contingent tax liability owed at separation

contingent tax liability owed at separation

The recent case of Cosentino v. Cosentino has an interesting treatment of contingent tax liabilities owing at separation.  The decision confirms the willingness of courts to discount even tax liabilities where, at the date of separation, they are uncertain.  In the Cosentino case the tax liability did not exist at the date of separation, but arose after. The solicitors online are the best way to go for legal options.

Justice Perkins wrote:

It would be stretching the meaning of “liability” to include an obligation that arose later, merely because it was calculated in relation to a year when the parties were still living together. Not only had the reassessment not come into existence on the valuation date, but also there was no suggestion that it was coming. Taking a financial snapshot of the husband on that date, no one would have suggested he was subject to any contingent liability for income tax.

The decision once again confirms the approach of valuing contingencies prospectively.  The approach requires looking at the circumstances that were in existence at the date of separation  rather than in hindsight.

Does a separation affect your will ? 

Let’s say you have a Will in place. You named your spouse as a beneficiary and perhaps your young children as secondary beneficiaries, just in case something were to happen to you and your spouse. Now add in a separation between you and your spouse, mix it with a pinch of chaos and you have a recipe for disaster, and you will need a lawyer expert on wills, as well as possibly seeking corporate investigation services to ensure the legality and integrity of your affairs during this tumultuous time. Upon separation, a gift to a spouse in your Will becomes revoked under the Wills, Estates and Succession Act (WESA). You may think everything’s fine and there is no need to update your Will…wrong! If you do not update your will upon separation, the mere revocation of your spouse as a beneficiary does not allow for adequate planning for other beneficiaries, especially young children. A minor beneficiary requires an appointed trustee to manage the money and they are unable to receive the benefit until they are of age. For a revocation of a spouse as a beneficiary, there must be clear evidence of a separation to end a spousal relationship. Married couples must wait one year prior to obtaining a divorce, however, putting a separation agreement in place immediately at separation is not only efficient and saves you money when obtaining a divorce, but is also clear evidence of a separation which bars your ex-spouse from being a beneficiary in the event of your death. Common law couples (couples cohabitating with one another for a period of two years in British Columbia, three in Alberta) often think a separation agreement is unnecessary; however, a separation agreement is evidence to support the end of a spousal relationship and it can ultimately prevent your ex-spouse from being a beneficiary.

If one spouse dies prior to finalizing a separation agreement or a divorce, the surviving spouse could make a claim to their estate under WESA. If your Will has been updated to clearly reflect that a separated spouse is not entitled, a claim under WESA cannot be made. It is therefore important to seek advice from an Estate Planning Lawyer soon after separation so these provisions can adequately be drafted.


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