Basic Principles of Property & Debt in Family Law

From Clicklaw Wikibooks

Under the Family Law Act, spouses who are married or who lived together in a marriage-like relationshipIn family law, the quality of an unmarried couple's relationship that demonstrates their commitment to each other, their perception of themselves as a couple and their willingness to sacrifice individual advantages for the advantage of themselves as a couple; a legal requirement for a couple to be considered spouses without marrying. See "cohabitation," "marriage" and "spouse." for at least two years are entitled to share in the propertySomething which can be owned. See "chattels" and "real property." they acquired during their relationship, and to keep any property they each brought into the relationship. The same thing goes for debtA sum of money or an obligation owed by one person to another. A "debtor" is a person responsible for paying a debt; a "creditor" is the person to whom the debt is owed.. Spouses are equally responsible for the debt they accumulated during the relationship, but they are separately responsible for any debt that they had going into the relationship.

This all sounds pretty straightforward, but there are lots of details that can make the division of property and debt complicated.

This section talks about how property and debt are divided between spouses under the Family Law Act and how they used to be divided under the Family Relations Act, what property is shareable family propertyA term under the ''Family Law Act'' referring to property acquired by either or both spouses during their relationship and after separation, if bought with family property. Both spouses are presumed to be equally entitled to share in family property. See "excluded property.", and what property is excluded from division. It also looks at the role marriage agreements and cohabitation agreements can play in controlling the impact of the Family Law Act.

Introduction

The basic plan for the division of property and debt under the provincial Family Law Act is pretty straightforward. You keep what you bring into the relationship, and you split what you get during the relationship. Of course it's a lot more complicated than this, but that's the basic concept the actIntentionally doing a thing; a law passed by a government, also called "legislation" or a "statute." See "regulations." is built on.

Part 5 of the Family Law Act deals with the division of property and debt, and provides the definitions of family property and family debtA term under the ''Family Law Act'' referring to debt owed by either or both spouses that accumulated during the spouses' relationship and after separation, if used to maintain family property. Both spouses are presumed to be equally liable for family debt., the things that are presumed to be shared between spouses, and excluded propertyA term under the ''Family Law Act'' referring to property acquired by a spouse prior to the commencement of the spouses' relationship and certain property acquired by a spouse during the relationship, including gifts, inheritances, court awards and insurance proceedings. A spouse is presumed to be entitled to keep his or her excluded property without having to share it with the other spouse. See "family property," "gift," and "inheritance.", which is presumed to remain the property of the spouseUnder the ''Divorce Act'', either of two people who are married to one another, whether of the same or opposite genders. Under the ''Family Law Act'', married spouses, unmarried parties who have lived together in a marriage-like relationship for at least two years, and, for all purposes of the act other than the division of property or debt, unmarried parties who have lived together for less than two years but have had a child together. See "marriage" and "marriage-like relationship." who owns it. Part 6 of the Family Law Act talks about the division of pensions between spouses and says which portion of a pension is supposed to be shared and which parts remain the property of the pension member.

This section looks into the nooks and crannies of Part 5 of the act in some detail, but it doesn't say much about pensions because the division of pensions can be extremely complicated. For information about that, you should speak to a family law lawyerA person licensed to practice law in a particular jurisdiction. See "barrister and solicitor.". A pension can be a very valuable asset. It is important to include it when dividing property.

Standing

The people who are entitled to ask to divide property and debt are spouses, but not all spouses, just spouses who are married to each other or who have lived together in a marriage-like relationship for at least two years. Section 3 says this:

(1) A person is a spouse for the purposes of this Act if the person
(a) is married to another person, or
(b) has lived with another person in a marriage-like relationship, and
(i) has done so for a continuous period of at least 2 years, or
(ii) except in Parts 5 [Property Division] and 6 [Pension Division], has a child with the other person.
(2) A spouse includes a former spouse.

Unmarried spouses who have lived together for less than two years are not eligible to ask for orders about the division of property or debt under the Family Law Act. The rules about property that apply to these spouses and other people who aren't spouses are discussed in the first section in this chapter, under the heading "property claims and people who aren't spouses," and in the chapter Family Relationships in the section Other Unmarried Relationships.

