Is a 50/50 Property Split is Always Equal? Consider the Three P’s!!


When I sat down to meet with Jane and John Smith, they had recently met with their mediator. They had come to a consensual agreement with respect to dividing all of their matrimonial property. Before they finalized everything though, the mediator encouraged the Smiths to get financial and tax advice to ensure that their agreement was truly fair. What a wise mediator!! We sat down to review the Smith’s property split and it became very apparent that their 50/50 property split was NOT equal. Jane had planned on keeping the family home and her RRSPs and John in exchange had agreed to keep his RRSPs and almost all of the couple’s stock and investments. I pointed out to Jane and John that they had not considered the profit on any of their investments and in turn, the capital gains tax that would be paid upon disposal. This consideration significantly decreased the value of John’s total property and would have left him with thousands less than Jane which of course would not be fair. The Smiths revised their property division considering all of the necessary financial and tax implications to ensure a truly EQUAL split.


When Bob and Sue Davis were going through their divorce, they told me that they had both worked for many many years with the same companies; in fact, they both intended to retire from these same companies to benefit from the lucrative pension plans that they would receive on retirement. Their lawyers had told them that pensions accumulated during marriage were considered matrimonial property and the value of these pensions would be added to the total. Bob had a Defined Benefit Plan and Sue had a Defined Contribution Plan. Bob and Sue, who had been married since they were very young, each used the value on their annual pension statement to include in matrimonial property. Defined Contribution Plans are straightforward plans where both the employee and employer usually make contributions. Defined Benefit Plans on the other hand are based on actuarial formulas. The commuted value on the annual statement for DB plans is very often lower than the actual value of the retirement benefit accumulated to date. After actuarial valuation of Bob’s defined benefit pension plan it turned out that the true value of his pension was $100,000 more than the statement value. That meant an extra $50,000 in Sue’s pocket that she otherwise would have missed out on.


Not long ago Sheri James came to my office and asked me to review the legal agreement that she was preparing to sign. Everything looked in order and after a few comments on the property, she mentioned that her ex–husband was a partner in a large accounting firm. I asked what his partnership share had been valued at and her response was that there was no value in his Professional Corp. I explained to her that a Professional Corp. was only the company set up for tax advantageous reasons by partners for the deposit of monthly partnership income. More importantly though, if a spouse had to buy into a partnership when they went from employee to partner (or when they joined the partnership), as is most often the case, that share often has significant equity value which in many circumstances (seek legal advice to confirm) should be included in matrimonial property. The tax implication should the spouse leave their partnership and be paid out this equity value must also be considered in calculating this value. In Sheri’s case, her ex-husband’s partnership value had a net value of $240,000, which if omitted would have significantly lessened the value of the couple’s total matrimonial property. Partnership and business valuation is a complicated matter; don’t miss out on hundreds of thousands of dollars, seek expert advice!

Note: Names have been changed to protect the privacy of the Parties.