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7 Ways To Protect Your Assets Before Your Divorce
Step #5: Buy life insurance. Life insurance proceeds are excluded from the calculation of your net family property. You can use this fact to convert property that must be included in your net family property to create an exclusion. By purchasing life insurance on others -- such as your parents, grandparents or business partners -- you make a long-term investment in assets that you need not share with your spouse if you separate or divorce.
Step #6: Enhance excluded property. Let's assume you have kept your excluded property separate from your other property. If you can enhance the excluded property, you should use non-excludable funds to enhance it. For instance, if you use your inheritance to purchase real estate (no, not a matrimonial home!), you should make any improvements to the real estate with non-excludable property. Since the improvements become part of the real estate, they remain excluded property. As a result, you have transformed property that is included in your net family property to property that is excluded from your net family property. This will reduce any equalization payment you would be required to make if you separate or divorce.
Step #7: Use a marriage contract. A marriage contract is the best way to protect your assets from divorce. If you're entering a second marriage, or if you have substantial assets, you may not like the way the law divides your assets when you separate. By entering into a marriage contract, you and your spouse agree in advance on how you will divide the assets if you divorce.
The problem is, not every spouse will enter into a marriage contract. Negotiating a marriage contract can put a strain on even the best relationships. What's more, family law sets specific limits regarding what you can put into a marriage contract. And if the agreement is not properly drafted by an experienced family law lawyer, it may not stand up in court.
One note of caution. You should take these steps to protect your assets from divorce long before your marriage starts to deteriorate. If you take any of these steps on the eve of a separation, the court could find that you acted in an unconscionable manner. As a result, the court could award your spouse a larger share of the property.
In addition to these techniques, your family law lawyer can suggest more sophisticated methods to protect your assets from divorce that involve the use of corporations and trusts. These techniques can be complicated and may be used only in certain situations. So make sure you discuss other planning methods with your divorce lawyer.