It’s All in the Numbers

Lorisa Stein - Its All in The NumbersToday’s family law negotiations are all about the numbers. The value of assets, the amount of support, and the cost of living. The numbers tell who will receive how much, directs us to consider tax considerations, and the timing of the payments.

And that’s exactly what you want to know when negotiating a marriage contract, cohabitation agreement or separation agreement. Why does it matter so much?  It’s much like building a house. If the foundation isn’t solid, the house wouldn’t be standing for long. If the financial disclosure is not complete and accurate, the written agreement will fail. Whatever was negotiated will likely be useless.

Financial Statement Sworn Under Oath

One of the first tasks after meeting with their lawyer, each client will be required to complete a financial statement. The financial statement is an affidavit signed under oath. The oath taken by the client prior to signing confirms that the contents of the affidavit are ‘true best to their knowledge, information, and belief”.

Knowledge is what has been acquired, practiced or learned along the way.  Knowing the monthly household expenses because they appear on every online or credit card statement is an easy starting place. Other quickly recalled expenses are the cost of commuting, veterinarian fees and gym fees.

Recalling the amount of house taxes may necessitate referring to the annual tax statement to get the information. Looking up an expense from a quarterly invoice or asking for a duplicate account is an inexpensive way to correctly enter the information on the financial statement.

Belief is an estimate of the value or cost based on experience. Having bought used cars in the past and following new trends, a client was fairly accurate in assessing the value of his decade-old car. On the other hand, there may not be an accurate way to locate the value of a particular piece of art for example unless it was sold.  In this case, finding comparable value in similar works by the same artist discounting for size and other factors may suggest a reasonable value.

Make it complete and accurate

The financial statement has two significant sections. The first section is a listing of all forms of income and expenses. Think of this part as the budget or essentially a cash flow statement. This section will be securitized for its accuracy for both components. Are any reimbursements available for health costs from any employment or private health plan of which either or both partners or spouses are members? Are the listed expenses inflated to look like a luxurious lifestyle suggesting the payment of future financial support or was the actual standard of living over course of marriage of a more modest nature?

In Ontario, each entry in the financial statement will be supported by a document or credible reference such as valuator. This includes each client providing a copy of the prior three years income tax returns filed with Revenue Canada and the Notices of Assessment and any Notices of Reassessment received back from the government. To confirm current employment incomes, a copy of recent pay stubs will also be exchanged.

When considering the children’s sports activities and educational expenses, look for corresponding educational savings accounts, utilized tax credits and community funds to ease the actual costs.
The second part of the financial statement will contain the values of assets, debts and liabilities. Liabilities are debts for which the exact amount of the debt is unknown until a monthly statement is received.

For some assets, there will be a corresponding debt such as a cost of disposition. There may be tax component which will decrease the value of the asset when it is sold, transferred, or upon the death of the owner. Another example is a sales commission paid when an agent assists with the successful pairing of the purchaser and the buyer. Think of a boat or house sales agent.  Other common debts that decrease the value of an asset will include any outstanding mortgage, loan, or other financing used by the client to make the asset purchase.

Look for foreign-owned assets to be locally valued and that value properly stated in the Canadian currency equivalency. Verify all the components of employment remuneration and any associated vesting provisions, pensions, tax issues, forms of savings plans, equity units and other creative forms of payment.

Business Interests

For the client who owns a family business, an independent chartered business valuator will determine the company’s value for family law purposes. The company accountant and financial officers will gather the information. Concerns of bias will be raised if the company seeks to use its own financial team to conduct the valuation. Loan guarantees, the movement of funds to a family trust, and the management of related companies are within the scope of the valuator’s activities.