Divorce is an emotional transition, but it is also a significant financial one. Two people who once shared a household may suddenly need to divide property, manage separate expenses, determine support obligations and make decisions about their financial futures.
For many families, financial issues during divorce can become some of the most difficult issues to resolve. The financial picture may be relatively straightforward, or it may involve a family business, investments, multiple properties, pensions, significant debts or other complex assets.
Whatever the circumstances, the first step is understanding what you own, what you owe and what financial obligations may continue after separation.
Why Financial Issues Can Become Complicated During Divorce
Dividing finances after a relationship ends is not necessarily as simple as adding up the couple’s bank accounts and dividing the total in half.
There may be questions about when property was acquired, whether certain assets or contributions should be treated differently, how assets should be valued and what debts should be taken into account. There may also be tax consequences associated with transferring or selling certain assets.
Support adds another layer. Child support and spousal support are separate legal considerations, and determining the appropriate amount may require a careful review of each person’s income and financial circumstances.
The longer and more financially complex the relationship, the more important it becomes to understand the complete financial picture before making decisions.
Start With Full Financial Disclosure
A fair discussion about finances requires accurate information. During separation, both parties may need to exchange information about their income, assets and debts. Depending on the circumstances, this can include tax returns, Notices of Assessment, bank and investment statements, mortgage documents, business records, pension information and other financial documents.
This is particularly important when one spouse has traditionally managed most of the family’s finances. You should understand the family’s financial position before agreeing to divide assets or settle support issues.
Financial disclosure can also identify issues that need further investigation. For example, a business interest may require a valuation, or an investment account may need to be traced to determine its history.
The goal is not to create unnecessary conflict. It is to make sure important decisions are being made using accurate information.
Identify All Assets and Debts
It is easy to focus on the most obvious assets, such as the family home, vehicles and bank accounts. However, a family’s financial picture can extend considerably further.
Depending on the circumstances, property may include investment accounts, pensions, corporate interests, recreational properties, rental properties, valuable personal property or other investments.
Debts matter too. Mortgages, lines of credit, credit cards, personal loans and business-related debts may all need to be identified and considered.
Creating a complete list at the beginning can help prevent important assets or liabilities from being overlooked later.
Understand That Value Matters
Knowing that an asset exists is only the beginning. You may also need to determine what that asset is actually worth.
This can become particularly important with businesses, professional practices, investments and real estate. A privately held company, for example, cannot necessarily be valued simply by looking at the amount of money in its business bank account.
In higher-value divorces, determining the value of businesses, investments and real estate may require assistance from financial professionals, business valuators or other experts.
There can also be tax considerations. An asset’s stated value is not always the same as the amount a person would ultimately receive after taxes or transaction costs.
Understanding value therefore means looking at the financial reality of the asset, rather than simply assigning a number to it.
Dividing the Family Home
For many separating couples, the family home is their largest asset and one of the most emotionally significant.
There may be several possible approaches. One spouse may remain in the home while the other receives an interest in other property or assets. The home may be sold and the proceeds divided. In some circumstances, the parties may agree to postpone a sale.
The right approach depends on the family’s circumstances, including the parties’ finances, any mortgage, the needs of the children and the applicable property-division rules.
It is important to look beyond the home’s current market value and consider the mortgage, selling costs, taxes where applicable and the practical financial consequences of keeping or selling the property.
Business Ownership and Corporate Assets
Businesses can make financial issues during divorce significantly more complicated.
If one or both spouses own a corporation, partnership, professional practice or other business interest, questions may arise about the value of that interest, how income is generated and whether corporate assets or retained funds need to be considered.
The same applies to situations involving executive compensation, investments, trusts or multiple corporate entities.
Mincher Koeman’s high-net-worth family law practice specifically addresses complex financial matters including business valuations, investments, real estate holdings, executive compensation, offshore accounts and trust arrangements. The firm’s approach is focused on understanding the financial landscape and developing a strategy suited to the circumstances.
Pensions and Retirement Savings
Retirement savings can also form an important part of a family’s financial picture.
Pensions, registered investments and other retirement assets may have significant value, but they can be more complicated to address than an ordinary savings account.
The legal treatment of a particular retirement asset can depend on the circumstances, including when it was acquired and the nature of the plan or account.
If retirement assets are involved, it is important to understand their value and the implications of dividing them before agreeing to a settlement.
Spousal Support and Income Disputes
Financial separation does not necessarily end when property has been divided.
Depending on the circumstances, one spouse may seek spousal support. Determining whether support is appropriate, and if so, the amount and duration, requires consideration of the financial circumstances of both parties and the history of the relationship.
Income can also become complicated where a person is self-employed, owns a business, receives bonuses or commissions, has significant investments or has income that changes considerably from year to year.
This is one reason why the income shown on a tax return may not always tell the entire story when support is being considered.
Child Support and Additional Child-Related Expenses
Where children are involved, child support is another important financial consideration.
Basic child support is generally determined using the applicable guidelines and the relevant income information. There may also be additional expenses for children that need to be considered separately, including certain special or extraordinary expenses.
Parenting arrangements can also have financial implications. Changes in parenting time, childcare requirements or other circumstances may affect the overall financial arrangements between parents.
Because support is connected to both income and parenting circumstances, it is important to consider these issues together rather than treating them as completely separate financial questions.
Debt Division Can Be as Important as Asset Division
It is easy to focus on what a couple owns and forget about what they owe.
Debt can significantly affect each person’s financial position after separation. A family home with substantial equity may look very different once the mortgage is taken into account. Similarly, investment or business assets may be accompanied by loans or other financial obligations.
Understanding the complete balance sheet, assets and liabilities, is therefore an essential part of making informed decisions about separation.
Take Time Before Agreeing to a Financial Settlement
Separation can create pressure to resolve everything as quickly as possible. While reaching an agreement can be beneficial, moving too quickly without understanding the financial picture can create problems later.
Before signing a separation agreement or making an important financial decision, make sure you understand what you are agreeing to, what assets and debts have been considered and how support obligations have been addressed.
For families with significant or complicated assets, obtaining legal and financial advice early can be particularly valuable. It may also be possible to resolve financial issues through negotiation, mediation or another form of dispute resolution rather than proceeding directly to court.
How Mincher Koeman Can Help
Financial issues during divorce can range from relatively straightforward questions about the family home and support to highly complex matters involving corporations, investments, real estate, executive compensation and significant assets.
At Mincher Koeman, our family lawyers help clients understand the financial issues arising from separation and develop a strategy based on their individual circumstances. Our experience with high-net-worth divorce and separation allows us to address complex property division, support considerations and other financial concerns with a focused and discreet approach.
You do not need to have every financial question answered before you contact a lawyer. An early consultation can help you understand what information you need, what issues should be addressed and what steps may be appropriate for moving forward.
If you are dealing with financial issues during divorce in Alberta, contact Mincher Koeman to book a consultation. Our team of family lawyers can help you understand your legal options and protect your financial interests as you move through separation and divorce.
