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Everyone goes into a marriage with the best of intentions, but unfortunately, many marriages wind up in divorce. According to a recent survey, Canada ranks 29th for divorce prevalence out of 87 countries. 

There are plenty of reasons why couples divorce, including adultery, physical and mental abuse, and irreconcilable differences. Unfortunately, not only does divorce cause severe emotional issues for families involved, but it can significantly impact your finances as well. Let’s go over exactly how much it can affect your financial health and the assets that may have to be divided as a result. 

Types Of Assets Affected In A Divorce

One of the first things you’ll need to do is divide your assets among you and your soon-to-be ex to determine exactly what you own as a couple and as individuals.

The following valuable assets could be impacted when you are involved in a divorce proceeding:

  • Your home
  • Bank accounts
  • Insurance policies
  • Investments
  • RRSPs
  • RESPs
  • CPP credits
  • TFSAs
  • Pensions

You’ll also want to make note of how much each asset is valued at now and what it may be worth in the future. 

How Is Your Home Divided During A Divorce?

A marriage is considered an equal partnership under Canadian law. That means each spouse’s contribution to the household is equally as important, but in the event of a divorce, the partnership ceases to exist and as such, the family home must be divided. 

Generally speaking, the value of any real estate that was acquired during the marriage and still owned during a separation must be equally divided. However, any property that was purchased prior to the marriage can be retained by the person who bought it. But, any appreciation of this property throughout the marriage must be divided accordingly.

There are some exceptions to this rule, including the matrimonial home. 

What Is A Matrimonial Home? 

A matrimonial home is the house that you and your spouse lived in when you were married and still had at the time of your separation or divorce. This type of property is classified differently when it comes to divorce compared to other types of real estate you may have owned. 

Whether you or your ex-spouse owned the property on your own before you got married is irrelevant, as you will not get any credit for it when you get divorced. Both spouses have an equal right to live in the matrimonial home, regardless of whose name is on title for the property.

Learn more about removing a name from a property deed.

Married Couples Vs Common-Law Partners

During a divorce, both spouses must come to an agreement about whether or not to keep or sell the matrimonial home. If you choose to keep it, you must decide who will leave and who will remain in the home. And if there are children involved, their needs will also have to be taken into consideration. 

But what if you are common-law and not legally considered “married”?

Married Couples

Both spouses typically have an equal right to remain in the family home if they are considered a married couple. Both spouses must agree to sell or rent out the home before any decision can be made on what to do with it unless there is a court order specifying what can be done. 

Common-Law Couples

Unlike married couples, each partner in a common-law relationship does not have an equal right to remain in the matrimonial home. Any property that each person acquired before getting involved with each other remains their own. If both partners own the property and the title has both names on it, the property will either have to be or one partner would have to buy the other person out. 

Dividing Registered Accounts

If you and your ex-spouse hold any registered accounts together, they will have to be dealt with.

How Will Your TFSA Be Affected By Divorce? 

If you hold a TFSA, the funds within the account can be transferred directly to your ex-spouse or common-law partner’s TFSA. You will both need to be living separately at the time of the transfer. Further, the transfer must be made under a decree, judgment or order of a tribunal, or as specified under a written agreement.

The transfer will not impact the recipient’s contribution room since it’s not considered a withdrawal. 

How Will Your RRSP Be Affected By Divorce?

Spousal RRSP contributions are no longer permitted after separation. In addition, the minimum 3-year holding period from the last contribution to a spousal RRSP will be waived. The funds may be transferred to the other spouse’s account and rolled over on a tax-free basis when there is a written divorce agreement or court order that requires the RRSP funds to be transferred.

How Will Your CPP Be Affected By Divorce?

Any Canada Pension Plan (CPP) contributions made during the marriage can be equally divided after divorce, which is referred to as “credit splitting.” CPP credits can be divided even if one partner didn’t make any CPP contributions. Credit splitting can help each spouse qualify for benefits and can impact the amount of benefits under the CPP program for individuals.

