Tax Deductions for Assets

Taxes are unavoidable, and lawyers are conscious of this even when negotiating family property division settlements.

For example, some assets have tax consequences inherent in them. RRSPs are a perfect example. You may have an RRSP worth $10,000 but when you withdraw the money from that investment you will have to pay tax on the money, as if it is income. How much of the $10,000 will you lose? That depends upon your tax rate. It could be 26% or closer to 50%. Therefore, during a divorce, you do not have to pay your spouse $5,000 as his or her half of your RRSP. You would pay half of the estimated after-tax net investment.

Similarly with employment pensions, the vast majority are taxable when you begin drawing on your pension, so there is a discount allowed.  In divorce cases when the couple have been together a long time, the pension can be substantial. The discount alone can be tens of thousands of dollars so it is important to take it into account.

In separation cases involving farms and businesses, there can be less obvious inherent tax. Accountants are needed to help figure out if there could be "recapture" tax on assets that have been depreciating each year on the farm or business's books. Shares of a corporation can have tax that needs to be considered. Some assets will also attract capital gains on a sale. In separation cases involving a farm or business, it is extremely important to consult with the accountant about these issues.