Undergoing a separation or divorce can impact all areas of your life. From your mental health to your family’s day-to-day activities, the process has the potential to cause a lot of stress. Emotions can get in the way, sometimes making these proceedings more difficult than one may have initially anticipated.
Unfortunately, in some instances, spouses may put their personal interests first and may not fully disclose all their assets and liabilities. A spouse may even transfer, undervalue or attempt to conceal property before a separation in the hope of reducing what is included in the equalization calculation.
Can hiding assets before a divorce allow a spouse to avoid equalization? Simply moving or concealing an asset does not necessarily remove it from consideration. Ontario’s Family Law Act governs equalization between married spouses, and complete and accurate financial information is critical to determining each spouse’s net family property.
If you suspect that your spouse might be hiding assets, it may be useful to familiarize yourself with what indicators to look for and what steps may be available.
Key Takeaways About Hidden Assets During Divorce in Ontario
- Married spouses in Ontario generally determine property rights through the equalization of net family property, rather than simply dividing every individual asset in half.
- Complete financial disclosure is important to calculating an accurate equalization payment.
- Transferring, undervaluing or concealing property before separation does not necessarily prevent the asset or transaction from being examined.
- Unusual withdrawals, unexplained transfers, cash transactions and sudden changes in spending may be reasons to take a closer look at the financial records.
- Family lawyers may use financial records, disclosure requests, valuations and, where appropriate, assistance from forensic accountants or other professionals to investigate discrepancies.
Can a Spouse Hide Assets Before Divorce to Avoid Equalization?
When dividing property after the breakdown of a marriage, Ontario generally uses a process known as the equalization of net family property. Rather than physically dividing every asset between the spouses, each married spouse generally calculates their net family property. The spouse with the higher amount may then owe the other spouse an equalization payment.
In an ideal separation, both parties work together to establish a fair and accurate division of assets. However, that is not always the case. One spouse may fail to disclose an asset, transfer money elsewhere, undervalue property or otherwise attempt to make their side of the financial equation appear smaller.
Complete financial disclosure is essential to this process. Ontario’s Family Law Act also specifically identifies intentional or reckless depletion of a spouse’s net family property as a circumstance the court may consider when determining whether ordinary equalization would be unconscionable.
As a result, attempting to move or dispose of property before a separation does not necessarily mean that the transaction will be ignored when property issues are addressed.
What Could Be Considered a Hidden Asset?
Unfortunately, there are many ways in which someone might attempt to conceal assets or funds.
For example, a spouse could disguise ownership by transferring property to a relative or friend. Some may hold funds in offshore accounts, safety deposit boxes or accounts unknown to the other spouse. Another possibility is claiming to have “repaid a loan” that was never actually issued.
A hidden asset could also be an asset that has been undervalued. For example, assets that may raise valuation questions during a divorce might include:
- Business interests
- Real estate
- Vehicles
- Investments
- Valuable personal property
- And certain other holdings
It may be more difficult to identify possible hidden assets if your spouse manages the household finances, operates a business that you have no part in, holds assets outside Ontario or Canada, or has personal expenses and debts that intermingle with corporate accounts.
What Are Common Signs That a Spouse May Be Hiding Assets?
The signs of hidden assets vary from one situation to another. Potential indicators can include conducting many transactions in cash, unexpected withdrawals, moving money out of shared accounts, giving unusually large loans to friends or relatives, sudden changes in spending patterns, or maintaining a lifestyle that appears inconsistent with reported income.
These indicators do not necessarily prove that a spouse is concealing property. They may, however, identify transactions or records that require further explanation.
Income can also be difficult to identify when it comes from multiple sources. This could include employment, pensions, investments, businesses or rental properties. Reviewing previous tax returns, banking records, credit applications and other documents may help identify discrepancies. The Canada Revenue Agency also provides information about the consequences of not reporting income.
How Does Financial Disclosure Help Uncover Hidden Assets?
Financial disclosure plays an important role in Ontario family law cases involving property and support.
