Divorce and Financial Planning
American born Heidi Blair Montag is best known for starring on the former MTV reality seriesThe Hills. During The Hills, Heidi began dating then-cast member Spencer Pratt. In November 2008, the couple eloped in Mexico, though they later married in the United States in April 2009. In July 2010, Heidi filed for divorce, after fifteen months of marriage to Pratt.
As Heidi embarks on launching her new reality show, there are allegations that this sudden split may simply be a ploy for media attention and publicity. However, despite, the legitimacy of their separation, one matter worth discussion is whether the timing of the application for divorce bears any fiscal benefit for Heidi. In particular, Spencer was served with divorce papers only days after receiving his last cheque for $675,000 from MTV and right before Heidi's new show hit the air.
Family Law in Ontario
In Ontario, upon the dissolution of a marriage, the equal contribution of each person to the marriage is recognized. The law provides that the value of any kind of property that was acquired by a spouse during the marriage and continues to exist at separation must be divided equally between the spouses. Also, any increase in the value of property owned by a spouse at the date of marriage must also be shared. The payment that may be owed to one of the spouses in order to effect this sharing is called an equalization payment, or an equalization of net family property.
There are some possible exceptions to these rules, which are called excluded property and are made up of the following:
- Property, other than the matrimonial home, that was acquired by gift or inheritance from a third party after the date of 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 for personal injuries, nervous shock, mental distress or loss of guidance, care and companionship;
- Proceeds of a policy of life insurance that are payable on the death of the insured;
- Property, other than the matrimonial home, into which property referred to in paragraphs 1 to 4 can be traced; and
- Property that the spouses have agreed by a domestic contract to not be included in the spouse's net family property.
Married spouses are at liberty to opt out of the property sharing regime imposed by the Ontario Family Law Act. They can do this by way of a marriage contract under which the spouses agree that they will not share property or that they will share property in a defined manner. However, in the absence of an arrangement for the division of their assets upon separation, in Ontario, the statutory regime prevails.
Application of the Law to the Facts
Assuming that Heidi and Spencer have not outlined their respective rights and obligations upon separation in a marriage contract, the question becomes if Heidi has wisely applied for a divorce immediately after Spencer was in receipt of his last paycheck and prior to her new reality show developing into the giant hit it is forecasted to be. That is, as per the Family Law Act Spencer's remuneration from MTV must be included into his net value at the date of separation while any earnings from Heidi's potential hit show remain safe from the equalization payment calculation.
Considering that both Heidi and Spencer starred in the MTV show together, it is likely that there is not a vast difference in their respective net family property (NFP). Therefore, it is most likely not the case that the separation has resulted in a financial windfall for Heidi. However, let us hypothetically consider the situation where soon after their separation, Heidi's show becomes a huge hit. The latter scenario naturally gives rise to the question of whether Spencer would have any entitlement to Heidi's post separation earnings.
Assuming Heidi has no ownership in her new show, in Ontario, the issue of earnings is dealt with through spousal support. From a legal perspective, spousal relationships are considered to be financial partnerships. Thus, on the dissolution of such a relationship, the person with the greater income or assets may have to pay support to the other. At the same time, however, the law expects adults to be self-sufficient and responsible to meet their personal needs to the best of their abilities.
To decide on quantum of spousal support and the duration for which the obligation persists, the law states that judges must consider a number of factors, including the parties assets, incomes, ages, health, standard of living, ability to be self-sufficient, length of marriage, and more.
Essentially, a judge will consider all economic factors that affect each party, paying special attention to the effect of the marriage and the divorce on the parties' financial circumstances, and will then try to apportion the family income in a just manner between the spouses.
Advisory Spousal Support Guidelines are available to assist parties in determining an appropriate amount of spousal support to be paid. If the parties engage in legal proceedings, the court is at liberty to consider these guidelines in establishing how much spousal support should be paid, but the guidelines are not binding.
In this case, in view of the fact that both Heidi and Spencer were meaningfully employed upon the dissolution of their short-lived marriage, the fact that their were no children of the marriage and that both are likely to have sufficient capital, the court is likely to find that Spencer is not to be in need of spousal support.