Calculating your equalization payment for your separation or divorce is not only a very common step to obtain accuracy and fairness but is also necessary. This step is very important for clarity between parties. After the equalization is done and well explained and discussed, clients tend to de-escalate tension.
The money that the spouse with the higher total has to pay the spouse with the lower total is shown in the “equalization payment.” The purpose of an equalization payment is to put both spouses in an equal position. The result is that both spouses end up owning the same percentage of their assets, but they can agree differently in mediation. We also discuss how the money will be paid to the other person and when.
There can be many issues regarding the value and ownership of a spouse’s assets. This is also a very important step; a lot of clients call me to mediate with the intention of buying the other person’s interest in the main residence. This cannot be properly determined until the equalization payment is clear. Consulting with our accountant can provide insights into tax implications and financial strategies related to the equalization process. You can also provide all this information to your accountant or financial advisor.
The following steps are intended to give you a basic understanding.
The first step in calculating your equalization payment for your divorce is to make a list of all your assets.
This may include:
– Personal property
– Real estate
– Bank accounts
– Shares in corporations
– Pensions, including Registered Retirement Savings Plans
The value of most assets can be easily determined by reference to the current fair market value. However, there are some assets for which the determination of value can be quite complex, such as pensions or shares in companies that are not publicly traded. The Family Mediation Center will either work with your accountant if preferred, or we have a professional accountant we can outsource this task to.
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Subtract the total debt, including:
– Credit cards
– Any outstanding credit
– Family debts
– Car leasing
Calculate your net by adding up your total assets minus debt.
Adjustments and considerations, such as gifts or how to pay the other party (for example, in cash or after selling the house through RRSP), need to be taken into account.
It’s worth noting that this process is fairly complicated. This is why we normally go through it together in the mediation process before the separation agreement has been signed. You can show the results of the equalization formula to your accountant, who will provide you with advice if necessary. We also offer accounting services to analyze tax implications; an accountant is part of our team if their services are needed. This additional information will be attached to the separation agreement for clarity and future reference if needed.
So the combined Net Assets between John and Beth is:
$ 54 000 + $ 23 000: $ 77000
Each one should finish with $ 38 500
John will need to pay to Beth $15,500
John position : $ 54 000 – $15,500 :$ 38 500
Beth position: $ 20 000 + 15,500 : $ 38 500
Is this 50 % and 50 % what the divorcing couple consider right and fair ?
How much and when Beth will get paid?
How this payment may affect John?
What tax implication may have the RRSP?
Should the equalize be done with RRSP or Cash or a debt?
Is Beth’s mother loan acceptable for both of them?
Please contact me if you require more details about calculating equalization payments for divorce in BC. The Family Mediation Center would love to assist you with a separation agreement that is agreeable to both parties. You can also visit us on Facebook to learn more!