# Seperation and Financial consequences



## pnky (Jul 16, 2012)

A friend of mine is considering a separation - they have been married for a long time now. They may or may not file for a divorce right away. They have kids and they still need to work out who the kids would stay with.

My question is about the Financial implications - all their savings are in joint accounts. They are beneficiaries on each other's life insurance.
Both of them work. 

Since the separation is amicable, there are not likely to be any disputes about distribution of assets. What should they keep in mind to ensure they dont mess it up ?


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## MoneyGal (Apr 24, 2009)

They should probably get independent legal advice about their financial rights and obligations in the event of separation and divorce. You don't ever need to come to an agreement w/r/t the division of matrimonial property. 

As long as everyone continues to agree on things going forward, there's no reason to reach a formal agreement. Problems may arise, however, if one spouse (former spouse) starts to disagree with whatever informal separation arrangements are in place. Formal legal advice can help both parties put arrangements in place (such as choosing the effective date of separation) which would be intended to minimize conflict over time.

You should note as well that the division of property, spousal support, and child support are three distinct issues.


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## pnky (Jul 16, 2012)

MoneyGal said:


> You should note as well that the division of property, spousal support, and child support are three distinct issues.


I understand the first one, what are the other two ?


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## MoneyGal (Apr 24, 2009)

Spousal support is financial support one spouse would owe the other spouse to equalize their financial positions after separation or divorce. 

Child support is financial support one spouse would owe the other spouse to ensure that children do not suffer financially as a result of their parents' separation or divorce.


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## Square Root (Jan 30, 2010)

I don't think spousal support is designed to "equalize" positions although sometimes you wonder. I believe the courts still give some credit to the person who actually makes more. Agree that asset positions are split equally. Child support is based on a formula.


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## MoneyGal (Apr 24, 2009)

Meh. Short form. Long version is: if one spouse has benefitted financially (during and after separation/divorce) as a result of the actions of the other spouse, the spouse who benefitted should "equalize" a portion of that benefit with the other spouse. (This doesn't mean "equally split".)

The classic example is the physician whose spouse either left the workforce to raise kids or worked in a lower-level job and deferred career advancement in order to advance her husband's career. 

The courts have argued that the spouse who deferred personal benefit should receive some of the benefit accrued to her husband. And, as that benefit will continue to pay dividends throughout the physician's career, that financial support can be extend over many years. 

Child support is set out in a formula from which there is no practical deviation, but it is based on the principle that children should not suffer financially as a result of their parents' separation/divorce. Snipped from FAQ on Department of Justice website (controls the federal child support guidelines): 

_2. Are both parents responsible for supporting their children financially after a separation or divorce?
Yes. Children depend on their parents for financial support. They are also entitled to it by law. *A separation or divorce does not change parents' ongoing duty to support their children financially*. Under the Divorce Act, both parents have an obligation to contribute to the financial support of their children. 

3. What if I do not want child support from the other parent?
Child support is your child's right and he or she is entitled to it by law. *In intact families, children benefit from both parents' incomes, and they should continue to do so if their parents separate or divorce*_.

Editing to add link to FAQ on child support: http://www.justice.gc.ca/eng/pi/fcy-fea/faq/cs-pae.html#cs-pae2


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## Daniel A. (Mar 20, 2011)

Keep in mind that all of the above depends on which gender the parent is.

Now some may not believe this to be the case and the laws should be neutral but in fact it does matter.
If things were as straight forward as stated in law that would be great sadly this is rarely the case.

One thing to keep in mind when it comes to Child Support only the court can determine the support, no parent can agree to give up any support rights of the child but the guidelines do apply.


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## peterk (May 16, 2010)

I think the OP needs to indicate the gender of their friend before any relevant advice can be given...


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## MoneyGal (Apr 24, 2009)

Daniel A. said:


> Keep in mind that all of the above depends on which gender the parent is.
> 
> Now some may not believe this to be the case and the laws should be neutral but in fact it does matter.
> If things were as straight forward as stated in law that would be great sadly this is rarely the case.
> ...


Not really. Says the woman (unsucessfully) sued for spousal support. :encouragement: (It does depend, though, on the extent to which BOTH parties wanted a "traditional" relationship in which the man's economic power is assumed to be superior to the woman's. See also: the dating thread.)


