Valuing Assets and Income in Ontario Separation Law
Valuing Assets and Income When Separating
When people separate they are often not aware that they must divide their property with their spouse. The basic formula is to value everything you own at the date of separation, deduct your debts on the date of separation, and then deduct what you brought into the marriage. The balance is called your ‘Net Family Property’ or ‘NFP’ and you split this equally with your spouse. In turn your spouse splits their NFP with you. That is called an equalization of your net family property. There are other factors that will impact on the final calculation of your NFP but this is the basic formula.
Child Support and Spousal Support Explained
In family law, in addition to dividing property there is usually a need for one party to pay either or both of child support or spousal support to the other. When you have a job that pays a fixed income with no other sources of income (except perhaps some investment income), the calculation of the amount of support to be paid is relatively easy.
Things are not so clear when someone is self-employed, owns their own business or works partly for a pay cheque and partly for cash. Both the calculation of their NFP and the calculation of their income for support purposes becomes more complex. It also becomes a flash point for escalating the conflict. In order to try and reduce the conflict people often hire professional asset, business and income valuators. Even if an asset or a business does not appear to be worth a great deal it is still necessary to know how much it is worth. Without an actual valuation you can only guess and that is a risky thing to do.
Other Assets Often Forgotten
Assets such as paintings, antiques, real estate and shares in public or private companies need to be valued by an expert. A business that is run by an individual that appears to make very little also needs to be valued. One area that confuses many is that net income reported for tax purposes has little relation to someone’s net income for child support or spousal support purposes. Many of the things people deduct for tax purposes are actually added back into their income when calculating it for child support or spousal support. For example, one of my client’s spouse was a dentist who did his own tax return. He would deduct from his income for tax purposes every single thing he purchased no matter what it was for. He even deducted the underwear he bought at Walmart. Sadly for him all of those things were added back to his income before we calculated the amount he was to pay for child and spousal support.
Of course if you hire someone to value an asset or your income your spouse will likely hire their own valuator to critique what your report has to say. This is another of the unfortunate areas that drive up the costs associated with separation and divorce.
Even though many people truly want to keep their costs down there is no cheap and easy way to deal with issues such as these.
Steven M Bookman is an experienced lawyer with Bookman Law Professional Corporation, a boutique family law firm located at Yonge & Davisville in central Toronto.