FP Answers: The change in net worth during a marriage is considered when determining each former spouse’s share

Q. I’m a Canadian citizen and I would like to get married soon. I have heard that if I divorce at any time then 50 per cent of my wealth will be divided with my spouse. What can I do to protect my assets? For instance, if I kept my assets outside Canada, if a divorce were to happen, can my wife then claim for a 50 per cent division of those assets? —Worried and confused, Ali

FP Answers: Divorce does not automatically result in losing half of everything, Ali. The rules surrounding the division of property between spouses vary between provinces. For example, in Ontario, matrimonial homes are generally considered to be divided equally between spouses in the event of divorce. In Alberta, a 50/50 division is not automatic due to differences in the legislation governing family property.

The matrimonial home is often one of the most significant assets that is subject to division, but keep in mind that changes in family net worth involving other assets is also an important factor. Generally, rather than looking at changes in specific assets, the change in net worth (assets minus liabilities) during the marriage is considered when determining each spouse’s share.

Canadian citizenship does not impact which rules will apply, Ali, nor does the location of an asset. Having an asset outside of Canada does not protect it. Foreign assets must be disclosed in Canadian family law proceedings. In fact, attempting to hide or transfer assets could create legal and financial issues.

Foreign assets may also require disclosure to the Canada Revenue Agency (CRA) for tax purposes annually. Canada taxes worldwide income for its residents and requires disclosure of certain foreign property with a cost base over $100,000 annually on tax filings. Holding assets outside of Canada may therefore add complexity and costs to your financial life and tax situation, as these assets can be more challenging to report.

In Canada, a marriage contract may be one of the best protections for you if both spouses are comfortable with this type of agreement. Also called a prenuptial agreement, a contract like this can dictate how assets should be divided should the relationship end. They are not ironclad by any means, but they can provide some certainty, Ali. Spouses would need to agree to full financial disclosure prior to marriage while obtaining independent legal advice. These agreements should be prepared carefully and well in advance of the wedding day to ensure fairness and avoid undue pressure on either spouse.

Keeping records is an important process if you want to ensure accuracy and protect each other from unfairness or unexpected outcomes. Documenting each spouse’s net worth prior to marriage is a good place to start. Because gifts and inheritances receive special treatment under provincial law, you should keep these assets separate from family assets where appropriate. For example, inheritances are often used to pay down joint mortgage debt during a marriage. Funding a spouse’s registered accounts is also common when one spouse receives a large gift. Even in these situations, the best thing to do is keep good records and only co-mingle assets where there is a clear benefit and mutual understanding.

Collaboration can do a lot to help a family’s joint finances. Attempting to separate or hide assets may not only be offside from a family law or tax perspective, but it may also undermine trust in a marriage. It is not uncommon to see hundreds or even thousands of dollars in lost investment and tax efficiency annually when spouses are not aligned and helping each other work toward joint financial outcomes, Ali.

Andrew Dobson is a fee-only, advice-only certified financial planner (CFP) and chartered investment manager (CIM) at Objective Financial Partners Inc. in London, Ont. He does not sell any financial products whatsoever. He can be reached at adobson@objectivecfp.com.

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