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## Daniel A. (Mar 20, 2011)

Because both parties do agree and yes that would be the majority of cases look for someone that does Collaborative Mediation.


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## pnky (Jul 16, 2012)

peterk said:


> I think the OP needs to indicate the gender of their friend before any relevant advice can be given...


Actually, they are both my friends - man and woman. Both have similar earnings.


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## Daenerys Targaryen (May 11, 2012)

You mentioned that it was a long marriage and there were children, if one partner established significantly more CPP credits than the other partner throughout the marriage than they can apply to have the total CPP credits accumlated during the marriage split evenly between the two of them


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## Guigz (Oct 28, 2010)

MoneyGal said:


> The courts have argued that the spouse who deferred personal benefit should receive some of the benefit accrued to her husband. And, as that benefit will continue to pay dividends throughout the physician's career, that financial support can be extend over many years.


...And in exchange the ex-wife receiving the spousal support will continue to provide "dividends" in the form of cleaning and meal preparation?:chuncky: So the husband needs to learn how to cook and clean, but the wife can sit on the sideline and collect the cheque? 

The ironic part is that if the couple had initially decided to pay a housekeeper and nanny, the cost would not have been projected in the future... How fair is that?

Regarding the OP, if everything is amicable, divorce can have very little impact on their finances.


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## Daniel A. (Mar 20, 2011)

Daenerys Targaryen said:


> You mentioned that it was a long marriage and there were children, if one partner established significantly more CPP credits than the other partner throughout the marriage than they can apply to have the total CPP credits accumlated during the marriage split evenly between the two of them



One has no choice this is done automatically its almost the first thing when the papers get filed.


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## Daniel A. (Mar 20, 2011)

pnky said:


> Actually, they are both my friends - man and woman. Both have similar earnings.



I still think the best way is Collaborative Mediation and the child support income table is online. The only issue will be how much time is claimed by each parent if the parents agree 50-50% and joint custody it will be simply to deal with.


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## MoneyGal (Apr 24, 2009)

Guigz said:


> ...And in exchange the ex-wife receiving the spousal support will continue to provide "dividends" in the form of cleaning and meal preparation?:chuncky: So the husband needs to learn how to cook and clean, but the wife can sit on the sideline and collect the cheque?
> 
> The ironic part is that if the couple had initially decided to pay a housekeeper and nanny, the cost would not have been projected in the future... How fair is that?
> 
> Regarding the OP, if everything is amicable, divorce can have very little impact on their finances.


It isn't an equal split. And if the spouses had decided to pay a housekeeper and a nanny, and one spouse outearned the other AND the underearning spouse made financial sacrifices which contributed to the overearning spouse's income, there'd still be potential grounds for spousal support. *Spousal support has nothing to do with cooking and cleaning*. But if one spouse invested in the other spouse's human capital, that spouse is seen to have a claim on the future dividends paid as a result of that investment.


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## Young&Ambitious (Aug 11, 2010)

The Dummies should Issue a Taxation for Marrieds, Common Laws, and Divorce book. If they do, you guys all saw me suggest it here first!!

Edit to add good links:

http://m.theglobeandmail.com/globe-investor/personal-finance/tax-centre/what-your-wedding-planner-may-not-have-told-you-about-taxes/article1971065/?service=mobile

http://www.hrbtaxtalk.ca/blog/determining-your-marital-status/

http://www.hrbtaxtalk.ca/blog/filing-as-a-separated-couple-for-the-first-time/


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## Square Root (Jan 30, 2010)

MG Yes I think the courts view one spouse investing in the other's human capital. My first marriage lasted 19 years with one child. In the end the X was granted almost a quasi equity interest in me and my future earnings. I pay her spousal support well in excess of my earnings when we separated. She gets this for as long as she lives. It turned out to be a very good investment for her.


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## MoneyGal (Apr 24, 2009)

For the other side of the picture, I outearned my spouse in my first marriage, which meant that his lifestyle on our separation went down. His legal argument was that he had an earned entitlement to a certain lifestyle. However, he was unable to produce any evidence that he had contributed in any way to the development or growth of my business (uh, because he didn't), and the law was clear that you must have actually invested in the other spouse's human capital in order to receive a future dividend. 

