By: Jennifer Blackwood and Jeff Li
Disclaimer: The information contained in this article is general in nature and does not constitute legal advice. Please contact the Law Office of Jeff Jiehui Li, or another experienced family lawyer if you are concerned about your family law issues.
What is a Financial Statement?
In family law in Ontario, a Financial Statement is a court form that shows your financial information. It includes information about your income, expenses, assets and liabilities. The Financial Statement is one of the most important court documents in family law litigation.
Form 13 or Form 13.1?
If your family matter involves claims for support or property division, you must complete a Financial Statement. If you only claim child support and/or spousal support, Form 13 is used. If you claim property (with or without support claims), Form 13.1 must be used. In the rare situation that you are seeking Table amount child support only, you do not have to complete a Financial Statement.
In Form 13.1, there are three important dates to keep in mind: the date of marriage, the date of separation (or “valuation date”) and today. When completing Form 13.1, you must provide information of your assets and liabilities on these three dates. In comparison, Form 13 only requires a party to provide information of his or her assets and liabilities of today. The date of marriage is often undisputed. Today means the day you complete or swore the Affidavit. Normally it is acceptable for you to use the value of last month’s statement balances as today’s value. The date of separation or valuation date can be disputed in some situations. For example, parties may be separated but are living under the same roof. When disputed, the party swearing the Financial Statement should use his or her own date of separation. To facilitate resolving the disputes, a party is often required to complete another Financial Statement based on the other party’s alleged date of separation as well.
The information provided in a Financial Statement must be accurate and detailed, and a party may later be questioned by the other side regarding the information provided. The validity of any legal outcome or result depends on the honest exchange of financial information. Most importantly, Financial Statements are sworn or affirmed documents, which means you must promise that the information is true. It is against the law to lie or make intentional misrepresentations under oath.
It is a party’s responsibility to prove the values and details that he or she has claimed in his or her Financial Statement with evidence. This often involves collecting documentary evidence such as income tax returns, bank statements, etc. If a party cannot access necessary documents or records, a third party may be required to obtain copies. Experts may also be called upon to assess the accuracy or authenticity of some information, such as the value of a real property.
Parties have an ongoing obligation to update disclosure as soon as they become aware that the information is incorrect or inaccurate. If a party experiences any change in their financial circumstances, he or she must immediately tell his or her lawyer, so that an updated Financial Statement can be prepared. In fact, all parties are required to update any Financial Statement that is more than 30 days old and to serve and file a copy before any case conference, motion, settlement conference or trial.
Completing a Financial Statement
A Financial Statement is used to assist the Court in determining support and dividing property. Most relevant to support determination are Part I and Part II of the Financial Statement, dealing with the party’s income and expenses respectively.
Income
Income reflects current income based on what you are currently receiving, as well as any anticipated changes. Monthly amounts are used. Therefore, if you are paid weekly or biweekly, the total must be adjusted to reflect this.
Income can come from a wide variety of sources and all of it must be included in your Financial Statement. It can include: gifts, capital gains, employment income, rental income, interest or dividends from shares or other investments, support from friends and family, child tax benefits received, GST/HST credits received, support payment receives and any estimated income tax refund. Overtime, bonuses and commission income should be accurately estimated and labelled “estimate”.
It is important to collect your income related documents as proof of the figures listed in your Financial Statement. Copies of your Income Tax Returns with all schedules for the last three years and Notices of Assessment and Reassessment for the last three years must be provided. Proof of current income is demonstrated by attaching your most recent pay cheque stub(s), employment insurance stubs, worker’s compensation stub, pension stub and/or any other proof of income.
“Other benefits” are calculated yearly and include any benefit that you do not pay for yourself, such as use of a company vehicle, free room and board, medical or dental health care plans, life insurance, gym memberships, low or no interest company loans, meal allowances, cell phones, parking passes and stock options. Most are taxable and their value can be found on your T4 slip or pay cheque stub. A reasonable estimate can be made for non-taxable benefits.
Expenses
Part II of the Financial Statement concerns expenses. They reflect current expenses or your best estimate of your expenses based upon your present standard of living. Accuracy is vital. Opposing counsel may cross-examine you later and exaggerating your expenses will affect your credibility before the Court. It is a good idea to review bills, receipts, cheque books, bank account and credit card statements to quantify and verify your expenses.
