As inflation, interest rates and rising costs affect divorces, lawyer advising not to waste assets

Inflation, interest rates, and the rising cost of living are cranking up the emotion in some high-conflict divorces. When a high level of animosity between parties breeds pettiness and vindictiveness, sometimes they will intentionally waste or lose assets, just so that they can deny them to their former spouse. This can be done through gambling, reckless business ventures, and other methods.

Ontario courts have the discretion to adjust the equalization calculation of the marital estate to account for one side’s intentional or reckless depletion of net family property. To do this, the asset-wasting must rise to the threshold of unconscionability.

In tough economic times, when family assets may not be worth what they were a short time ago, Shulman & Partners LLP family lawyer Kevin Caspersz tells Law Times why parties do not want to take the risk of purposely depleting assets.

How are rising cost of living and inflation impacting divorce proceedings, generally?

It just complicates things more. For example, the inflation. People are concerned with costs. When you're splitting up a household, it's going to be harder for everyone to make ends meet, because operating two households is much more challenging, financially, than operating a single household.

Interest rates, and depleting values of homes is an issue because people are disposing of properties, or one party is trying to buy the other out. If they're selling it, for example, they might not be garnering as much as they were expecting.

With interest rates and inflation, parties who were hoping to get financing may not be approved for financing with increased mortgage rates.

When it comes to high conflict divorces where parties intentionally lose or waste assets just to deny them to a spouse, does this happen often? What does this typically look like?

The breakdown of a relationship, the breakdown of a marriage, is very personal. There's going to be emotions involved, and if a litigant is not checking those emotions, consciously or subconsciously, those emotions can drive their conduct.

Whether it is being unreasonable in dealing with the separation, in negotiating, or litigation – they may just seek to punish the other party because of those feelings.

So, where you have these underlying emotions, parties, in an effort to punish the other person, take the approach of “Well, if I can't have it, then nobody's going to have it.” And especially not the other party.

They're going to try and dissipate those assets that are subject to division of the net family property in an effort to punish the other party.

Now, if someone is intending to do that, they would be pretty foolish to do it in a way that is obvious. If you go out and just start dissipating the assets, blatantly, that's going to be pretty easy to see. It's going to be taken into account by the court.

It does have to rise to a pretty high standard of intent. It has to be an intentional or reckless depletion. It can't just be that a party went out and spent a couple thousand dollars. It has to be considered unconscionable by the court. And at that point, the court will consider whether, in the interest of equity, one party should receive a larger portion of the net family property than the other.

What would the result be for the party doing the depleting?

They could end up with less than what they were initially entitled to.

Under the Family Law Act, there needs to be a division of property, and there needs to be an equalization of that net family property. Net family property is calculated as the accumulated assets less the accumulated debts, from the date of marriage to the date of separation.

Whatever that number is, that's generally going to be divided by half. Whichever party has more is going to pay, in order so that both parties walk away with half of that net family property. That's generally how it's done, 50-50.

If the court finds that there's a reckless or intentional depletion of that family property that rises to the level of unconscionability, which is a specific legal test, then the court is going to be exercising discretion to award what's called an unequal division of the property, such that the party that depleted those assets is not going to get the 50 percent that they might have otherwise been entitled to.

What else can you tell me about this issue?

Generally, I find that people who are in that situation retain counsel and counsel are very good about advising them about the dangers of this, and the repercussions of it. So, you don't often find parties that engage in this kind of conduct.

But when it is done, it has to be done to a certain degree, and the court is certainly not hesitant to punish a party that has dissipated assets to that level that would satisfy awarding an unequal division of net family property.

*Answers have been shortened for length and clarity