When a married or common-law couple in British Columbia decides to go their separate ways, it may be wise for each party to retain legal counsel to provide guidance during negotiations. Division of property can be a complicated process, and ignorance of tax and other laws may have unanticipated consequences. An experienced divorce lawyer can explain the tax implications of any monetary offers made by the other party.
A woman recently asked a question about the tax consequences of accepting a cash settlement offer from her former husband. She wanted to know about her tax liability on such a settlement, and whether her ex could use it as a tax deduction. The Real Property Tax Act governs transfers of property between spouses, and the Canada Revenue Agency enforces it. Furthermore, the laws of the various provinces and territories vary with relation to equalization or division of marital property.
Any cash settlement offered for marital property or equalization will not be taxable for the receiver or tax deductible for the giver. The same will apply if it was offered as a lump sum payment for support. However, documenting any payment made during a divorce or separation is best recorded in a legal separation agreement.
This is a complicated field of the law, and securing the support and guidance of an experienced British Columbia divorce lawyer can prevent unanticipated complications. A skilled legal representative can explain the tax implications of any settlement amounts paid or offered during the division of property. The attorney can also document the payments in a separation agreement in a manner that complies with the requirements of all applicable laws.
Source: moneysense.ca, “Do I need to pay tax on my divorce settlement?“, Debbie Hartzman, Jan. 20, 2017
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