, this means that your net family property will be reduced and that means you will have less to equalize when you separate. The smaller the cheque you have to write, the better. Who knows? Maybe your net family property will be low enough for you to be the recipient of the cheque. Would that not be nice?

But timing is everything. A court can essentially ignore a transaction that has the effect of reducing the value of a property if it is shown that the transaction was carried out to intentionally deplete the assets available for equalization.

The Strategies: (5) Sell Your Existing Matrimonial Home

As noted, the Act does not allow a deduction for the matrimonial home, which is given a distinct and special status under the Act. However, in order for a property to qualify as a matrimonial home, it must be ordinarily occupied as a family residence at the time of separation. If it is not, then it is not a matrimonial home. Thus, the value of a property brought into the marriage by one spouse is deductible if it is sold prior to separation, even if it was occupied as the family home. Furthermore, the deduction can be made even if the proceeds of sale are used to purchase another residence that is the matrimonial home at the time of separation. It is the value of the matrimonial home occupied as such at the time of separation that is not deductible.

For more information on divorce and other family law matters, please visit MyOntarioDivorce.com or BermanBarristers.com.

Sincerely,

Robert Berman B.C.L, LL.B
Founder & Family Law Lawyer