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Marriage is a social and economic union. When a marriage ends, the financial consequences can be just as far-reaching as the emotional ones. People who are considering or concerned about a split may not know what this means for them long-term.

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No-fault divorce

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Canada’s Divorce Act does not consider the reason for a divorce. It is primarily a no-fault system. While mental or physical cruelty or adultery can allow for a quicker divorce, in most cases the ground for divorce is a one-year separation where a couple has been living apart.

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The financial outcome of a divorce does not hinge on the factors contributing to a divorce. So, proving that your spouse was cruel or cheated does not mean you are entitled to a larger share of assets or more support.

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Some couples continue to live separately but in the same house following a divorce, particularly given the high cost of housing these days. Real estate tends to be the most valuable asset when a couple divides their assets.

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Equalization of net family property

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Net family property rules differ by province. Although the Divorce Act is a federal law, the processes and precedents for divorce are dictated by the provinces and territories.

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Some places treat common-law couples the same as legally married couples. British Columbia, for example, has the same property division rules once a common-law couple has lived together for at least two years. By comparison, provinces such as Ontario do not, with common-law partners generally taking their assets with them when they split.

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If a couple has accumulated most of their wealth together, it is more likely they will divide their assets equally. Otherwise, it may be the increase in net worth during marriage that is split. However, there may be other adjustments or exemptions, so family law advice is crucial.

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Inheritances or gifts may be exempt, for example. But these often become co-mingled with other assets and debt repayment, making them more difficult to identify. Spousal support obligations may also result in adjustments to the division of assets.

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Spousal and child support

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Spousal support may be payable by one spouse to the other if there is an income differential, with the higher-income spouse paying the lower-income spouse. The duration of the payments is typically dependent on the length of the marriage.

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Spousal support is tax deductible by the payor and taxable to the recipient. It is considered earned income for the receiving spouse for registered retirement savings plan (RRSP) purposes, so the income inclusion can be partially offset by making contributions with the resulting RRSP room.

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Spousal support may be predetermined as part of a separation agreement but can sometimes be subject to review over time as well. Some separating spouses decide to address spousal support through their asset division, with the lower-income spouse receiving a larger share of the family assets in lieu of future payments. In this lump-sum case, the notional spousal support is neither tax deductible to the payor nor taxable to the recipient.