Dividing Non-Registered Accounts

Any non-registered accounts will also need to be handled appropriately in the midst of a divorce. There are certain ways to handle these affairs in order to realize some tax savings. 

Use Of Losses

Some divorcing couples may choose to transfer specific assets at fair market value. If the person making the transfer had unused capital losses to apply to gains on the property being transferred, it may be possible to see some tax savings. In this situation, the person on the receiving end can also see some tax benefits, since any future capital gains will be calculated based on the fair market value at the time of the transfer.

Principal Residence Rules

The Canada Revenue Agency will recognize two different households once a marriage is dissolved. As such, each partner can own one principal residence that may be exempt from taxation. With the exception of the matrimonial home, any real estate that is brought into  marriage by one spouse will be considered owned by that person and assigned to that individual throughout the divorce proceedings. 

Attribution Rules

Any income earned on transferred assets must be reported by the person doing the transferring to the other during marriage as per attribution rules. These rules are not applicable to any income earned throughout the time period when the ex-spouses are living separately, as long as they make an election to this jointly and continue to live apart. 

What Can You Do If Your Spouse Is Hiding Assets?

It’s relatively easy for divorcing couples to anticipate how assets and property will be divided in advance of a breakdown in a marriage. But in some cases, the ability to predict what can happen will encourage some people to lie about their income or hide their assets in order to reduce any potential child or spousal support payments they may need to make. 

For instance, some people may try to make transfers to corporations or international accounts, or “gift” their family or friends to hide their assets. Luckily, Canadian courts are familiar with these tactics and have various resolutions to deal with them, including imputing income and enforcing costs on the individual trying to hide assets.

Contested Divorce Vs Uncontested Divorce

The speed and simplicity of a divorce will depend largely on whether it’s contested or not. 

Contested Divorce 

If one of the spouses disagrees on or “contests” certain issues within the divorce, it may take much longer to complete. Certain issues that couples may disagree on include division of assets, child support, child custody, alimony, and allocation of debts. Contested divorce is also a lot more expensive. 

Uncontested Divorce

An uncontested divorce is one in which both partners are in agreement with the issues being dealt with. In this case, the divorce can be much faster and less expensive. Online divorce proceeding packages may also be available for simpler cases. They don’t involve any meetings with lawyers, so cost savings can be substantial.

Fees To Consider When Getting A Divorce

As one would expect, a divorce can be expensive. That said, the costs can range quite a bit depending on the complexity of the situation, whether or not each partner can agree on the issues involved, and where you’re located in Canada. That said, be prepared to spend a few thousand dollars when all is said and done.

Here are some expenses to consider when getting divorced: 

  • Lawyer fees
  • Expert fees 
  • Mediation
  • Divorce application fees
  • Federal registration fees
  • Bailiffs
  • Court fees
  • Notary fees

Divorce In Canada FAQs

Can a divorce affect my credit score?

No, filing for divorce will not affect your credit score.

Are support payments taxable?

If there is no court order or written agreement, payments are not subject to taxation. Payments received on a tax return that apply to support payment are non-deductible and don’t have to be reported when filing a tax return.

What is my spouse entitled to in a divorce?

The laws differ from province to province when it comes to dealing with the division of property. That said, a marriage is considered an equal partnership under Canadian law. It doesn’t matter who is responsible for taking care of the household or earning the majority of the family income. All contributions are considered equal. 

Final Thoughts

Divorce can be an expensive endeavour. If you find yourself in this unfortunate situation, make an attempt to sever the relationship amicably. And always ensure that you seek out proper legal representation to ensure you’re adequately protected. 

Lisa Rennie avatar on Loans Canada
Lisa Rennie

Lisa has been working as a personal finance writer for more than a decade, creating unique content that helps to educate Canadian consumers in the realms of real estate, mortgages, investing and financial health. For years, she held her real estate license in Toronto, Ontario before giving it up to pursue writing within this realm and related niches. Lisa is very serious about smart money management and helping others do the same.

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