The Costs of Disposition in Family Law
When marriage breakdown occurs, one significant and often overlooked aspect is the costs of disposition of assets. In family law, these costs can greatly influence the property division and financial settlements between the separating parties.
What are Costs of Disposition?
Costs of disposition refer to the expenses associated with selling or disposing of assets. These costs may include taxes, commissions, and other fees associated with the sale of assets such as a matrimonial home, stocks, or business interests.
The Role of Costs of Disposition in Family Law
In the event of a marital breakdown, assets are rarely sold on the very day of separation. However, they will eventually be sold, even if it is only a deemed disposition on death. Capital assets owned at the date of marital breakdown may have inherent contingent capital gains (or even recapture of depreciation deducted for accounting and tax purposes over the years) that will be triggered by their eventual sale.
It is the onus of the owner of a taxable asset to establish when it is likely to be disposed of and, thus, when the costs of disposition will be incurred. A calculation is done using current taxation rates (since any others would be entirely speculative), and a present value calculation back to the date of marital breakdown is performed.
Contingent Liabilities
In addition to the costs of disposition, other contingent liabilities must also be considered. These can include guarantees of loans or mortgages, or outstanding lawsuits against a spouse. Despite obvious valuation difficulties, contingent liabilities are to be taken into account as long as they are reasonably foreseeable on the valuation date.
However, these are often highly subjective analyses unless one uses hindsight (assuming the situation has been resolved before settlement). Fortunately, the Family Law Act talks about “value” and not fair market value, so hindsight is sometimes permitted by the courts with respect to contingent assets and liabilities in particular.
Conclusion
Understanding the costs of disposition and their impact on property division is essential during a marriage breakdown. These costs can significantly alter the final net family property figure and therefore, the amount that one spouse may owe the other in an equalization payment. Given the complexity and importance of these considerations, it's crucial to seek legal advice to ensure all relevant factors are taken into account.
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