Great efforts should be made to estimate irregular, non-recurring expenses. If spouses are sharing expenses, this should be reflected in the Financial Statement (i.e. shared equally or X pays 75%). If you are self-employed, pay attention to avoid double counting expenses. Business expenses reflected in net income from self-employment should not be included again in the Financial Statement.
In some circumstances, a proposed budget will be necessary. For example, if you are moving out of the matrimonial home, you will need to pay expenses you are not paying right now, such as the rent for the new accommodation, utilities, increased expenses of grocery and household supplies, etc. In such circumstances, you should complete a proposed budget.
Property Division
In Form 13.1, after crunching all of the numbers in a Financial Statement, a Net Family Property (“NFP”) is generated. A person’s NFP is the total of all assets owned on the valuation date, less the total liabilities on the valuation date, less the net value of the party’s property on the date of marriage, and less the value of excluded property, if any. A negative NFP will remain 0, since it cannot be negative. Except in rare occasions where circumstances warrant otherwise, the Court must make an order to equalize the parties’ NFPs. What this means is that the party with the higher NFP will be ordered to pay the party with the lower NFP approximately half of the difference between their NFPs.
Attention should be paid to specific types of property. Certain assets appreciate or depreciate over time. When reporting the value of an asset on a particular date, the fair market value is used, not the purchase price or replacement value. If the asset is jointly owned, the party’s percentage interest in the asset must be reflected. If the asset has no market value or you are claiming beneficial interest in property that is not legally yours, full details must be provided. Documents that establish value, ownership and timing, such as: deeds, leases, or appraisal documents are critical. A professional or expert may be required to verify the value of a specific asset.
Any interest in land, including any leasehold interests, registered interests, contingent interests and beneficial interests, must be disclosed in the Financial Statement. The value should reflect the party’s share of the market value on the applicable date, without deduction for encumbrances such as mortgages, or disposition costs. The “Matrimonial Home” refers to the dwelling that the parties ordinarily occupied as a family at separation and there can be more than one. Special rules apply to the Matrimonial Home. In particular, married partners have different rights of possession of the Matrimonial Home than common law partners.
Disclosing bank accounts, savings, securities and pensions can seem invasive, but it is required for calculating a party’s NFP. Even if the account is not being actively used, was closed during the marriage, or was opened after separation, it must be disclosed. Bank statements must be provided for the date of marriage and the date of separation (or “valuation date”); those for today should be provided as a reference. Old account records can usually be obtained through online banking or from a financial institution for a fee. It is important to indicate the type of account and whether it was jointly owned. For jointly owned accounts, list half of the value for the relevant date and include the full amount under “Description”.
For shares, stocks, bonds or other investments, the full, pre-tax fair market value must be disclosed. All stock options must be disclosed, even if unvested. You should indicate in your Financial Statement if a value is unknown or indeterminable. An accountant may need to be retained for valuation purposes. Pension valuation can be tricky because the value may exceed the contributions of the employer and employee. Generally, the value of a pension is the present value of an expected future stream of income. It is important to note that taxes are not deducted from pension valuation at this stage. While pension administrators can assist in providing valuations, a professional valuation may still be required in some situations.
When disclosing life and disability insurance, a party should only list policies that he or she owns. All group insurance policies must also be disclosed. If the policy is owned by the opposing party, it should not be listed. If it is a whole life policy, the cash surrender value must be indicated. Any loans against the policy will reduce its cash surrender value. If the policy is for a term, you must indicate the face value.
Excluded Property
If you intend to exclude or deduct a particular asset, it must be included in the appropriate category. Later in the Financial Statement, you will exclude or deduct the value and it will not be calculated into your NFP. The scope of Excluded Property includes:
- Property, other than a matrimonial home, that was acquired by gift or inheritance from a third person after the date of the marriage.
- Income from property referred to in paragraph 1, if the donor or testator has expressly stated that it is to be excluded from the spouse’s net family property.
- Damages or a right to damages for personal injuries, nervous shock, mental distress or loss of guidance, care and companionship, or the part of a settlement that represents those damages.
- Proceeds or a right to proceeds of a policy of life insurance that are payable on the death of the life insured.
- Property, other than a matrimonial home, into which property referred to in paragraphs 1 to 4 can be traced.
- Property that the spouses have agreed by a domestic contract is not to be included in the spouse’s net family property.
- Unadjusted pensionable earnings under the Canada Pension Plan.
Completing a Financial Statement can be complicated. It is always a good idea to review it with a family law lawyer to ensure it meets the required standards. If you need assistance with your financial statement or family law issues, feel free to contact our office at (416) 800-7196.