How to Protect Your Assets in a Divorce in Canada

Divorce is an emotional and financial rollercoaster. When a marriage breaks down, the financial implications can be severe, and if not handled properly, your hard-earned assets could be divided in ways you never anticipated. But how can you protect your assets during a divorce in Canada? The short answer: You must be proactive, strategic, and informed. Here’s everything you need to know to safeguard your financial future and make the process as smooth as possible.

The Emotional Fallout and Financial Reality

Imagine this: You’re emotionally drained, sitting in a lawyer's office, only to realize that half of your pension, house, and other assets might soon belong to your ex. This moment of reckoning is exactly why you need to plan before a divorce is on the horizon. Many people are shocked by the division of assets during a divorce, especially in provinces like Ontario, where property and finances are divided based on equalization of net family property.

Equalization of Net Family Property

The basic principle in Canada is that spouses are entitled to an equal share of the "net family property" accumulated during the marriage. But this can often leave one partner blindsided if they didn't anticipate what exactly was considered "family property."

• What is net family property? In simple terms, it includes all assets accumulated from the date of marriage to the date of separation, minus any debts. Certain exclusions apply, such as inheritances or gifts received during the marriage, but these must be carefully traced to remain excluded. If you commingle assets—like depositing inheritance money into a joint account—it could be considered part of the family property.

Common Myths About Asset Protection

One common misconception is that assets like inheritances or properties brought into the marriage are automatically protected. This is not true. If you don’t carefully document and isolate these assets, they could be deemed joint property. Similarly, people often assume that simply having assets in their name will protect them, but titles and registration often don’t matter.

Key Steps to Protect Your Assets

1. Prenuptial or Marriage Agreement
   The number one way to protect your assets is to create a legally binding prenup (or marriage agreement). A prenuptial agreement can specify what assets are considered separate property and how they should be divided in the event of a divorce. In Canada, these agreements are enforceable, provided both parties have legal representation and the terms are fair.

2. Keep Inheritance and Gifts Separate
   If you receive an inheritance or a gift during the marriage, do not deposit it into a joint account. Keep these assets in a separate account to ensure they remain yours in the event of a divorce. Also, keep detailed records to prove the origin of these funds.

3. Know What Happens to the Family Home
   The matrimonial home has a special status in Canada. Regardless of whose name is on the deed, both spouses have an equal right to stay in the home during a divorce. Additionally, the home is not subject to the usual exclusions that apply to other property brought into the marriage. Even if one spouse owned the home before the marriage, it could still be divided upon separation. This is often a shock to many people, so understanding this is key to your financial planning.

4. Track Debts Carefully
   Debts can also be divided, and just like assets, debts accumulated during the marriage are typically split between spouses. Make sure you understand both partners' liabilities, such as credit card balances or loans, so you’re not stuck with unexpected financial burdens after the divorce.

5. Business Ownership and Professional Practices
   If you own a business or are a professional with significant earnings, such as a doctor or lawyer, protecting your practice or business from being included in the division of assets is critical. A shareholders’ agreement or marriage contract can stipulate how your business will be handled in the event of a divorce. Additionally, if you’re starting a business after marriage, consider incorporating the business to separate it legally from your personal assets.

6. Postnuptial Agreements
   It’s never too late to protect your assets. If you’re already married, consider a postnuptial agreement to clarify how assets will be divided. While less common than prenuptial agreements, postnuptial agreements are fully enforceable in Canada and can offer a safety net for late financial planning.

7. Trusts and Estate Planning
   If you’re looking for long-term asset protection, consider creating a trust. Trusts can be a sophisticated way to protect family wealth, especially in complex financial situations. Assets held in a trust are typically excluded from the equalization process. However, they must be carefully structured to ensure they are not vulnerable to claims by your spouse.

Case Study: What Happens When You Don’t Plan

Let’s take the case of John and Mary. John had a successful business before he married Mary. He assumed that since the business was his, it would be excluded from any asset division if they divorced. However, after 15 years of marriage and no prenuptial agreement, Mary was entitled to half the value of the business's growth during the marriage. Had John consulted a lawyer and set up a marriage agreement, he could have protected his business, and the divorce settlement would have been much more favorable.

Why Timing Matters: Pre-Divorce Financial Moves

Once divorce proceedings start, many of your financial actions will be scrutinized. You might think about transferring money or changing ownership of certain assets, but beware—the courts are wise to these tactics. Any suspicious financial moves made shortly before the divorce can be reversed by the court. This is why planning ahead of time is crucial. By setting up your assets properly before a marriage or long before divorce proceedings begin, you ensure that your financial portfolio is safeguarded.

Divorce and Pensions

Many people overlook their pension plans when considering asset division. In Canada, pensions are often one of the most valuable assets, and they are subject to division in divorce. A properly structured pension waiver agreement can help protect your pension. Alternatively, spouses can negotiate to keep their pension intact in exchange for other assets, such as the matrimonial home.

The Emotional Costs of Failing to Protect Assets

Asset division in a divorce isn’t just about finances—it’s also deeply tied to emotions. Many people feel that they’ve been "cheated" out of their hard-earned wealth. By being proactive, you can not only protect your financial future but also minimize the emotional toll that asset division can bring.

Expert Legal and Financial Advice

The complexity of divorce laws in Canada means that the best defense is a good offense. Consult with legal and financial experts early on to get personalized advice for your situation. This isn’t just about hiring any lawyer—find one who specializes in family law and who has experience with high-asset divorces if your financial situation is complex.

Conclusion

Protecting your assets during a divorce in Canada isn’t impossible, but it does require a thoughtful strategy, sound legal agreements, and careful planning. Whether you’re at the beginning of your marriage or on the verge of separation, these steps can ensure that you don’t lose the wealth and property you’ve worked hard to build. Remember: It’s always better to be proactive than reactive when it comes to asset protection.