How to Tackle Financial Statements

When a relationship breaks down, property and/or support issues come into play. When they do, you could very well be confronted with a document called a Financial Statement. Actually, there are two Financial Statements, Form 13.1 and Form 13. 
 
Form 13.1 deals with both property and support claims; Form 13 deals solely with support claims. If you have to go to court to deal with property and/or support, you most certainly will have to fill out a Financial Statement. Even if you are choosing a more non-adversarial approach, such as mediation, your mediator will probably require both parties to fill out a Financial Statement. At first glance, these Financial Statements appear quite daunting. This memo, with a focus on the Form 13.1, is intended to help you tackle your Financial Statement. I will also address common errors made by people when preparing their Financial Statements. 
 
There are two parts to a Financial Statement: the first part deals with income and expenses, which is relevant to the support issues; the second part deals with assets and debts, which is relevant to the property issues.  

Part 1:  Income 
 
Employment Income:  The majority of people are paid every two weeks. Part 1 of the Financial Statement asks for monthly employment income.  A common error is to simply take your paystub and multiply the gross amount by 2.    

 Since there are a couple of months with more than four weeks in the year, this is not the right approach. If you are paid every two weeks, you should take your gross income on your paystub, multiply by 26 (52 weeks) and divide by 12. This will give you an accurate monthly amount. 
Self Employment Income:  If you are self-employed, you are required to input your net monthly self-employment income. (You will see a space provided for the monthly amount before expenses – ie. your gross monthly income.) 
Investment Income: One needs to include investment income. You do not necessarily earn investment income on a monthly basis. You could refer to your income tax return from the previous year to determine how much investment income you made during the course of the year and divide this amount by 12 to obtain a monthly amount. 
Spousal Support:  You need to include spousal support as income. You do not have to include child support. 
If you have a family lawyer, it is not necessary to calculate totals. Your lawyer should have nifty software (software which goes by the name of “DivorceMate”) which will do all of the calculations for you.  

Part 2: Expenses 
Most People find the expenses part of the Financial Statement to be the most frustrating and time consuming of all.  One must bear in mind that the expenses section is more an exercise in “guess-timation”. One need not sit up at the kitchen table until the wee hours of the morning, drinking pots of coffee, tallying up endless receipts in an effort to achieve 100% accuracy.   Do not lose sleep over the expense part.  If you are spending more than two hours on this section, you are probably going overboard. 
Automatic deductions from income: 
The same applies to automatic deductions as it does to gross income:  if you are paid bi-weekly, you need to multiply your deductions by 26 and divide by 12 as opposed to merely multiply by 2. 
 
 

 
There is a cap on both CPP and EI contributions. If you are a higher income earner, more than likely you will hit that cap. As such, your paystub might not accurately reflect monthly CPP and EI contributions. Do a Google search for maximum CPP and EI contributions for the year in question, take that amount and divide by 12. 
 
Other Expenses: 
When looking at other expenses, you might very well find that some are inapplicable to you. Leave them blank. Many of the expenses one would hardly consider monthly expenses – for example, gifts, vacations, clothing, etc. 

For these expenses, try to estimate what you would spend on an annual basis, take this amount and divide by 12 to get a monthly amount. 
Some expenses you know precisely what you pay on a monthly basis (for example, rent or mortgage). For most, however, you will have to estimate the monthly amount spent. It bears repeating: ‘guess-timate’, don’t give yourself grey hair endeavouring to be 100% accurate down to the last penny. 
If you have a monthly expense that is not shown in the Financial Statement, feel free to include it at the end of the expenses section. 

Part 4: Assets In and Out of Ontario 
This is the section of the Financial Statement dealing with property. You will note there are three columns provided: one on the date of marriage, one for the valuation date, and today. Quite often, particularly after a long marriage, one cannot remember, nor does one have any documentation relating to assets or debts as of the date of marriage. If you have assets at the date of marriage, this works to your advantage as it lowers your net family property. If you want to rely on premarital deductions, however, you need to provide supporting documentation. The valuation date is your date of separation. You and your former spouse need to decide on a specific separation date, because when determining property division—i.e. who owes whom an equalization payment–we need two “snap shots” in time: the value of the assets minus the debts as of the date of marriage and these values as of the date of separation. Sometimes a disagreement arises as to the date of separation.  It really should not matter much if the parties’ disagreement over the date concerns a few days or a few weeks.  If, however, we are talking about a discrepancy of several months or even years, then the separation date issue could be significant since it could markedly change the values used for determining property division.  If the parties cannot agree on a date of separation, the date might have to be determined by a Court.    
 
