In an increasingly global world, it is becoming more common for separating partners to hold assets outside of Canada. This can include vacation homes or inherited property abroad, as well as foreign investment accounts and business interests incorporated in other jurisdictions. These kinds of assets can complicate disclosure obligations, equalization, and tax considerations in a divorce. It is important to note that Canadian courts do not have jurisdiction to decide title of out-of-country property or force you to sell your foreign assets, however, their value will likely be factored into equalization calculations.
Disclosure Obligations
Pursuant to Ontario’s Family Law Act, each spouse has an obligation to provide compete and honest financial disclosure, which is inclusive of all assets owned at the date of separation, regardless of where those assets are situated. Failure to disclose such assets can result in legal consequences outlined in our blog: “What Happens If One Spouse Hides Assets During Divorce?” If there is suspicion that a spouse is hiding foreign assets, lawyers may request tracing, forensic accounting, or court-ordered disclosure.
Valuation of Offshore Assets
In the equalization process, it is necessary to value all assets at a fair market value at the date of separation. Although this may not be too troublesome to discern in Ontario, values of some foreign property and assets can be more difficult to access for reasons such as fluctuating currency exchange rates, non-standardized appraisal processes, and challenges in proving ownership. Valuation disputes regarding foreign property can be even more expensive and time-consuming than usual. It is good practice to obtain foreign documentation promptly and to be co-operative when it comes to obtaining professional valuations.
Tax Implications
It is also important to consider tax consequences in cases where foreign properties are sold as part of an agreement or to satisfy an equalization payment. For example, Canadian residents may owe capital gains tax to the Canadian Revenue Agency (CRA) and an additional tax to the foreign country in which the property is situated. This would result in double taxation unless a tax treaty provides relief.
Additionally, Canadian residents must report all income even if it is earned outside of the country. This can include foreign rental income, dividends from offshore corporations, and gains on foreign investments. If a spouse has failed to report such income over the course of several years, the divorce process may expose that income which can raise the possibility of CRA audits or penalties.
How We Can Help
Handling offshore assets in an Ontario divorce may require extensive coordination between many professionals such as accountants, foreign legal counsel, valuation professionals, and international tax experts. An experienced lawyer can ensure completeness of financial disclosure by identifying hidden or complex international assets while coordinating valuations and corresponding with foreign counsel.
Just because an asset is located outside of Ontario, it does not mean that it is excluded from the Ontario family law process. Obtaining legal advice and proper documentation can assist with the added complexity of cases involving foreign assets. If you or your spouse hold property or other assets overseas, consulting a family lawyer can save you significant time, money, and stress in the process.