There are exceptions for long-standing, "traditional" marriages which were built on a shared assumption that the female spouse was not going to be "a provider" in the marriage. However, I assume these relationships are decreasing in quanitity, as evidenced in part by the "gold-digger" comments on the dating thread.


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## Young&Ambitious (Aug 11, 2010)

MG, what if a couple does a pre-nup? The pre-nup would then nullify most arguments, including the example of the wife delaying her career to raise the family and/or further the husband's career (or vice versa), is this right?


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## Square Root (Jan 30, 2010)

MG Agree about the traditional marriage. My case was extreme in that her payoff resulted in her living very well for the rest of her life, living in a multi million dollar house, etc. She was only 41 when we separated but she didn't try to upgrade her skills or indeed work again from that point. In any event, it turned out that there was plenty of money to go around and everyone is happy at this point. She is still a little bitter though that my lifestyle exceeds hers. Go figure.


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## MoneyGal (Apr 24, 2009)

No pre-nup will prevent a disgruntled ex-spouse from suing for (additional) support. However, it does totally strengthen the sued party's position in court.


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## Mall Guy (Sep 14, 2011)

pnky said:


> Since the separation is amicable, there are not likely to be any disputes about distribution of assets. What should they keep in mind to ensure they dont mess it up ?


Get it done quickly, amicable or not! My FS (former spouse) changed her mind, changed her lawyer, changed her amicable agreements over an extended period of time which resulted from the "amicable" separation. Every time she changed lawyers, they felt the need to go after me, regardless of several signed, but not court approved agreements . . . get 'er done while everyone is still amicable!


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## Square Root (Jan 30, 2010)

MoneyGal said:


> No pre-nup will prevent a disgruntled ex-spouse from suing for (additional) support. However, it does totally strengthen the sued party's position in court.


Agree. There have been several cases where "final" agreements were overturned because the financial fortunes of the two ex spouses went in different directions. In some cases this was a decade or two after the original deals. Judges figure if one party has a lot of money and the other party needs money, the solution is simple.


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## Brenner (Jan 17, 2012)

Mall Guy said:


> Get it done quickly, amicable or not! My FS (former spouse) changed her mind, changed her lawyer, changed her amicable agreements over an extended period of time which resulted from the "amicable" separation. Every time she changed lawyers, they felt the need to go after me, regardless of several signed, but not court approved agreements . . . get 'er done while everyone is still amicable!


Agree completely, get it done now while you can. Also, don't move on to a new spouse/girlfriend until its all done. You never know if your former spouse will enjoy life without you as much as she thought, especially if she is unable to find another and you are. Bitterness can come into play eventually and it can be costly.


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## Square Root (Jan 30, 2010)

Brenner said:


> Agree completely, get it done now while you can. Also, don't move on to a new spouse/girlfriend until its all done. You never know if your former spouse will enjoy life without you as much as she thought, especially if she is unable to find another and you are. Bitterness can come into play eventually and it can be costly.


Absolutely!! Hell hath no fury.......


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## Sherlock (Apr 18, 2010)

Or open a swiss back account and hide some of your money there.


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## Square Root (Jan 30, 2010)

Sherlock said:


> Or open a swiss back account and hide some of your money there.


Assume you are joking. If not this is a very bad idea.


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## Sherlock (Apr 18, 2010)

Cook Islands then.


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## Young&Ambitious (Aug 11, 2010)

Haha nice one Sherlock. An alternative could be to go on a crazy trip to Las Vegas and spend it all. Or claim to. :tongue-new:


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## Square Root (Jan 30, 2010)

Sherlock said:


> Cook Islands then.


There have been a couple of cases where asset hiding was raised. The judges really went to town on these guys(as they should). It ended up costing them a lot more. With financial secrecy being reduced around the world, this is a very bad stategy. Furthermore you need to explain to the courts where all your money went. Las Vegas raises extreme suspicions. It is very difficult, if not impossible, to successfully pull one over on the courts, especially if the x spouse is determined. Most of them are. Until you have gone through a bitter contested divorce, you might think it is easy, or funny, or fair, or civilized. I assure you it is seldom any of these.

I apologize, but this is a bit of a sore point with me. I guess 15 years of bitter litigation and millions in costs will do that to you.


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## pnky (Jul 16, 2012)

Thank you everyone for your comments !


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