Divorce Options

𝗗𝗼𝗻’𝘁 𝗟𝗲𝘁 𝗮 Shortsighted 𝗗𝗲𝗰𝗶𝘀𝗶𝗼𝗻 𝗖𝗼𝘀𝘁 𝗬𝗼𝘂 𝗟𝗼𝗻𝗴-𝗧𝗲𝗿𝗺 Success

1. If You Want Primary Care of Your Children

Most separating couples don’t realize that the parenting decisions that they make at separation will guide a Court in making decisions regarding: (1) their sharing of time with their children and (2) their decision-making authority around their children.

For practical reasons, on separation, one parent may leave the family home and take up residence elsewhere, leaving the children in the primary care of the other. Because of space limitations in temporary accommodation, one parent may temporarily allow the other to have the children in the other’s primary care. As an early, time limited plan, the children may be registered in the school district in which one of the parents lives, but not the other. These appear to be reasonable and practical short term arrangements.

In the best-case scenario, a Court will not be involved in decisions regarding your children following your separation. For optimum, child-centered results, you and your spouse should make every effort to negotiate a plan that serves your children and your family best. But, if you are unable to do so, or your parenting negotiations breakdown, you don’t want to be left in a position of weakness in relation to your ultimate goals.

The Family Courts will place great weight on the “status quo” that has been established for the children. This means that a Family Court Judge who is making recommendations or decisions about your children’s future, will give strong consideration to the established pattern of time-sharing, the established pattern of decision-making, the established residential arrangement, established schooling arrangements and other established arrangements for the children. Generally, children going through a separation will experience a great deal of disruption and change. The maintenance of a steady, and established family environment, that has served them well, is generally seen to advance their best interests.

Neither parent can change the status quo overnight by swooping the children into their care. However, temporary arrangements put in place following a separation frequently remain in place for months, while Family Law concerns are being negotiated and finalized. The children can become grounded in their new parenting plan. Once the children have gone through the process of adjusting to this new plan, a Family Court Judge will often be reluctant to change it, if it is serving the children’s interests as-is. Thus, the temporary arrangements that you make early on can either strengthen or weaken your case.

To ensure that you are well situated to advance parenting, and any other concerns, arising from the breakdown of your relationship, you should have a consultation with a Family Law Lawyer. They will help you to put into place an early plan that will protect your interests down the road and avoid common pitfalls. A good Family Law lawyer will also guide you in implementing friendly, cost-effective and healthy options to settle your Family Law concerns.

2. If You Want to Avoid a Substantial Spousal Support Obligation

Spouses share different roles in a relationship, and these roles shift and evolve over the course of a relationship. There are times when it reasonable, practical or essential that one party depend on the other for the family’s financial support and wellbeing. One or both parties may take parental leave, and the party on leave may rely exclusively on the other for the family’s financial support. One party may develop a health condition that precludes their financial contribution to the family. Or the parties may simply enjoy, or benefit from, the division of responsibilities, so that one party is the primary breadwinner. All of this makes sense, in a healthy family scenario. However, if you become the established primary breadwinner for the family, you should be aware that you are looking down the barrel of what might be a substantial child support and spousal support obligation should your relationship break down.

As an experienced Family Law lawyer, I have seen many primary breadwinning spouses regret that they have participated in the creation of a financial scenario that has resulted in significant and long-term spousal support consequences for them on separation. Often, they didn’t cooperate in creating this scenario because it was essential, or because it was something that they favoured. Frequently, it was something that they opposed. For example, their spouse may have lost their job and decided to become involved in charity work, instead of paid work. Their spouse may have decided to go back to school and become a long-term/professional student. Their spouse may have decided not to return to work after parental leave. The primary breadwinning spouse may have supported this decision in the short term, not imagining that it would continue indefinitely. The primary breadwinning spouse may even have opposed the decision, but chose not to protest against it, so as not to rock the boat, or out of simple fatigue.

