In family law, whether we’re in court or negotiating a settlement without court, we spend a lot of time on financial disclosure. This is particularly important when dealing with support or property issues. We and our client need to understand the opposite party’s finances including their income, expenses assets and debts. They need to understand ours. We require accurate and reliable information including supporting documents before either of us are in a position to bargain fairly and hopefully settle.
The process of getting and giving financial disclosure can however be tedious and time consuming. Among our tasks, we scrutinize income tax returns, pay stubs, ledgers, bank records and other documents in order to get a full understanding of income. When one of the parties operates a business we need to review their business records including financial statements and corporate tax returns. People who are paid commissions or bonuses or who receive other benefits from work (e.g. car allowances) also present certain special considerations.
“Property” has a very wide and generous definition in family law. A person’s property can include for example homes, business interests, stock options, pensions, RRSPs, jewellery, interests in a trust, bank accounts… the list is very extensive. Likewise their debts and liabilities can include loans, mortgages, guarantees, court judgments or credit cards. Tax also has to be taken into account. For example, some assets such as RRSPs and pensions attract income tax; others such as investment properties may attract capital gains tax.
Great care is necessary to prepare the information that will be eventually used in settlement negotiations or court proceedings including updates. Certain items, such as pensions, land and business interests may require professional valuations.
At Morrison Reist, we start the process of assembling financial information and documentation at an early stage. We give our clients “homework” which may include a detailed spreadsheet-like financial questionnaire. We ask our clients to begin to locate and assemble a host of documents including income tax returns, pay stubs, bank statements, pension statements, loan agreements and several others.
We work with our clients to review and fine-tune this information and put it into templates known as “Financial Statements” along with briefing books. Our assistants are particularly skilled in putting all of this information together.
For some clients, particularly those who have handled a lot of the family’s finances, this is relatively straightforward. I have even had a few clients come to a first meeting complete with binders containing tabbed, indexed financial documents.
But for most of our clients, there will be some time needed to hunt down and gather together their financial documents together with completion of the financial questionnaire.
Some of our clients, however, are almost apologetic when it comes to financial matters. I have heard many times “I’m sorry. I’m not the numbers person in the relationship. I don’t know much about our bank accounts. I left the money matters to my spouse. I’m not even sure how much my spouse earns. I was busy with the children”. (That’s OK- we will get the information from your spouse.)
We do offer a few suggestions as to financial record-keeping that might make things easier in the event of a separation. Some of these (e.g. filing annual income tax returns) can lead to problems if they were not also done in the years leading up to separation:
- File your annual income tax returns on time.
- Especially for married spouses, assets and debts must be valued as at the date of separation.
- Municipal assessment notices do not usually reflect the market value of homes or other real property.
- Incomes do change from year to year, especially for commissioned individuals.
- As a matter of practice, we seldom value individual tables, chairs, housewares and other household contents.
- Try not to complicate your finances after separation.
- Keep inheritances and gifts separate.
- Vehicles are sometimes valued according to what is known as the “Red Book”.
- Title is important in family law.
Keep copies of the return including your Notices of Assessment. When people do not have these, it prolongs the disclosure process. When they haven’t even filed a return, it double-prolongs the process.
Sometimes it is easy to obtain figures from detailed monthly statements which show transactions during the month that has passed. Other times, you may need to request custom statements from institutions such as banks, credit card companies etc. It is important to keep your statements, bills, receipts and other documents organized whether you store paper or digital records.
Opinion letters from real estate agents are closer but may not reflect the accurate value of real property. It may be necessary to hire a certified real estate appraiser who will, for a fee, inspect the property and furnish a written report.
The same with employees who receive overtime or shift premium. When assessing income for support purposes, we look for the most accurate predictor of current income. That may be your previous year’s earnings (or even an averaging of the past three years earnings) however we may also be looking for some indication as to how you are doing in the current year.
We often split them in kind. Don’t spend a lot of time itemizing and valuing them unless they are antiques, collectibles or you owned them on the date of marriage.
Things can get tricky when title is transferred, new items purchased or new debts incurred. Get legal advice before making any large purchases or incurring any large debts. Many keep joint bank accounts open and continue to deposit all paycheques into that account. We suggest that you get legal advice if you intend to do this for all but the short-term.
Don’t, for example, deposit an inheritance cheque into a joint account or pay down the mortgage without first getting legal advice
Or, some people get written estimates from car dealers or others in the automotive business. It is important to remember that they may be giving wholesale figures which include a mark-up for profit.
Decisions as to whether an asset should be in one person’s name or joint names can have serious consequences in the case of a separation. Get legal advice.
Remember, knowledge is power!