Getting a Fair Split of the Assets
How Many Ways Can You Divide Something in Half?
When couples separate, the rule in British Columbia is that the property that has accumulated during the marriage is to be split equally. This 50/50 arrangement seems relatively straightforward, but things are not always as simple as things seem.
When we consider the phrase “Heaven has no rage like love to hatred turned, nor hell a fury like a woman scorned” that originated from the 1697 play “The Mourning Bride” by William Congreve, we learn that the feeling of betrayal is so visceral that the rational concept of moving on and splitting things 50/50 is a total non-starter. A person who feels betrayed in their relationship, especially in their marriage will instinctively seek revenge.
In a recent case that I was involved with this past summer, a lady in a common law relationship, was so distraught that her partner left her for another person that she could not make any decisions. This woman, a devoted homemaker, could not fathom going back to work to make ends meet. The ex-partner, a more gregarious person, seemingly had no difficulty in moving on. When the conversation turned to the reality of splitting assets and determining spousal support, both people soon got into the “blame game” because the person leaving had not considered the implications of leaving her partner of nine years for her new “soul mate”.
This splitting couple, who are both in their mid thirties, had created quite a comfortable home. They shared most things as couples do, including a comfortable condominium, a nice car, furniture, nice cooking tools, utensils, dishes, and some camping equipment to name but a few things. They both had jobs, one worked in retail, and the other was in middle management with the provincial government. When they engaged my services to help them work out the split of assets, I promised to show them 3 different ways as to how to look at ways to split the property that is acquired while living common law.
Option 1 – The King Solomon Approach
In the Old Testament, 1 Kings 3:16 – 28, there is a story how King Solomon had to apply his wisdom in a very complicated, emotionally fraught, situation. This frightful story shows that sometimes a bold and perhaps a simplistic judgement will shock people into making better decisions if they work out the decisions themselves.
This option assumes that we take all the possessions that a couple has acquired during their time of co-habitation, sell what they can in the open market and then give each person 50% of the proceeds, after tax and after fees. The net outcome is that the couple don’t have any “things”, just cold hard cash. Possessions such as Defined Benefit Pension plans, Canada Pension Plans are not sold, but split according to legislation.
I always start with this option as it helps clarify the value of things while helping the people involved see that there can be interesting ways to split assets especially after they get past the “getting even” phase.
Option 2 – Who gets the house and who gets the pension plan?
Most people understand that they need to live somewhere. Others understand that there is a lot of future value in retirement plans. On the surface, it may make sense to get possession of the house because we all need to live. However, a person with little or no income, other than spousal support, may not be able to pay the on-going fixed costs such as taxes, condo fees, and maintenance. Alternatively, the other party may see not owning the house as a real benefit, because the pension values may be equal to the value of the house.
In this real-life scenario, when considering the value of different properties, the present value of the home, which was their condo, has a present value of $380,000. The spouses pension plan, which has a present value of $215,000 would be much more 25 years from now. On the surface, the value of the condo looks very appealing, except that Condominium Reserve Account does not have enough money in it to pay for the new roof and boiler which are necessary within the next 7 years. To meet the reserve requirements, each owner needs to pay $30,000 to meet this legal responsibility. If the lady earning her living working retail did not know this, she may have been accepted a bad deal from the “ex”. There are two lessons in this brief scenario. The first lesson is that different assets grow in value at different rates and the second lesson is to understand that all physical assets need maintenance and require money to fix the problems.
Option 3 – Understanding Exempt Assets
When calculating net worth and the amount of equalization to be paid, it is very helpful to know what one owns on the date of cohabitation and the value of things on the date when the relationship is over. In this case, the retail lady had inherited her parent’s estate when they died in a tragic car accident. The inheritance, which was in-excess of $750,000 came into her possession six years after she moved in with her partner. Fortuitously, she had kept the principle in her own name but had generously shared the income from the invested capital with her partner. Because she was clear about what she owned before moving in with her common law spouse and was smart not to co-mingle her inheritance with her lover, she dodged a legal mess which would have cost her hundreds of thousands of dollars.
The other partner had started working for the provincial government before she moved in with her partner. The amount of pension she had accrued before cohabitation, is deemed exempt for the purposes of dividing assets 50/50. So, because of this, she only must share 50% of the pension that she earned during the nine years during which they lived together.
In conclusion, splitting assets can be complicated for a variety of reasons. The first reason is that our ability to think can be clouded by rage and despair because of the sense of betrayal couples can have. A second reason can be due to the complexity of the holdings that each person in the relationship may or may not have and a third reason is the amount of business acumen each person has. It is not uncommon that one person is the “businessperson”, and the other is the “homemaker”. By using credible people, such as a Financial Neutral, family professional and collaborative lawyers, couples that are splitting can get to a more satisfying ending to their separation and divorce.
Note: I am in favour of marriage! Healthy and happy families are the primary units of a strong and vital society and should be encouraged to thrive by everyone… individuals, families, churches, community groups, and all levels of government! Like all noble endeavours, it takes hard work, sweat, and tears to make something beautiful and worthwhile! If divorce is the route a couple takes, then make the break clean, quick, and efficient… your financial future depends on it!