Where an imbalance in the financial means and contributions of the spouses has persisted over many years, the likelihood that spousal support will be paid becomes substantial. And the longer the dependency continues, the longer the spousal support is likely to continue. When a separation occurs, the fact that the primary breadwinner is burnt out on the job, seeking to retire or suffering from health conditions that make their work a challenge is often given little, or modest, weight, in the face of the need to support the family and continue to support the now dependent spouse.

This is the sort of Family Law information that people should have early in their married and common-law relationships. Family Law Lawyers understand that people don’t shape their relationships wholly around Family Law risks and benefits. However, having witnessed a good deal of regret from primary breadwinning spouses who followed the wrong path, this is a risk factor that should, at least, be considered.

3. If You Want to Avoid Sharing the Debts of Your Spouse.

Many people don’t know that under Ontario’s Family Law, if you separate, it is not only the property of your spouse that you share but their debt. In simplified terms, in our Family Law Act, R.S.O. 1990, c. F.3  https://www.ontario.ca/laws/statute/90f03  there is a calculation of the net worth of each spouse at the date of their separation (the value of their property minus the value of their debt). This net worth calculation is adjusted in accordance with certain Family Law principles, the detail of which is not necessary for our discussion. But, rudimentarily, the person with the higher net worth (adjusted for Family Law principles), will be paying to the person with the lesser net worth (adjusted for Family Law principles) a sum of money to settle their property concerns. This means that, your spouse’s, debt can impact the sharing of your property at separation, to your detriment.

Sometimes, a spouse will pursue a business scheme that goes bust, leaving the family with harsh and unexpected debt. Sometimes, debt will arise due to a poor investment decision, or careless or imprudent spending. If the actions of the spouse who incurred the debt reach the level of being reckless and shocking to the conscience, a Family Court Judge can allocate more of the responsibility for that debt to the spouse who incurred it. But this kind of reallocation is extremely rare. This means that you are likely to bear the consequences of your spouse’s actions in accumulating debt.

It is important to understand that because you are married, it does not preempt you from entering into an agreement that governs the treatment of your property and debt in the event of a separation. Such an agreement would be a form of Marriage Contract. This contract would be triggered in the event of a separation, having been put in place for the protection of the financially responsible spouse.

Marriage Contracts can be negotiated during your marriage and finalized in a friendly and efficient fashion. These contracts can govern some, or all, of the issues that you would like to address should you separate. It is often best to agree upon these issues at the time that they arise as, at the time of a separation, dealing with them can be very much more contentious. I have seen many instances in which spouses have agreed that the financially irresponsible spouse will assume exclusive responsibility for certain debt. Then this debt does not play into the property equalization that would otherwise apply under the law on a separation.

It is important to note that spouses should not try to create this kind of agreement over the kitchen table. Legal skill is required to extract the relevant debt from the general property scheme at law. It is something that should be properly and effectively documented with the assistance of a Family Law Lawyer. If significant value is at stake, it is worth it to make a modest investment in such an agreement, to ensure the financial outcome that both spouses intend.

4. If You Want to Keep the Value of Your Inheritance as Your Own

The good news is that when property, other than a matrimonial home, is acquired by a spouse by way of inheritance, it is, generally, excluded from sharing with the other spouse under Ontario’s Family Law Act,R.S.O. 1990, c. F.3 Part I, section 4(2) (1) https://www.ontario.ca/laws/statute/90f03/v3#BK5  And there’s more good news. Even if inherited property has been converted into other property over the course of the marriage, the property into which it can be traced is also excluded from sharing. For example, if you use your inherited funds to buy a motorcycle, the value of that motorcycle on separation will not be shared with your spouse.

