Ontario Family Law Blog : Barrie Lawyer & Attorney Brian Galbraith : Simcoe County, Canada Divorce, Separation, and Collaborative Law

Matthew Krofchuk has written a excellent blog at Divorce Happens Blog regarding the changes to the pension division legislation in Ontario which came into affect January 1, 2012. Matthew is with Krofchick Valuation so knows his stuff. 

The biggest impact of the new legislation is that you can now divided Ontario pensions at source if you want. So, let's say you have a pension worth $60,000. In the past, you would have to give your spouse $30,000 to equalize the value of this asset if all other assets and debts were equal. Now, you can arrange to have your pension plan transfer to your spouse $30,000 into a locked in savings vehicle (LIRA). 

Here is Matthew's blog... it explains it well.... 

Beginning January 1, 2012 new legislation passed by the Ontario legislature will result in a dramatic change in the way pension assets are divided between divorcing couples in Ontario. According to the Ontario Family Law Act (FLA), the value of married spouses’ pension assets must be included in family property, so the new pension rules could potentially affect a large number of married people in Ontario.

Are you one of them?

Well, for starters, the new rules – formally known as Bill 133 – only apply to spouses where no court order, family arbitration award, or domestic contract that provided for the division of pension assets between the two spouses was made before January 1, 2012. If you’ve entered into any one of these arrangements before the end of 2011, you’ll have to stick it out under the old rules.

The new rules also affect only those pensions covered by the Ontario Pension and Benefits Act, or in other words, provincial pensions. So if you or your spouse is a member of a pension plan that operates at a nationwide level like those available to federal public service employees or banks, for example, the value of the marital pension will be calculated in exactly the same way it was before. Provincial plans, however – like HOOPP, OMERS, and Ontario Teachers’ Pension Plan – will be directly affected by the new rules and there will be a number of changes divorcing spouses with pensions like these should be aware of.

The first major change involves just who’s calculating the value of the pension. Pensions are currently valued by third party actuaries retained either by one (or both) of the divorcing spouses or their lawyers. The new rules, however, no longer give divorcing couples this option. Beginning in 2012 divorcing spouses will have to apply directly to the pension plan administrator to calculate the value of the pension to be divided as net family property. You will need to appeal to them directly by filling out a form from the Financial Services Commission of Ontario’s (FSCO) website and they will likely charge a fee for their services.

The new rules also allow divorcing spouses to transfer the value of the member spouse’s pension in the form of a lump sum payment if they desire; this option was not available under the old rules. Previously, the only way that a spouse could receive their portion of their partner’s pension was either as a percentage of monthly pension benefits, when they became payable, or indirectly through negotiating their settlement (kind of a, “you get the house and I’ll keep my pension” arrangement). It’s important to know that this new lump sum option is just that: an option. Spouses can still elect to go at it the old fashioned way if they desire.

The last big change involves how the value of the pension is calculated. As they relate to pension valuation the new rules don’t contain any provisions that require the spouses to do anything over and above what they already do; you still have to get that pension valued. However, the pension administrators – now the folks in charge of calculating the value of these pensions – will not be applying traditional actuarial practices in valuing them. The new rules mandate that all pension valuations be performed using a prescribed formula that should apply to all pensions.

This last change appears to result from an effort by the province to minimize conflict and lengthy court proceedings. By setting out a simple formula for the administrators there’s very little room for either party to argue or to revisit the calculation at some later date in light of a change in circumstances, both of which were not uncommon under the old rules. The downside to this approach, however, is that not all pensions are created equal (and certainly, not all divorcing couples are either). The new rules don’t make any provisions for the kinds of unique circumstances that could impact the value of pensions – like retirement ages or health issues – but unless the Courts decide that these issues should be taken into account as they arise, we’re probably stuck with them for the time being.

By Matthew Krofchick

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Everyone hates having to do a sworn financial statement. This is a court form used in Ontario to list your assets, debts, income and expenses.  It is long, cumbersome and, frankly, a pain to complete. If your case is in Court in Ontario, you must complete the form. The Rules require you to complete it and the court clerks won't even open your court file without you filing a sworn financial statement.

If you aren't in court, I don't blame you if you don't want to complete it.

As your lawyer, we ask you to do a financial statement to ensure that you are protected. Yes, to protect you! We want you to fully disclose your assets and debts on the date of separation and date of marriage to ensure that your spouse cannot wiggle their wait out of the agreement, claiming that you were hiding assets. The Family Law Act allows the Court to "set aside" (which means not enforce) a separation agreement if there has not been full disclosure. 

The financial statement is an easy way to ensure that there has been full disclosure. It is like a checklist for lawyers. 

We ask your spouse to provide a sworn financial statement for the same reasons. It is an easy way to ensure we have a complete financial picture from him or her too.  

Once we have a complete financial picture, we can advise you as to the range of outcome should the matter proceed to court. In other words, we can give you legal advice. Without complete disclosure, we can't give you advice: we are just guessing.

Lawyers can get into big trouble with the Law Society if we give advice based on guesses or assumptions that turns out to be bad advice. Okay... you got me... we are also covering our own butt when we are asking for sworn financial statements. 