If you suspect that your spouse has omitted assets or provided inaccurate information, inform your family lawyer as soon as possible. Depending on the circumstances, additional financial documents or explanations may be requested.
Documents that can become relevant may include bank and investment statements, income tax returns, notices of assessment, corporate financial statements, property records, mortgage documents, loan records and valuations.
In more complicated cases, the parties may also obtain assistance from a forensic accountant, business valuator or another financial professional. Your Ontario family lawyer can advise you about what forms of disclosure or investigation may be appropriate based on the facts of your case.
What Happens If Hidden Assets Are Discovered?
The effect of discovering an undisclosed asset will depend on the circumstances, including the nature and value of the asset, what happened to it, when the transaction occurred and whether it affects the calculation of net family property.
The goal is to ensure that the financial information being used to determine equalization is accurate. A significant undisclosed asset could change the calculation of one spouse’s net family property and, as a result, the amount of an equalization payment.
Courts also have remedies available to address failures to provide required financial disclosure. The appropriate response will depend on the facts and the stage of the proceeding.
Are the Assets Worth Uncovering?
Oftentimes, uncovering hidden assets is a time-consuming process. A person may go to considerable lengths to conceal property, which can lead to a complicated and expensive investigation.
For that reason, it can be useful to consider the likely value of the asset in comparison with the cost and complexity of investigating it. This assessment is highly fact-specific.
A divorce and separation lawyer in Ontario can discuss potential approaches with you and help you understand the legal and practical considerations involved.
How Can You Protect Yourself If You Suspect Hidden Assets?
There are precautions you can take to better understand your family’s financial position during a marriage and before or during a separation.
Staying informed about household finances can make it easier to identify unusual activity. Where appropriate, retain copies of financial records to which you are lawfully entitled, including tax documents, joint account statements and information concerning jointly owned property.
If you discover major expenses that were initially kept hidden from you, gather any information you lawfully have access to. Keep an eye out for unexplained transactions or significant changes from established financial patterns.
Most importantly, speak with a professional if you believe your spouse has not disclosed all relevant financial information. At Gelman & Associates, our experienced property division lawyers in Toronto can advise you about the next steps available in your circumstances.
Frequently Asked Questions About Hidden Assets and Divorce in Ontario
Can My Spouse Transfer Money Before Divorce So It Is Not Included in Equalization?
Transferring money does not necessarily mean it will be ignored for equalization purposes. The circumstances surrounding the transfer, its timing and what happened to the funds may all be relevant. Ontario’s Family Law Act also allows the court to consider intentional or reckless depletion of net family property in certain circumstances.
Are Offshore Bank Accounts Included in an Ontario Divorce?
An asset does not automatically become irrelevant simply because it is outside Ontario or Canada. Foreign financial holdings may need to be disclosed and considered when determining a married spouse’s net family property.
How Can a Lawyer Find Assets My Spouse Did Not Disclose?
The appropriate approach depends on the circumstances. Financial statements, tax records, banking documents, business records, property searches, valuations and other disclosure may help identify inconsistencies. In complex financial cases, accountants, valuators or other professionals may also become involved.
Does Equalization Apply to Common-Law Partners in Ontario?
Ontario’s statutory equalization regime generally applies to married spouses. Common-law partners do not automatically have the same property equalization rights when their relationship ends, although other property claims may potentially arise depending on the circumstances. A family lawyer can explain which rules apply to your relationship.
Speak With a Toronto Property Division Lawyer About Potential Hidden Assets
When going through a separation or divorce, accurate financial disclosure is critical to determining property and support issues. For married spouses, complete information about assets and liabilities helps establish each person’s net family property and any resulting equalization payment.
If you suspect that your spouse or former spouse is withholding financial information, transferring property or hiding assets before divorce, contact Gelman & Associates or call 1-844-736-0200 to book a consultation with a Toronto family lawyer. Our family law team can help you understand Ontario’s financial disclosure and property division rules and discuss the options that may be available based on your circumstances.
Disclaimer: For legal advice about your specific family law matter, please consult with a family law lawyer. This article provides general information about Ontario family law and is not intended to act as legal advice.