The bad news is that many spouses lose the benefit of their excluded inheritance by handling their property in a manner that is detrimental to them. Frequently, inherited property is invested in their family residence. A property that is ordinarily occupied by the spouses as their family residence at the time of separation is treated as their “matrimonial home,” for Family law purposes. In simple terms, the value of the matrimonial home will be equalized between the parties on their separation. Therefore, the spouse who enjoyed an excluded inheritance, will lose that exclusion if they invest the property in the matrimonial home.

If inherited funds are invested into property that is jointly held by both spouses or it if is gifted to the other spouse, then, once, again, the inherited funds can lose some or all of their excluded status.

If inherited funds are used to pay down family debt or pay other family expenses, and therefore do not exist on the date of separation, they are, in effect, equalized between the parties during the marriage, and are not a relevant consideration on separation.

The moral of the story is, if you want to protect and preserve your inheritance from sharing, then hold it separate and apart from other property and keep it in your name alone. This is not an invitation to ungenerously deprive the family of the benefit of your inheritance. It is simply an invitation to be mindful as to how you choose to utilize the inheritance, and what portion of it you think should be reasonably allocated for your exclusive benefit, in the face of future eventualities.

Bonus – If you Want to Keep the Value of Income from Your Inherited Property as Your Own

You should know that income from your inherited property is not automatically excluded from sharing under the Ontario Family Law Act. However, if, under their Will, the donor of the inherited property expressly states that income from that property is to be excluded from sharing under the Ontario Family Law Act, then you can achieve this result. The family member or friend who is making the inheritance must speak to the lawyer drafting their Will – an Estate Lawyer – about including this clause in their Will, if they want to achieve this result. Most Estate Lawyers will offer this option to a person who is preparing their Will.

5. If You Want to Keep the Value of the Property You Brought into the Marriage as Your Own

If you want to extract your date of marriage property from sharing with your spouse in the event of a separation, you will be pleased to know that the value of this property is automatically deducted from sharing under the Ontario Family Law Act, with a couple of significant exceptions.

First Exception – Here’s a little twist. If the property that you own on the date of marriage increases in value during the marriage, then the increase in value is shareable with your spouse should you separate. So, if you have an investment property that has equity of $200,000.00 on the date of marriage, but is valued at $800,000.00 on the date of separation, you will end up sharing the $600,000.00 increase in equity with your spouse should you separate.

Second Exception – If a home owned by you on the date of marriage is ordinarily occupied by you and your spouse as your family residence, it is treated as a “matrimonial home,” for Family law purposes. If your date of marriage home:

• become a matrimonial home; and
• continues to be your matrimonial home at the date of your separation,

you must share the full value of your date of marriage home with your spouse should you separate. For example, if your date of marriage home had equity of $300,000.00 on the date of marriage and $800,000.00 on the date of separation, and it was not a matrimonial home, as described above, you would not have to share $300,000.0 of its value with your spouse. If your date of marriage home was a matrimonial home, as described above, you would share the full $800,000.00 value with your spouse. Some people are aware that, generally, date of marriage property is not shareable, but many experience a rude awakening when they learn that this does not hold true for a matrimonial home.

How do you work around the exceptions identified above?  The way to avoid the automatic sharing that is prescribed by the Family Law Act, is to create an agreement, that identifies a plan for sharing that is unique to your needs and circumstances. Such an agreement would be a form of Marriage Contract. It can be negotiated and finalized in a friendly and efficient fashion. The contract can govern some or all of the issues that you would like to address should you separate. It is often best to agree upon how to deal with such issues before a separation because, at the time of a separation, dealing with them can be very much more contentious.

6. If You Want to Avoid a Disruption of Your Business At Separation

At the time of separation, it is often problematic when the spouses share an interest in a business, or when both hold shares in a privately held corporation out of which a spouse, or the spouses, operate their business.

