In our last discussion I lied to you a little. I said separation is simple. It isn’t all that simple but it’s not actually hugely complicated either. Not too hot, not too cold, but hardly ‘just right’. It hurts remember? It challenges your sense of decency and fairness; you’ll loose sleep over it. You’ll cry, even you tough manly men out there, so be ready. And by the way, tears are better than fears, sadness better than anger, but not too much sadness, that’s bad. The Net Worth Statement You start with the family net worth, which is equal to total family assets less total family liabilities. So what’s a family asset? It’s anything you acquired while together. It applies to married and common law couples and to the total period of cohabitation, not just that period from date of marriage until date of separation. But let’s keep it simple [yeah right]. For most, it’s all that you acquired while married – the house, the RRSP’s, the pensions, the cars, the savings, the cash in the bank, the shares you earned as part of your compensation from your company, your business, the yacht and island in the Caribbean. We don’t usually include home contents but if there are valuable art works for example, get them appraised and include those too. [We generally don’t worry about negotiating the split of house contents: you’re best to do that on your own – her dresses are her dresses, your golf clubs are yours…] Family liabilities: Many assets, for example your house, are acquired with debt. So the mortgage is an obvious family or shared debt. Others include all credit cards - the Sears and Hudson Bay ones too, not just the VISA or Master Card, – all car loans, personal loans, unpaid taxes, lines of credit, borrowings from your grandmother…it’s all sharable, - the dark underbelly of assets. Subtracting total debt from total assets equals your family net worth and that’s the figure you’ll divide 50:50. If Family Smith’s net worth is equal to say $500,000, each spouse is due half of that, but just how do you both get $250k? Your negotiator can be particularly useful now – s/he was a horse trader before getting an honest job – “I’ll trade you an RRSP for a LIRA, or how about an overdraft for a personal loan?” This stage is called Division, and it almost always ends with one spouse owing the other an amount that makes it all equal. It’s called the Equalization Payment. Using Family Smith again, let’s say their total assets were $550,000 against a debt of $50,000 leaving a net worth of $500k. Somehow each spouse must get $250k. The horse-trading we mentioned may result in her keeping the house [usually along with the mortgage], each keeping their savings and pensions and so on. The final figure may leave her owing him $45k. It’s not uncommon for it to be the wife owing the Equalization Payment, particularly if she wants the house, one of the biggest assets for most families. Now, she makes half what he does and hasn’t the capacity to pay him that $45k so what happens then? This is when your payor, in this case the Husband Smith, needs to know what amount of child support he will need to pay. Child support is not negotiated but instead is mandated by law, whereas spousal support is negotiated. If the kids are going to live more than 60% with her, child support is based only on his income and is read right off a Federal Child Support table. It gets a bit more complicated with shared custody and dissimilar incomes. Now that Husband Smith knows what division and child support payments look like, it’s time for a discussion about spousal support. Most practitioners of the art of separation and divorce follow what are called Guidelines, also from the Feds. A basic notion around spousal support is that the recipient shouldn’t feel like s/he won the lottery nor should the payor feel like staying in bed. Length of marriage, the degree of employability of the recipient, need - being a recognition of any economic disadvantage to the recipient arising from the marriage or its breakdown, and ability to pay- these are some of the issues judges have considered when asked, but don’t ask! Don’t go to court – negotiate and agree. At Fairway Divorce Solutions® we use software that incorporates the Advisory Guidelines. It always suggests a minimum period for spousal support for consideration is half the length of cohabitation and up to forever if the relationship lasted more than 20 years. The amount is based on both spouses’ incomes. How that amount is paid is also up for grabs: monthly or lump sum. Mr. Smith, trying to avoid the ‘drip, drip, drip’ water torture of monthly payments, negotiated a lump sum payment, which they agreed to be $60k. The math wheels were spinning until some bright noggin observed that “Hey, if she owes you $45k and you owe her $60k why not settle it with a single cheque from you to her for the difference? How’s about cutting a cheque for $15k and shaking hands?” Good idea. So they had Division and support payments figured out, and he did have the resources to come up with $15k. They were getting along so well they went to the same financial advisor who reminded them none of the payments were tax sensitive; child support isn’t whereas only periodic spousal support is tax deductible by the payor and taxable by the recipient. Once again, this separation business is staring to look too easy, if you think collecting all your financial information and having your life reviewed by strangers is easy. But we still aren’t separated. What about the kids? Does MR or MRS Smith get them Christmas morning? What about extra expenses like dance or hockey, university? And there remains that illusive Separation Agreement. Oh boy, this is getting tiring, I need a break. Let’s finish the pre-separation process next time with special focus on your co-parenting plans. Paul Sweatman Senior Negotiator Fairway Divorce Solutions® - Manitoba July 31, 2013
Posted on: Wed, 31 Jul 2013 16:30:03 +0000
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