Going through a separation or divorce can be an emotionally and financially difficult time. One of the most important, and often challenging, parts of the process is fully disclosing your finances to your former partner. Full and frank financial disclosure is mandatory in Ontario family law cases, but it can still feel daunting and invasive to lay bare the intricacies of your financial life. This guide will walk you through the key things you need to know about financial disclosure when separating or divorcing in Ontario.
Why Financial Disclosure is Crucial
Financial disclosure serves several important purposes in a separation or divorce:
- It promotes fairness and transparency between both parties. With full financial information available, you both can make informed and equitable decisions about property division, support, and other settlement issues.
- It allows you to understand your full financial picture as a couple. Tracing all assets, liabilities, income, and expenses provides clarity on the marital property you accumulated together.
- It facilitates mediation, arbitration, and negotiations. With all cards on the table, you can have constructive discussions and compromise on financial matters.
- It streamlines potential court processes. Your financial disclosure provides key evidence if you end up in litigation. Thorough documents make court proceedings more efficient.
What Financial Disclosure Involves
In Ontario, the main form used for financial disclosure is called the Financial Statement (Property and Support Claims) (Form 13.1) which can be downloaded here.
If there are no property claims and only support claims, Form 13 (Support Claims) is the form to be used for financial disclosure and can be downloaded from the same site. Form 13.1 is a comprehensive document which requires you to provide details on:
- Income and expenses
- Assets such as real estate, bank accounts, investments, pensions, and personal property
- Debts and liabilities
Supporting your Form 13.1 disclosure with documentation like bank statements, tax returns, appraisals etc. is also required.
Financial disclosure extends beyond just the Form 13.1. You must also reveal relevant information like:
- Business interests
- Trust beneficiaries
- Gifts and loans
- Debts owed to third parties
- Employment and income details
How to Prepare Your Financial Disclosure Documents
Here are some tips to prepare high-quality financial disclosure documents:
- Get organized early. Collect financial statements and documents well in advance of your deadline. Being disorganized can cause errors or omissions.
- Use checklists. The Ontario Ministry of the Attorney General outlines the steps to complete, file and serve Form 13.1 here. Read the form guidelines carefully.
- Be accurate and honest. Even small typos or honest mistakes can raise red flags if discrepancies emerge later. Fudging numbers or omitting information will only escalate conflict.
- Double check figures. Verify all amounts against original documentation. Calculation errors happen, so take the time to double and triple check.
- Attach supporting docs. Don’t just list assets and amounts. The documents validating those details are key. Highlight relevant sections if needed.
- Keep records. Retain copies of everything you disclose in a well-organized file. This protects you in case of discrepancies down the road.
- Ask for help. If stuck on complex asset valuations or self-employment income or other issues, ask a family lawyer or your financial expert for guidance. At Goldhart Kenet LLP we can assist you with the preparation of your financial disclosure and other family law issues.
- Disclose voluntarily. Even if assets are excluded from equalization, you are obligated to reveal all relevant financial info which builds trust and goodwill.
- Update as needed. Financial situations change. If changes occur after submitting your documents, you have an obligation to address them promptly.
Understanding Equalization of Net Family Property
One key aspect of financial disclosure is determining net family property. The equalization of net family property is the process of identifying assets accumulated during the relationship, valuing them, and then equalizing the value between spouses. Understanding the ins and outs of net family property is essential for financial disclosure. For further information on net family property, see my article – The 2023 Ontario Family Law Guide to Divorce & Separation.
Here are some key things to know:
- Net family property includes the value of assets owned on the valuation date, minus exempted assets, minus debts and other liabilities, less the net value of property owned at the date of marriage.
- The valuation date is almost always the date of separation
- Exempted assets not included in net family property typically include gifts, inheritances, insurance settlements, and some pre-relationship property.
- The equalization payment is calculated by determining which spouse has the higher net family property amount, then having that spouse pay the other spouse half the difference between their totals.
- Equalization aims for a 50/50 split of marital assets accumulated during the marriage.
- Business assets and complex investments often require professional valuations by qualified experts, so seek expertise when needed to determine accurate values.
Understanding how net family property works ensures your financial statement accurately captures assets subject to equalization. This prevents costly errors and facilitates productive discussions about dividing property equitably. You can learn more about equalization and property division upon separation on my website.
Seeking Expert Guidance for Financial Disclosure
Given the complexities of financial disclosure during separation and divorce, seeking expert help can be invaluable. Here are some professionals who can help guide you:
- Family lawyers can review disclosure documents, ensure accuracy and completeness, and provide strategic advice. Their expertise can save you time, money and stress through the process. At Goldhart Kenet LLP, we specialize in assisting with financial disclosure and other family law matters.
