All is Not What it Seems: Wealth and Divorce

You may be surprised to learn that many of your seemingly wealthy neighbours are not wealthy at all. They are simply part of a burgeoning group of North American families who live beyond their means. They may have all the outward signs of success: expensive cars, designer wardrobes, extravagant vacations, and upscale homes, but the reality is they owe money to everyone and live in a state of perpetual angst.

When they face an unexpected event, such as the loss of employment, the collapse of a business, a devastating illness, or a divorce their house of cards collapses. What I have seen in almost three decades of working with families in crisis is how often spouses are unaware of mounting debt and overspending, until it is too late. Most frequently the debt is consumer credit loans and unpaid personal and corporate income taxes, together with punishing interest payments and in respect of taxes, penalties and fines owed.

It can be a terrible shock to live in a splashy area of town in a million dollar home only to realize that your husband or wife has remortgaged the property multiple times to support a heavily leveraged lifestyle, and the boat, ATV’s and snowmobiles are owned by the bank!

A recent case in Britain is emblematic of court hearings across the country where apparently prosperous husbands and wives split up, agree to sell assets, pay debt, and share the proceeds, but the sinking economy negates all the good intentions.

A businessman in London made a fortune in the mining industry and was obliged to pay his wife $2 million dollars. He immediately paid her $1.375 million in 1999 and the balance was to be paid over time. But he never did pay her the remaining amount. After several futile court appearances, she asked the judge to order her ex-husband to pay what he owed together with interest for the past 17 years or be sent to prison. The man lived in an expensive rented apartment but insisted he was penniless, deeply in debt, and was relying on housing benefits for the poor, and the charity of his friends and his synagogue.

His ex-wife, of course, argued that her ex-spouse’s alleged circumstances were an elaborate façade meant to deprive her of her rightful entitlement and that he should pay or be sent to jail. The judge sympathized with her, particularly acknowledging that without the funds she may lose her home, but pointed out that there was no evidence that he had any hidden assets or secret funds. The Court declined to order a jail sentence finding that he had no current ability to pay her.

How can a spouse protect herself from a scenario like the one above? Clearly, it would have been best if this lady had received all she was entitled to upfront, but often that is not possible. If the remaining monies had been secured by an asset retained by the former husband that would also have assisted, but again circumstances do not always permit that and judges in British Columbia have been reluctant to encumber a spouse’s share of the property to protect the other spouse. A life insurance policy on the husband only helps if he dies, while still owing monies.

Most frequently this problem of collecting monies after the divorce arises in cases where a spouse has a long-term obligation to pay spousal support. Many spouses fail to realize that if they agree or are ordered to pay support, it will be most difficult to escape the obligation and unfortunately, there are spouses who create situations where they appear to be impecunious. Lump-sum support is one solution but again, judges are loath to order a spouse to give up their capital to pay spousal support.

The lesson to be learned is that spouses must insist on being aware of how family finances are handled during the marriage and that upon divorce a “bird in the hand may be worth two in the bush.”

Lawdiva aka Georgialee Lang

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