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March 6, 2019 - DISRUPT DIVORCE
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Diaries

Costs of Divorce

Anecdotally there is an embedded bias with any litigator, family lawyers included. They are paid and continued to get paid so long as they are working on a file. There is therefore the implicit disincentive to resolve the matter, as the longer the dispute or fight lasts, the longer they will get paid. It is counter intuitive. I left a domestic violence marriage which left me, for a short time, homeless, jobless, and without money. My spouse was a well-known member of the community and have significant funds. Notwithstanding the circumstances that led to the end of our marriage, I spent $300,000 over the course of 5 years incurring significant debt to simply fund litigation. I came out of the marriage without support, without court ordered custody (I do have “de facto” custody). He still remains in our marital home, and owns our other properties. The money I spent brought no resolution and I could not afford to go to trial to try to get some form of equality or equity. I am an educated woman who does understand the law, and yet the traditional process absolutely failed me and left me handcuffed to continued participation.

 

In too many divorces there is a power imbalance between the spouses, be it financial, stature, ability to provide or work. The traditional litigation process does not seem mindful of this. Often one or both spouses cannot continue to pay for a lawyer and fund the fight and any funds to divide go to legal fees. It can take upwards of 3 years to book a trial in Alberta, 2 years for a “special” or mini half-day trial. Waiting for trial forces everyone into a state of limbo. Assets may be frozen, custody and support unresolved. Too often the fees and eventual division of assets becomes more likely a division of debt, and at times a bankruptcy by one or both parties. An alternative dispute resolution model could expedite this process and hopefully mitigate the financial drain.

 

A male colleague of mine, after spending a substantial amount of money on legal fees with two different lawyers, agreed to a fixed fee with his third lawyer. The fixed fee was in excess of $100,000. The day before the trial to finalize support and division of assets (custody was not in dispute), the lawyer advised him that without an additional $100,000 he could not possibly go to trial as the matter was “complicated”. The litigation process took 7 years to resolve during which time all of his assets had been frozen. The total legal fees spent by my colleague was over $1 Million. Had my colleague and his spouse taken a different course, out of court, all matters could have been resolved at a fraction of the cost and time.

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Diaries

Anecdotes from a mediator:

In my many years working in personal bankruptcy, I unfortunately saw a lot of bad behaviour and further abuse of an income power imbalance.  In one instance a husband, who ran his own business, intentionally issued T4 slips in his wife’s name without her knowledge.  This allowed for large tax deductions in his business as he reported a large salary going to his wife.  It was 3 years before the wife realized that this had happened, beyond the ability for her to dispute/challenge CRA for the tax assessment.  She only realized what had happened when the CRA registered a writ on the tile of her house and froze her bank account for unpaid taxes which were in excess of $600,000. Adding further pain to her situation, her husband was jointly on title for the home and refused to consent to a sale of the home which would have allowed her to pay off the debt.  In this case our only option was to have her make an assignment into bankruptcy and go to  court to get an order permitting her to sell the house without the husband’s consent. The Trustee in Bankruptcy was able to do this at no cost to the wife as the Trustee obtains their fees from the recoveries of an estate, not directly from the bankrupt.  The woman was able to move on and obtain a discharge from bankruptcy 9 months later but her credit rating suffered significantly through no fault of her own.

 

Another common occurrence in bankruptcy is jointly held debt and assets.  If one of the spouses has co-signed a loan or provided a personal guarantee to a lender, something that happens in most cases in relation to owner managed businesses, both spouses are jointly and severally liable for the debt.  The bank, or car dealership does not care if the spouses have separated or divorced.  One spouse can recklessly spend and create debt knowing that his or her spouse will get saddled with the liability. If one spouse then declares bankruptcy, the lender will chase the non-bankrupt spouse for repayment of the debt or recovery of the asset. 

 

Finally, many times one of the spouses is aware that they will be leaving the marriage before announcing it.  The exiting spouse may take several months planning the exit and redistributing assets, taking money out of companies, bank accounts, setting up new accounts in other names or in other countries.  In this case the trail of money has to be followed and almost exclusively would be done by an accountant, not a lawyer.  The value of shares in companies or other assets may be intentionally diminished in order to limit exposure to the other spouse when dividing assets.  Depending on the nature of work, one spouse may intentionally try to show their income is drastically reduced or even non-existent in order to limit the amount of support they have to pay the other spouse. One of the spouses may intentionally file for bankruptcy in order to avoid paying a spouse. When one spouse files for bankruptcy and there are assets, the Trustee must then assess the estate and distribute to the non-bankrupt spouse.  

 

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