- Financial advisors can offer advice on valuing assets, projecting budgets, and planning for your post-divorce future. Their long-term guidance helps you make smart choices.
- Business valuators are needed for appraising interests in private companies to determine fair market value. This specialized expertise produces reliable business asset valuations.
- Accountants help unravel complex income situations, especially for self-employed individuals and small business owners. Their skills produce accurate income numbers.
- Mediators like myself facilitate productive disclosure conversations between you and your former spouse in a safe environment. We help diffuse emotions and keep discussions solution focused.
Don’t be afraid to admit when you need help – separation and divorce may involve highly complex financial matters. Experienced professionals guide you through the process smoothly and efficiently.
Income Determination for Support Purposes
When addressing the issue of support payments between former spouses and for children, accurately determining income amounts is vital. Income disclosure requires particular care and effort. Here are some key tips:
- Use recent tax returns as a starting pointbut recognize adjustments will be needed in most cases.
- For T-4 earners, focus on gross employment income. Break down any commission, bonus or overtime details.
- For self-employed individuals, adjust net business income for addbacks like deprecation, capital expenses, etc.
- Address non-taxable income like disability payments, workers’ compensation, insurance payments, etc.
- Detail any existing spousal and child support payments paid or received.
- Account for income from investments like rental properties, dividends, interest, etc.
- Watch for income splitting and diversion tactics that may conceal true income totals.
Determining income appropriately and transparently ensures support arrangements accurately reflect affordability and eligibility. Attempts to minimize or conceal income usually backfire, destroying goodwill and trust in negotiations. Professional help navigating these nuances is highly recommended.
The Impact of Tax Considerations
Taxes also play an important role in financial disclosure during separation and divorce. Here are some key tax factors to keep in mind:
- Transferring assets or giving gifts to adjust net family property before finalizing your divorce can trigger adverse tax consequences.
- Child and spousal support payments have different tax implications depending on who is paying and receiving them.
- Selling property may realize capital gains that must be reported.
- Legal fees and other expenses related to your divorce may be tax deductible.
- Transferring RRSPs and other registered assets between spouses can happen tax-free if done properly.
- Changes in marital status and available tax credits/benefits may impact your tax planning.
Consulting tax experts ensures you have a clear understanding of both the short-term and long-term tax implications of your separation agreement. With good tax planning from an accountant or tax lawyer, you can reduce unnecessary expenses.
The Role of Budgets and Projections in Financial Disclosure
In addition to past financial documentation, providing budgeting details and income/expense projections often assists discussions about future arrangements like support. This additional information helps give both you and your former partner a realistic idea of what life will look like after divorce.
When preparing budgets and projections:
- Be comprehensive about all sources of income and expenses. Account for everything from groceries and gas to medications and club memberships.
- Use recent bank statements, bills, receipts etc. to ensure accuracy. Guesstimating leads to problems later.
- Don’t exaggerate income or underplay expenses to skew settlement proposals in your favor.
- Factor in known upcoming changes like a child entering daycare or a car loan ending.
- Consider best and worst case scenarios for fluctuating or uncertain incomes.
- Build in buffers for unexpected expenses and financial shocks.
While not mandatory, good faith budgeting and projections can facilitate much smoother negotiations and avoid situations where support arrangements become untenable down the road.
The Path Forward with Financial Disclosure
Financial disclosure during separation and divorce can be challenging, but being organized, accurate and transparent will serve you well. By arming yourself with knowledge and seeking expert help when needed, you can tackle disclosure cooperatively – paving the way forward.
Expert Guidance: Your Compass in the Financial Fog
Navigating the complexities of financial disclosure is easier with expert guidance. At Goldhart Kenet LLP we can assist you in preparing your financial disclosure documents, ensuring you’re well-equipped for the journey ahead. As an alternative to court proceedings to resolve your family law issues, at Goldhart Mediation & Arbitration we offer mediation, arbitration and Rapid Resolution – the One Day Solution.
Financial Disclosure FAQ
Q: Do I have to provide all of my financial information?
A: Yes, full and frank financial disclosure is required in Ontario family law matters. This includes assets, liabilities, income, expenses, business interests, gifts, inheritances, etc.
Q: What if I don’t have some records or statements?
A: Make your best efforts to track down as much documentation as possible. Provide summaries or estimates for any missing info and explain the gaps.
Q: What if there are errors in my disclosure documents?
A: Promptly correct any errors or omissions you become aware of, even after filing. Good faith attempts to be accurate are recognized.
Q: Can I refuse to disclose some information?
A: You must disclose everything relevant to equalization, support, and division of property. Limited exceptions may apply in cases of safety risks.