Period of entitlement

Under s. 81(a) of the Family Law Act, spouses are presumed to each be entitled to an equal share in family property. Family property is defined at s. 84(1) as:

(a) on the date the spouses separate, property
(i) that is owned by at least one spouse, or
(ii) in which at least one spouse has a beneficial interest

The end date for the accumulation of family property is presumed to be the date of separationIn family law, the decision of one or both parties to terminate a married or unmarried relationship; the act of one person leaving the family home to live somewhere else with the intention of terminating the relationship. There is no such thing as a "legal separation." In general, one separates by simply moving out, however it is possible to be separated but still live under the same roof. See "divorce, grounds of.". The start date is the date the spouses' relationship begins, and is found in the definition of excluded property at s. 85:

(1) The following is excluded from family property:
(a) property acquired by a spouse before the relationship between the spouses began

The start date and the end date with respect to the accumulation of family debt is stated more simply in s. 86:

Family debt includes all financial obligations incurred by a spouse
(a) during the period beginning when the relationship between the spouses begins and ending when the spouses separate

As you can see, the date when "the relationship between the spouses began" and the date "the spouses separate" are very important. These are the dates that mark the end of acquiring excluded property and personal debt, the start of acquiring shareable family property and family debt, and the end of acquiring family property and family debt.

Date of cohabitation and the date of marriageA legal relationship between two persons, whether of the same or opposite genders, that is solemnized by a marriage commissioner or licenced religious official and gives rise to certain mutual rights, benefits and obligations. See also "conjugal rights," "consortium" and "marriage, validity of."

Section 3(3) says when a relationship between spouses begins:

(3) A relationship between spouses begins on the earlier of the following:
(a) the date on which they began to live together in a marriage-like relationship;
(b) the date of their marriage.

For married spouses, their relationship starts on the earlier of the date they began to live together in a marriage-like relationship or got married. For unmarried spouses, once the parties have lived together for two years, their relationship as spouses is considered to have started on the date they began to live together.

The date of a couple's marriage is pretty obvious. It isn't always so obvious when a couple "begins" to live together in a marriage-like relationship. The judgeA person appointed by the federal or provincial governments to manage and decide court proceedings in an impartial manner, independent of influence by the parties, the government or agents of the government. The decisions of a judge are binding upon the parties to the proceeding, and are subject to appeal. in a 2003 case from the Saskatchewan Court of Queen's Bench, Yakiwchuk v. Oaks, 2003 SKQB 124, expressed the problem this way:

"With married couples, the relationship is easy to establish. The marriage ceremony is a public declarationIn law, a pronouncement of the court about a fact or a state of affairs, such as a declaration that a marriage is void or that a person is the guardian of a child. Not to be confused with an order, which is a mandatory direction of the court requiring a party to do or not do something. See "order." of their commitment and intent. Relationships outside marriage are much more difficult to ascertain. Rarely is there any type of 'public' declaration of intent. Often people begin cohabiting with little forethought or planning. Their motivation is often nothing more than wanting to 'be together'. Some individuals have chosen to enter relationships outside marriage because they did not want the legal obligations imposed by that status. Some individuals have simply given no thought as to how their relationship would operate. Often the date when the cohabitation actually began is blurred because people 'ease into' situations, spending more and more time together. Agreements between people verifying when their relationship began and how it will operate often do not exist."

Hands up, anyone who has ever begun to "cohabit with little forethought or planning?"

The date of separation

Separation usually happens when one spouse decides that the relationship cannot continue, says so, and then takes steps to end the partnership-like qualities of the relationship, usually by stopping sleeping together, stopping doing chores for the other person, stopping going out together as a couple, and so on. Section 3(4) offers some guidance on when a spousal relationship ends.

