Separation COVID: What are your options if your assets decreased since your separation

This segment provides legal information about how to address a decline in the value of your assets from the date of separation to when you are ready to sign a separation agreement.

Before we begin, everyone at Boutet Family Law and Mediation sends you their best wishes as you navigate the current complex health and financial situation.

Q: Separating spouses want to know how to divide their assets when they divorce during the COVID pandemic and the value of their assets keeps changing as we have seen recently.

A: The law on how to divide assets is different for married spouses than for common law spouses.

For common law couples, in general, there is no right to get a part of the assets that are in the other person’s name.

Even if the common law spouse who is not on title makes monthly payments that they think are meant to cover the mortgage or house expenses.

There are exceptions when the non-titled spouse makes significant contributions towards the property of the other, for example significant house improvements.

In these cases, it may be possible, though very difficult and costly, for the non-titled spouse to obtain some financial contribution corresponding to the value-added of their contribution toward the property.

The rest of this segment deals with the rights of married couples.

Married couples are subject to equal division of assets accumulated during the marriage.

The spouses keep the value of the assets before the marriage and inheritances received during the marriage, but they share the growth of their assets accumulated during the marriage.

There are exceptions that are not covered in this segment.

To know what needs to be shared upon a separation, we make a list of the assets and debts that people have on the date of separation, minus the assets that were brought into the marriage and minus other exceptions that are not covered in this segment.

The value on assets as on the date of separation for assets that are in a spouse’s sole name, is what goes on the formula.
It is slightly different for assets in both names. For assets in both names, we use the value when a legal separation agreement is completed. This is because if the market value goes up between the date of separation and the date when the legal separation agreement is completed, both spouses own the asset and participate in the increase in value post separation.

But as I just said, if an asset is in only one person’s name, we use the value of that asset on the date of separation.

With the pandemic, we face harsh and uncertain financial times and some assets, especially banking investments and some businesses, have fluctuated greatly in the recent past.

Since we use the value as of the date of separation for assets held in a person’s sole name to calculate the equalization amount, some people will end up sharing the separation value even if it is more than what they have today.

This happened in a recent case I was mediating. The value of the husband’s investments that he had to split with his wife had decreased by about 30% during the mediation process.

Q: Could you tell us how the law deals with a situation where someone’s assets decrease in value from the date of separation to the date when the legal separation process is being completed?

A: Judges are very reluctant to deal with post-separation changes in values. They want to promote a stable, easy to understand set of legal principles that everyone can follow, and the law is clear that we have to use the date of separation as the only relevant date in the analysis.

In some very few cases, courts could consider changes in value after separation. The situation has to be “unconscionable” for them to agree to look at values other than the value on the date of separation.

To reach this exceptionally high threshold of unconscionability, the circumstances must be such that it would “shock the conscience of the court” to use the values on the date of separation without regard to what happened after the date of separation.
Circumstances that are merely unfair, harsh or unjust do not meet the threshold.

The court will not be sympathetic to a spouse whose assets have declined in value due to his or her own unwise actions or who did nothing to minimize the loss, e.g. by selling it.

An example of a case where the value of the asset declined through no fault of the owner is a court case called Serra vs Serra, which involved a business in the textile industry.

In that case, the judge found that the decline in the value of the business were connected to shifting market forces affecting the Canadian textile industry that were outside of the owner’s control.

One would speculate that the COVID pandemic has created an economic situation that no one could predict and that hit us all by surprise.

We are living under very unusual conditions and everything will be different after this pandemic. It will take years to comprehend the extent to which our economies have been affected and it is unknown how long it will take for the markets to stabilize.

Now is not the time to stay in protected legal conflicts. Your family needs to preserve its capital and financial resources.
My invitation is that spouses deal with each other with fairness and reason.

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Posted in COVID-19

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