Deciding how to split assets is more than just dividing the values on paper. People often make the mistake of believing that dividing everything in half is the simplest and fairest way of handling things. This is not necessarily true. People need to pay attention to the decisions they make about dividing property and consider the long term consequences.
Assets differ in a number of ways. Some are liquid like cash. Some assets like RRSP accounts are tax deferred. Some assets need to be valued in a specific manner according to family law rules and regulations. Investments may have a different value after taking into account possible capital gains taxes.
Sometimes assets have an emotional connection that may have more worth than the actual dollar value such as a house, business, or family heirloom.
Assets may have costs to consider. A couple may have a $400,000 investment account and a house worth $400,000 (mortgage free). The assumption is that if one spouse takes the house and the other takes the cash, this results in an equal division. Keeping the house has costs such as property taxes and upkeep and maintenance. The investment account will be growing over time earning interest. It may not seem quite the equal split over a period of time.
Debts are also part of the division of marital property. Allocating debts in divorce may mean paying them off, refinancing, or applying for new debt. Different types of debt carry different fees, charge, penalties and terms. Just because you have $10,000 left on your car loan and $10,000 credit card debt doesn’t mean that the car loan should go to one spouse while the credit card debt goes to the other.
Divorce settlements are often agreed upon with limited insight into the long-term consequences. As a result, settlements that seem to be fair and workable initially do not necessarily stand the test of time. Therefore, it is highly recommended that a divorce financial planner be brought into the process so that you can see how decisions you make today will affect the rest of your life.
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