Disclosure is Essential

It isn't the financial statement itself that is important - what is important is that there is full disclosure. It's just that the financial statement makes it easy. 

A recent case before the Ontario Court of Appeal, known as Ward vs Ward clearly states that the exchange of financial statements is not necessary but full disclosure and knowledge of the other person's financial circumstances is essential. In that case, the parties exchanged some documentation with the assistance of the family's accountant. Financial statements were not completed but there was full disclosure and knowledge of each other’s financial circumstances.

The court describes the disclosure process in that case as follows:

“...neither party filed a financial statement, nor was one required under the terms of the process to which they agreed. While this did not diminish the obligation to disclose, in this case, the parties relied on the collaborative law process and other avenues of disclosure, including net family property statements and information from Mr. Wetstein [the family friend and accountant]”

In the end, the Ontario Court of Appeal determined that the husband's disclosure and the wife's knowledge of financial circumstances of the husband were sufficient even without sworn financial statements exchanged. The Court refused to set aside the agreement reached.  

Lawyers often use the financial statement because it is easy. It lists all of the categories of assets and debts so you don't miss disclosing something important. In our law firm, we insist on backup documentation to verify every value in the financial statement. It is the backup documentation that is important and fulfills the obligation to disclose. 

Collaborative Cases

In Collaborative cases, the Financial Specialist works with the clients to obtain a complete and accurate representation of the financial circumstances of the parties, usually without the use of a sworn financial statement. The Financial Specialist does a report and attaches the backup documentation for every value. Both lawyers ensure that their client has fully disclosed everything. Equally important, every lawyer must review what the other client has provided to ensure s/he has provided full disclosure. 

In Collaborative cases, as lawyers we always carefully review the Financial Specialist's report with our client to ensure it is accurate. Ultimately, the lawyers will ask for a sworn statement from each client stating that they have fully disclosed their assets, debts and income and that the Financial Specialist's report is accurate and complete. Alternatively, the lawyers will add wording to the separation agreement that states both parties are warranting that they have fully disclosed everything and that the Financial Specialist's report is accurate. Either way works. 

Full disclosure is essential. If you are trying to hide assets or income, we won't be your lawyer. We don't play those games. 

If you don't like having to provide full disclosure, we get it. You are not alone. Complain all you want. We have big shoulders. We want your agreement done right and made to last so just get it done. It’s for your own sake. 

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The division of property after separation raises many questions: How is it divided? Do we have to sell the house? Do I have to share my pension? What about my inheritance? 

The uncertainty leads to many sleepless nights. Everyone fears they will end up with nothing. The classic country song by Jerry Reid comes to mind for many: "She Got the Gold Mine, I Got the Shaft".(Women may insert "He" instead of "She" in the title and lyrics. The fear is the same for both genders.)

In Ontario, some of the uncertainty is eliminated by the Family Law Act which describes a formula so both you and your spouse end up with about the same net property. It looks like this:

+ Add up your assets on the date of separation

- Subtract your debts on the date of separation

- Subtract any gifts from third parties, inheritances or proceeds from a personal injury claim received during the marriage which were kept separate and are still in existence on the date of separation

- Subtract your assets less any debt you had on the date of marriage.

= The resulting number is called your Net Family Property (NFP). Your spouse does the same calculation.

÷ 2  If your NFP number is higher than your spouse’s NFP number, you owe half the difference so as to make the NFP's equal.

Here is an example:

To Summarize:

DIFFERENCE $94,000 - $83,000 = $11,000

EQUALIZATION OWED BY HUSBAND TO WIFE IS $5,500.00!

Once the Husband pays the Wife $5,500.00, each will have $88,500.

The Home: In this example, the home is jointly owned. If the Husband wants to purchase the Wife’s interest in the home, he would have to pay his Wife the equalization of $5,500 plus pay her for her one half interest in the home. This is calculated as $120,000 minus the mortgage of $80,000 equals $40,000. So, the Husband would have to pay the Wife $40,000 plus $5,500 for a total of $45,500. The Husband would then own the house solely and paid out his Wife. Alternatively, the house could be sold and sale proceeds divided or the Wife could buy out the Husband's interest. 

Ownership: You and your spouse keep the assets and debts in your own names. So, all we deal with in Ontario is the value of the various assets and debts. You don't have an ownership interest in your spouse's pension or other assets. Just a potential right to an equalization payment if they have more stuff (a larger NFP number) than you. 

Household Contents: If you want help dividing up the furniture and other items in the home, here is a blog about it. 

Adjustments: You may wish to to adjust the assets or debts so as to equalize the NFP numbers and avoid an equalization payment. So, in this example, the Husband might give his Wife some of his assets or take on some of her debt so there is no equalization payment owed. 

Excluded Property: An inheritance, a gift from a third party or a payment for a personal injury which is received during the marriage is not shared. If it was used to pay joint debts or invested into a jointly owned asset or is spent, it cannot be deducted. 

