Yes. If you were married to your spouse at the time that you separated, the division of your assets and liabilities (net family property) is determined under the provisions of the Family Law Act in Prince Edward Island. This Act does not apply to spouses who resided in a common law relationship prior to their separation.
Depending on the nature of your assets
that you and your spouse own at the date of the separation, there may be income tax considerations that could have a significant impact on one or both of the parties if they are ignored.
Most unregistered savings accounts, guaranteed investment certificates and personal property do not attract tax considerations. At this time, the disposition of the family home does not attract income tax considerations.
However, other real property, (like a cottage, rental property or vacant land), RRSPs and employment pensions, for example, have income tax features that need to be considered before the value of net family property can be determined and then divided between the separated spouses.
Take for example Susie and John Jones.
They separated last month after being married more than 30 years and they have accumulated assets during their marriage (they are debt free).
Both in their early 50’s, they both are still employed and they each have been contributing to employment pensions. John works in the private sector (for 28 years) and Susie works for the Provincial Government (for 10 years). In addition, both contributed to an RRSP to reduce their payable income taxes over the years of the marriage.
In addition, they jointly own their family cottage on land in North Lake.
In order to divide their property, they have to determine the value of each of their assets. In doing so, it is important to ensure that the value takes into account income taxes.
RRSPs on redemption (when cashed in) is taxable income. The face value of the RRSP must therefore be reduced to reflect a value that is net of taxes before calculating the net family property division.
The cottage, when finally sold, may attract income tax on the capital gains (the increase in the value between the date of acquisition and the date of disposition). Depending on whether Susie and John sell the cottage and divide the sale proceeds, or one of them decide they want to retain the cottage as a part of their division of net family property, ultimately, the taxes on the capital gains must be paid. Therefore, the value of the cottage must be adjusted for this income tax consequence before calculating the net family property division. Also, the spouses must consider when the capital gain will be triggered and to whom the income taxes will be attributed.
Employment pensions are considered to be net family property. However, eventually it will become an income stream which is taxable. Therefore, tax calculation may be required to determine the net value of this family property prior to calculating the net family property division.
If you do not ensure that the value of the net family property is adjusted to take into account the income tax consequences, you may overvalue one or both spouses’ net family property. This will result in an inaccurate division of net family property.
The breakdown of marriage and the separation of spouses trigger issues that can be complex. Before you agree to sign a legal document dividing your net family property you are entitled to and you should seek independent legal advice.
The lawyers at Key Murray Law working in family law strive to ensure that the valuation of net family property is accurate and results in an appropriate division of net family property between spouses. If you need advice on this issue or any other family law matter including the rights and responsibilities regarding the breakdown of common-law relationships, please contact one of Key Murray Law’s Family Law lawyers to arrange for a consultation.
Pamela M. Stewart
Associate
Pamela.stweart@keymurraylaw.com
902-368-7829
Legal information appearing in this article and elsewhere on Key Murray Law’s website is intended for informational purposes only and is not intended to substitute for or replace any legal or other professional advice. If you have specific concerns or a situation in which you require legal advice, you should consult directly with one of our lawyers.