As you can imagine, when a separation occurs, there is a need to keep the business operating smoothly and profitably, without damage to its efficiency or reputation. But frequently spouses will battle over multiple aspects of a business’s handling, including:

• in a jointly run/held business, who manages which aspects of the business,
• in a jointly run/held business, how and when assets or income should be withdrawn from the business or debt incurred by the business,
• in all circumstances, how the business should be valued,
• in a jointly run/held business, who should be entitled to retain the business,
• where both parties have an interest in the business, but one party works the business and generates its income and growth, who should benefit from any post-separation increase in the value of business?

These are but a few of the challenges that can arise. To minimize challenges the spouses must, first, carefully consider the terms of their partnership or shareholder’s agreements and/or incorporate protective terms in a Marriage Contract.

It is often prudent to:

• Valuation of the Business – Have a clause that identifies a formula for valuation of the business in the event of a separation. Spouses can fight extensively over the value of a business, each funding competing valuators at considerable cost. If a fair, neutral and reasoned approach to valuation is identified in advance of any separation, this resolves a world of challenges.
• Buy-Out of the Business – Spouses should agree and document who has the first option to acquire a jointly held business, or identify a mechanism for neutrally determining who should have this right. They may also want include a recommended process for the buy-out, that minimizes tax consequences and global costs. This would require consultation with a corporate accountant at the time that the agreement(s) are being crafted.
• Triggering a Buy-Out – Where the parties hold shares in a small, privately held corporation, with or without other partners, they may want to include a clause that allows a majority of shareholders to trigger an immediate buy-out of the shares of a spouse in the event of a separation. This can have the benefit of excluding a shareholder who is problematic at the time of separation or allow a buy-out when the value of the shares is advantageous.
• Post-Separation Increase in Value of Shares – Sometimes, a spouse is allocated shares in a corporation for tax purposes but does not contribute in any way to the operation, growth or income generation of the business held in the corporation. However, the value of that spouse’s shares in the corporation may be increasing after the date of separation – due to the efforts of the acting spouse and/or changes in the market. In this circumstance, the acting spouse may want a clause that freezes the inactive spouse’s share value at the date of separation, so that, if and when, the active spouse buys out the other’s shares, they do not have to pay an increased post-separation cost of the shares. There are different mechanisms to achieve this result. The spouse acting to achieve this result should also be aware that there could be a downside to freezing value were the shares in the business to decline in value after separation.
• Management/Control – Frequently one of the spouses is actively contributing to the operation, growth and income generation of a business held in a corporation (the active spouse), while the other spouse may simply hold shares for tax or other purposes. The active spouse will, generally, be allocated shares that have more rights and privileges than those of the other spouse and will have documented positions of power in the business. Less frequently, agreements will include clauses that limit the participation of one spouse’s contribution to the operation or management of a business in the event of separation, or limit their access to the income or assets of the business for personal use, outside of the pattern that existed in the ordinary course preceding separation. Such clauses are generally included where there is a spouse who is the primary manager and operator of a business and whose continued management, without interference, is beneficial. However, such clauses are extremely difficult to craft in a way that is fair for both parties and need to be carefully considered.

The proposed clauses, above, offer some ideas as to how to front end load your plans for business management in the event of a separation. They require increased complexity and expense when structuring and documenting your business practices. However, they are invaluable in the event of a separation. Post-separation arguments around business concerns can be devasting in relation to cost, time, emotional energy and the health of the business. As a Family Law lawyer who has seen this kind of devastation, I can advise that pre-planning is well worth the investment.

You must prompt your corporate, business or Family Law lawyer to assist you in crafting agreements that contemplate and plan for a separation, when you are entering into your business structuring. But there is nothing to stop you from doing this after the business is already in play. You should know that a large percentage of corporate, business and Family Law lawyers will not automatically invite you to consider these concerns, so the onus is on your to be proactive and require that they incorporate protective clauses.

7. If You’re Not Married and You Want to Protect Your Interest in a  Jointly Purchased Home

Increasingly, couples are choosing not to marry, but to reside together in a home that they jointly purchase. Often, their contributions to the purchase price of the home are different in value. Often their contributions to the carrying cost of the home, or the care, upkeep and improvement of the home are different. How does all of this pan out should they separate?