Debts: I often hear complaints from clients about having to take into consideration debts incurred by their spouse without their consent or knowledge. It is very frustrating. The law says that the reason debts were incurred does not matter except if it was for an illegal purpose. Your debts (meaning the ones in your name) are yours and your spouse’s debts remain your spouse’s debts, and jointly owed debts are shared. But everything is balanced out by the equalization process. If you have more debts than your spouse, your spouse may have to make an equalization payment to balance everything out.

Whole Picture: Some clients get confused because they want to equalize each asset or each debt one at a time. You have to look at the whole picture, using the formula above, and not look at individual assets or debts.

Unequal Equalizations: In rare cases, it is possible to ask for an “unequal equalization” if ordering an equalization payment according to the normal formula would be “unconscionable”. Our lawyers can help you determine if your case would be an exception to the general rule.

We have seen many people get the equalization calculation wrong, including other lawyers. Our lawyers only do family law and work with equalization calculations every day. We can help you get it right.

Case Study: If you are interested in reading how a typical case is resolved, read this article. 

Personal Insights: When I went through my own divorce (yes, divorce lawyers can get divorced... just like doctors can get sick), I learned some personal lessons. Here they are.

Perhaps Jerry Reid wasn't living in Ontario when he wrote the lyrics to his famous and hilarious song: 

Well, she got the gold mine!
I got the shaft.
They split it all down the middle,
And then they give her the better half.
Well, I guess it all sounds funny,
Hoo, hoo, hoo, ha-ha-ha-ha-ha!
But it hurts too much to laugh.
She got the gold mine - I got the sha-a-aft.

... or maybe he just retained the wrong law firm! 

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Have you ever fallen in love with something only to have it break, get lost or stolen? Maybe it was a special coffee mug, a favorite blanket or a stuffed toy. Gone forever.

I remember having an emotional attachment to special belt buckle. When it was lost, I was at first angry and then I almost cried. Eventually I felt silly for becoming so attached to a "thing".

In hindsight,  I now realize that it wasn't the belt buckle that was special but rather it was the memories it represented.

It was the first buckle I ever won showing horses. It represented hours of hard work and dedication to achieve a goal. As a teenager, it was very special to me.

The division of household contents is often a contentious issue when clients are separating or divorcing. Normally clients lament the cost of replacing items but, in most cases, if you drill deep enough, it is an emotional loss that fuels the fight. It's not really about "the thing".

For example, spending thousands of dollars on legal fees fighting over a used electric kettle worth $2.00 does not make sense on the basis of the value of the item but if that kettle represents the hopes and dreams of domestic bliss or memories of happier days, its value is priceless.

Perhaps fighting over your kettle is your way to avenge the hurt caused by your spouse. There are many reasons for steamy conversations about a kettle but ask yourself "what is the real issue here?"

I encourage clients when thinking about the division of household contents to ask themselves "In five years, will it matter to me if I have this item or not?"

"Fifteen years from now, will I be proud to tell my grandchildren about how we resolved the division of household contents?"

This helps you make priorities and keep things in perspective. Things of a lesser priority can be bargained away to get things of greater importance. Deals can be made and settlement achieved, cost-effectively.

Jason Brown in his blog at Minnesota Divorce and Family Law Blog has an excellent article in which he lists some great methods for dividing up the household contents. He suggests the following:

* Two Lists: One of you makes two lists of items, of roughly equal value. The lists are presented to the other. The person who didn't draft the lists gets to pick which list they want. There is an incentive for the person drafting to fairly and equitably divide things or they'll get burned during the selection process.

* Silent Auction: This is my favorite. A master list of all of your personal property is created. Each party blindly puts a dollar value next to each item. The high bid takes the item at the value listed. Once all items are bid on, the totals for each party are added up. The party receiving the higher dollar value pays the other a cash equalizer to make up the other's shortfall. Parties are free to place a high value on items they really want, but won't list a ridiculous bid out of fear of paying a large offset.

* Arbitration: An arbitrator is basically a private judge. You pay this person, usually a lawyer, to listen to your side of things in an informal conference setting. Then, your spouse does the same. The arbitrator is given the authority to divide the entire list of items as they deem fair and equitable. Costs are saved because the parties attend the arbitration without counsel and divide the arbitrator's fee. Most couples submit to binding arbitration so that the decision of the arbitrator is final.

* Rotating Lists: Make a master list and take turns going back and fourth until all of the personal property is divided. Flip a coin to see who goes first.

However you divide up your things, remember you won't get everything you want and that's okay.  It just creates the new challenge of finding replacement items for reasonable prices. You can always go to garage sales or look online for bargains at Craigslist or  Kijiji. Shop around. You'll be surprised how little it will cost and how much fun it is to replace those missing items.

In ten years most of the stuff you are arguing about will be safely lodged in a dump somewhere, rotting away to eternity. It really isn't worth the cost or energy to fight over them now.

So save yourself from paying legal fees. Don't fight about your household contents. Just go replace your old junk with other people's old junk... and make them part of your "new home"... a place for "new memories".

... but if you see my belt buckle, shoot me an email. I still miss it!

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