Not All Assets are Created Equal: Thoughts from a Wealth Manager

Guest Post: By Faisal Karmali

Imagine this. 

After giving it a lot of thought, you have decided to get divorced. You have engaged a lawyer. You have taken an inventory of your assets - such as property, savings, investments, vehicles, and personal items - and you are beginning the process of splitting them with your former partner.

For the sake of simplicity, let’s focus on two main assets: your family’s home and a Registered Retirement Savings Plan (RRSP). Each asset is worth exactly $1 million. Here is the question: if given the choice, which asset do you want to retain in the divorce?

Before making your decision, it is important to recognize that not all assets are created equal.

Broadly speaking, assets can be separated into two categories: liquid and illiquid.

Liquid assets are those that can be quickly converted into cash. Common examples include bank accounts and investments (e.g. stocks, bonds, mutual funds). These assets are typically easier to divide between both parties.

Illiquid assets take more time and effort to convert into cash and may lose more of their value in the process. This category includes property, businesses, and even your 1952 Mickey Mantle baseball card. These assets tend to be more challenging to divide and their value may be more subjective.

Your home is an illiquid asset. If you decide that you want to retain it, you may need to buy out your former partner, which could require taking on a substantial mortgage or giving up other assets in the divorce settlement. This decision could impact your liquidity, making it difficult to access cash for your immediate financial needs. You also need to consider the ongoing cost of maintaining the house, including property tax, insurance, maintenance, and utilities. These expenses can put a strain on a post-divorce budget.

RRSPs are more liquid than real estate. If you decide to keep this account, you will be able to access the funds relatively easily. However, using your RRSP for short-term cash needs may come at the expense of your long-term financial security in retirement.

Keep in mind that while investments like what you hold in an RRSP may be easily converted to cash, selling them will incur either a loss or a gain depending on how the investment has performed since you have held it. Before completing any transactions, it is a good idea to speak to your investment advisor as well as your tax advisor to discuss how these decisions fit into your overall strategy.

Aside from liquidity, there are other important factors to consider:

  1. Tax implications - while the house and the RRSP are of equivalent value, the Canada Revenue Agency views them very differently. If you retain the house, there is typically no tax on it until you decide to sell and you realize a capital gain. Even then, if the property was your principal residence for every year that you owned it, you will not have to pay tax on the gain. If you choose the RRSP, the CRA will view any withdrawals made as taxable income and take their portion.

  2. Income - if you anticipate having immediate cash flow needs post-divorce, it often makes sense to select the asset with greater liquidity, which in this case is the RRSP. However, it is also important to consider future income potential. For example, your home may have a basement suite that could be rented out for extra income if necessary. While the RRSP may be able to provide some cash flow now, its primary purpose is to provide income in retirement. Dipping into the account now could potentially cripple your ability to support yourself in retirement.

  3. Appreciation potential - many assets have the potential to increase in value in the future. For example, stock options, businesses, or even artwork may become more valuable over time. ‘How much will this asset be worth in the future?’ is a question that you should be asking when dividing marital assets in a divorce.

    When it comes to choosing between the two assets in our example, both the RRSP and the home could increase in value. While it is difficult to determine what the housing market, the stock market, or the economy in general will look like at any point in the future, it is worthwhile seeking out the advice of a professional.

  4. Emotional value - certain assets will have sentimental or emotional value for one or both partners, which may make dividing them more contentious. In our example, the family home is likely the asset with the most emotional value. It may be the first house you ever purchased or the place you brought your children home from the hospital. Deciding which partner will retain an asset that has such strong memories and positive associations will be understandably emotional; however, I would caution anyone against letting emotions cloud their judgement.

    Many of the clients that I have worked with during their divorce fall into one of two categories: either they are angry and want to take everything they can, or they want a clean slate and do not want to keep anything associated with their former partner. Do not fall into either trap. Emotional value is important, but not at the expense of supporting your lifestyle in the future.

    If you decide to keep the house, will you be able to pay the associated bills on a single income? Will it cause undue strain and prevent you from being financially stable?

When it comes to dividing assets in the event of a divorce, there is no one-size-fits-all answer. It is rarely as simple as choosing between a house and an RRSP. As you add more assets and another person into the picture, the complexity only increases. You must look at your entire situation. What are your personal and financial priorities? Do you have a reliable source of income, or do you need additional cash flow? What does your tax situation look like? Which assets will help you meet your current needs?

It is also important to consider the future. What do you want your life to look like post-divorce? Which assets will help you achieve that vision?

Speaking to a financial advisor, especially one who specializes in divorce, can help you evaluate your current situation, determine what your post-divorce finances could look like, and identify the assets that will help you continue to live the lifestyle you want. Arming yourself with that information can help mitigate the emotion attached to certain items and negotiate for the assets that will help you move forward.


Faisal Karmali is a senior wealth advisor with the Popowich Karmali Advisory Group, media personality, and business and market expert for QR Calgary and CTV. As a portfolio manager, he has dedicated his career to helping people improve their financial security as they prepare for and live in retirement.

Understanding the nuances of asset division in a divorce can be complex and emotionally taxing. At Crossroads Law, we recognize that each asset holds unique financial and emotional significance in your life. Our team of seasoned family lawyers, working in collaboration with financial experts, can provide comprehensive guidance tailored to your specific circumstances. Whether it's evaluating the liquidity of your assets, understanding tax implications, or balancing immediate financial needs with long-term security, we are here to support and empower you. Don't navigate these critical decisions alone.

Contact Crossroads Law today to schedule your free 20-minute consultation and let us assist you in securing a future that aligns with both your financial goals and personal well-being.

The information contained in this blog is not legal advice and should not be construed as legal advice on any subject. The information provided in this blog is for informational purposes only.