Skip to content

Free and Clear? Understanding Contingent Disposition Costs

December 28, 2021


Free and Clear? Understanding Contingent Disposition Costs

In this blog, we focus on possible contingent disposition costs upon sale of a company’s assets.

(Originally Posted January 15, 2019) 

Often, slow and steady wins the race. After years of saving, it isn’t unusual to have acquired a family cottage, retirement savings in your RRSP, investments accumulating in your business, and a rental property on the side.

But if you withdraw the $1,000,000 from your RRSP, will you be left with the whole $1,000,000? If your real estate agent recommends a selling price of $400,000 for your rental property, are you free and clear for the $400,000 upon closing? Between real estate commissions, investment commissions, legal fees, income taxes, and disposition costs may reduce your proceeds more that you might expect.

Although planning for taxes, commissions, and other disposition costs is important when planning your future cash flow, it’s equally important when equalizing property in a matrimonial dispute. If the goal is an equitable splitting of assets between spouses, then it’s important to understand and account for which assets may lead to future disposition costs.

Common Contingent Disposition Costs

Just as there are seemingly endless types of assets, there are a wide variety of disposition costs associated with those assets. From the common income tax to the less common land remediation fees, it’s important to consider what future costs are likely to be incurred upon selling your assets. We discuss two common disposition costs below:

Income Taxes

As one of Benjamin Franklin’s certainties in life, income taxes seem almost inevitable. A few common sources of disposition-related taxes are:

  • Capital gains – from selling an asset for more than the original cost (a few common exceptions are principal residences, TFSA investments, and certain small businesses, farms and fisheries)
  • Dividends – from paying cash out of a corporation
  • RRSP or pension income – from withdrawing funds from a RRSP or RRIF
  • Recaptured capital cost allowance – from some circumstances where an annual capital cost allowance has been claimed

Because of the tax differences, for example, a $500,000 principal residence (which could be sold tax-free) is not the equivalent to a $500,000 cottage (which may have taxes upon disposition) for matrimonial equalization purposes.


Typically paid to the individual that sells your assets on your behalf, commissions can be substantial and are often based on a percentage of the selling price. A few common commissions are:

  • Real estate commissions paid upon the sale of land and buildings
  • Deferred sales charges paid to investment advisors on the sale of some investments
  • Broker fees paid to the advisor that sells your business

Regardless of the type of disposition costs, it’s important to factor the expected costs into the matrimonial equalization.

Timing of Disposition Costs

When looking at disposition costs, timing is everything. A previous Davis Martindale Blog (Money Now vs. Money Later), discussed how $1,000 today is more than $1,000 a year from now. Likewise, disposition costs of $75,000 today is substantially more than the same $75,000 costs that will be incurred 20 years from now.

In a matrimonial context, the timing of a future disposition is often unclear. It could be sold immediately or upon death, or at any time in between. In determining what portion of the disposition costs to factor into your equalization calculations, there are three possible options:

  1. Include the full cost, because the cost is expected to be incurred immediately.
  2. Don’t include the cost, because either the costs will be incurred so far in the future that they are immaterial, or because tax planning will be used to defer the costs.
  3. Somewhere in between, because disposition will occur at some point between the immediate present and the distant future. This is discretionary and dependent on specific circumstances. If the expected timing can’t be reasonably determined, a middle ground inclusion of 50% of the costs is sometimes used.

Disposition costs can result in a substantial reduction of proceeds resulting from a sale of assets. Whether currently engaged in a sale, planning for the future, or determining a fair and equitable matrimonial settlement, it is important to have an informed understanding of the potential disposition costs.

If you would like to discuss the potential costs in your situation, please contact the experts at Davis Martindale.