 

General Household items and Vehicles: 
 
A very common mistake is writing down and placing values on every stick of furniture in the house (e.g. the old RCA television, circa. 1980; the faux leather couch desecrated with scratch marks and urine stains over the years by Scruffy, the ancient household cat). 
This should not be done. One must keep in mind that we are looking for the market value of household goods. In other words, if you were to sell your second-hand household items on Kijiji, how much would you get for them? Generally speaking, second-hand furniture and appliances are worth very little in the grand scheme of things. Hopefully, the parting spouses can determine between themselves who keeps what. Requiring lawyers to add their two cents’ worth will invariably result in the parties spending more on legal fees than the items are worth.   
One should list motor vehicles, motorcycles and boats. Once again, we are looking for the resale value. Many people find an accurate resale value on the internet, more specifically a “black book” value.  

Other special items: 
 
In my opinion, for a “special item” to be listed, it should be worth at least $500.00 (resale value). If one owned a Steinway Grand Piano, a valuable coin collection, or original artwork for example, these should be listed. Such items might very well have to be appraised by a qualified person, as well.  A special note about jewelry:  Jewelry might be insured for a certain amount, but if you were to sell this jewelry, you certainly would not get this amount.  What would you get for your gold necklace if you sold it?  Go to a store that deals with buying and selling jewelry and find out. 

Pets: 
I love animals. I have a dog who is the office mascot. I certainly do not consider my dog to be property; I consider him to be part of the family. Most people do not consider their household pets as property. Unfortunately, the law does. How do you put a value on a household pet? Your guess is as good as mine.  
 

Part 4c:  Bank Accounts, Savings, etc. 
 
It bears repeating that one needs values on the precise date of marriage and the precise date of separation; on or around does not cut it. All bank accounts and investments, including RRSPs should be listed in this section. What is often overlooked are pensions. Pensions are considered property under the Ontario Family Law Act. Indeed, pensions often prove to be the most valuable piece of property along with the matrimonial home. We family lawyers are not qualified to value pensions. Pensions are valued by actuaries who provide a “family law value” for the pension for the period of the marriage. 
You might very well have joint accounts and investments with your spouse.  For these jointly held assets, you should only list half the value on your Financial Statement (your spouse will also list half of this asset on his/her own Financial Statement).   
 

 
Part 5:  Debts and Other Liabilities 
 
There are some often overlooked costs that should go in the debts and liabilities section. For instance, there should be notional tax taken off of any RRSPs you have listed in the assets section. Your RRSPs might have a certain value, but you will be taxed on your RRSPs once you begin drawing from them. The same goes for your pension. Another overlooked “liability” is notional disposition costs of the matrimonial home. It is common to deduct 5% for notional disposition costs on the matrimonial home since these are costs you will incur when you sell the home (i.e. real estate commission and legal fees associated with purchase and sale). 
 
Part 6: Property and Debts on Date of Marriage 
If you have a family lawyer, this lawyer should have DivorceMate software–software which will automatically calculate your assets and debts as of the date of marriage from the figures previously provided in your Financial Statement. Remember that assets you owned as of the date of marriage work to your favour as they will lower your net family property. 
 
Part 7: Excluded Property 
Excluded property is property that you acquire during the course of your marriage but is not included in your net family property. In other words, excluded property works to your advantage. Examples of excluded property are gifts from third parties (i.e. not from each other), an inheritance, life insurance proceeds, damages and settlements for personal injuries and property that you can trace to any of the above. 
 

The matrimonial home is accorded special treatment under the Family Law Act. Stated succinctly, if you were to use what otherwise would be excluded property—such as an inheritance, for instance—and put it towards the matrimonial home (e.g. renovations, mortgage, home improvements/additions) you would lose the exclusion.  This is not fair, but  this is the law at this time. 

 
Proposed Budget 
More often than not, I do not ask my clients to fill out the proposed budget section of the Financial Statement. There are occasions, however, when I do ask a client to fill out this section. If a client is potentially entitled to spousal support, then a proposed budget is probably in order. 

In conclusion, filling out a Financial Statement is a pain in the neck, no doubt about it. But it is not rocket science, and it is often a required document. This memorandum is provided to give you a head start. If you have further questions, we encourage you to contact us so that we can be of further help. 


 
 

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