Let me prompt you to think of just some of the questions and concerns that come with cohabitation in a jointly owned home. While you are residing together, what if one party unilaterally choose to bring in tenants, or to have their family come to stay on in the jointly owned home indefinitely. If substantial repairs or upkeep to the home is needed, who takes on these larger expenses? If you should separate, who keeps the home? If you and your partner choose to sell the home, who gets what share of the profit, based on your respective contributions? And in considering your respective contributions, should the fact that one party worked away from home and the other did most of the maintenance and upkeep of the home play into an unequal sharing of the profit? Should the fact that one spouse hosted the other’s parents in the home for several years play in to this sharing? What if you are living together in the home when one of you passes away, should the deceased’s share go to the surviving party or to someone else of the deceased’s choosing. And what if you choose to sell the home and purchase a new one with proceeds from the original home? How should the next home be treated?

Couples who are beginning their cohabitation are often consumed by the excitement of this evolution of their relationship. But they often overlook the business components of sharing a property (and a major investment), without any of the protections that are afforded married couples.

Many people have the misunderstanding that, at law, property is equally shared between common-law spouses should they separate. So let me state, very plainly, that this is not the case.

At law, when common-law spouses separate, property is generally shared based on title, meaning that the percentage allocation of ownership that is granted to them on their Deed. To achieve any another proportion of sharing of the property, a spouse would have to advance arguments for this outcome, based on equitable considerations. Without going into such equitable considerations, suffice it to say that no one wants to be caught in a maze of arguments and uncertainty about their key asset at the end of their common-law relationship.

The key to protecting your interests and wellbeing, is to consider how you want to manage your jointly held home (and other assets) in the face of key life events, and then to document your requirements in an agreement. When crafting your agreement, here are some of the questions you and spouse should be asking:

• The most basic question is, have you documented ownership of your property as 50/50 – which is fairly common – and, if so, is this the right, or fair, sharing of your interests in the property?
• How will you share financial, maintenance, care and upkeep obligations of the property while you cohabit there?
• Should your contributions to the property, financial and otherwise, impact your share of the property in the event of a separation.
• Should you separate:
  • Who will be entitled to acquire the property from the other, or should it be sold?
  • How will the property be valued, if one party is to purchase the other’s interest?
  • Will the purchase price of the selling party’s interest be affected by the party’s respective contributions to the property, as discussed above?
    • For Example – If Joanna contributes 60% of the downpayment and Kirk contributes 40% but Kirk does substantial renovations to the property and manages its upkeep, should Kirk get 50% of the equity on the sale of the property, rather than 40%.
• If you should sell the property and buy another one jointly, what rules will apply to this successor property?
• If one of you dies while you are cohabiting in the property, to whom should their share of the property to go?

Considering these concerns may feel like heavy lifting. It doesn’t have to. A Family Law Lawyer will be able to solicit your wishes on all key concerns and help you draft a Cohabitation Agreement. This agreement can address just your home, or other concerns arising from your cohabitation. You should also remember that cohabitation can prompt spousal support obligations, obligations to your common-law partner on death and other rights and obligations arising from the automatic operation of the law. So, at minimum, a consultation with Family Law Lawyer is best, to ensure that you are secure and relaxed in all of decisions that you have taken in relation to your cohabitation.

Overview

Generally, there is no Family Law challenge that can’t be addressed, with a little planning, thought and support from your Family Law professional. We are here to help, and only a phone call or user message away. If you have a nagging Family Law concern or question, feel free to contact the lawyers at Bair Family Law Professional Corporation.

For More Helpful Pointers on How to Avoid Unwanted Family Law Outcomes, stayed tuned for more episodes in our “Mistakes to Avoid for Your Best Family Law Outcome” series.