(4) For the purposes of this Act,
(a) Spouses may be separated despite continuing to live in the same residenceThe geographic place where a person permanently lives. This is different from a person's "domicile" in that a person's residence is more fixed and less changeable in nature. A person's residence can also have an impact on a court's authority to hear and decide a legal action. See "domicile" and "jurisdiction.", and
(b) the court may consider, as evidenceFacts or proof of facts presented to a judge at a hearing or trial. Evidence can be given through the oral testimony of witnesses, in writing as business records and other documents, or in the form of physical objects. Evidence must be admissible according to the rules of court and the rules of evidence. See "circumstantial evidence," "hearsay," and "testimony." of separation,
(i) communication, by one spouse to the other spouse, of an intention to separate permanently, and
(ii) an actionA court proceeding in which one party sues another for a specific remedy or relief, also called a "lawsuit" or a "case." An action for divorce, for example, is a court proceeding in which the claimant sues the respondent for the relief of a divorce order., taken by a spouse, that demonstrates the spouse's intention to separate permanently.

It's easy to imagine that the date of separation could be argued about, especially if the spouses reconciled for a bit or if a spouse's commitment to ending the partnership-like aspect of a relationship wavered from time to time. In order to avoid spending money on lawyers arguing about this issue, you might consider documenting the date of separation in some way, perhaps by sending a letter or an email to your spouse stating your intention to separate. Do remember to keep a copy.

Time limits

Section 198(2) of the Family Law Act sets out some important time limits on when claims for the division of property and debt can be brought:

  1. married spouses must bring their claimThe assertion of a legal right to an order or to a thing; the remedy or relief sought by a party to a court proceeding. within two years of the date of their divorceThe legal termination of a valid marriage by an order of a judge; the ending of a marital relationship and the conjugal obligations of each spouse to the other. See "conjugal rights," "marriage," and "marriage, validity of." or a declaration annulling their marriage, and
  2. unmarried spouses must bring their claim within two years of the date of separation.

Under s. 198(5), however, the running of this time limit is considered to be suspended while the parties are engaged in family dispute resolutionA phrase referring to a family of processes used for resolving legal disputes including negotiation, collaborative settlement processes, mediation, arbitration and litigation. with a family dispute resolution professional. Both of these terms are defined in s. 1, and the running of the time limit will not stop if their dispute resolution process doesn't fall within the definition of "family dispute resolution" or if the spouses are not using the services of someone who falls within the definition of "family dispute resolution professional."

A partnership of acquests

The scheme for the division of property under the Family Law Act is technically described as a deferred partnership of acquests regime. Under the old Family Relations Act, property was divided under a deferred community of property regime. A "partnership of acquests" scheme for family property means that the spouses both own all of the property acquired during their relationship, whether the property is owned by one spouse or by both spouses jointly; our model is "deferred" because the right to an equal share in this property doesn't arise until the spouses have separated.

The Family Relations Act and the Family Law Act

Under the Family Relations Act, married spouses shared in all property that was "ordinarily used for a family purpose." This meant that you didn't need to look at who owned something on paper, how something was acquired, or whether property was acquired before or during the relationship; what mattered was how the property was used. For most couples everything they had wound up being ordinarily used for a family purpose in one way or another.

Under the Family Law Act, use is irrelevant. In fact that's exactly what s. 81(a) says:

spouses are both entitled to family property and responsible for family debt, regardless of their respective use or contribution

What matters now is when property was acquired and how property was acquired. Property bought before the spouses' relationship began is presumed to be excluded property; property bought during the spouses' relationship with excluded property is also presumed to be excluded property. Under a deferred community of property regime, both spouses are presumed to have an interest in all assets on the date of separation. Under a deferred partnership of acquests regime, the spouses are presumed to have an interest in only the assets they accumulated during their relationship on the date of separation, except for any assets brought with excluded property.

Transition provisions

The Family Law Act became law in British Columbia on 18 March 2013. All of the parts of the act about children and support applied to everyone right away, including people who were in the middle of a court proceedingA legal proceeding in which one party sues another for a specific remedy or relief, also called an "action," a "lawsuit" or a "case." A court proceeding for divorce, for example, is a proceeding in which the claimant sues the respondent for the relief of a divorce order.. However, under s. 252(2) married spouses who had started a court proceeding about the division of property or had an agreement about the division of property must continue under the old Family Relations Act as if it hadn't been cancelled, unless the spouses agree otherwise:

(2) Unless the spouses agree otherwise,
(a) a proceedingIn law, the whole of the conduct of a court proceeding, from beginning to end, and the steps in between; may also be used to refer to a specific hearing or trial. See "action." to enforce, set aside or replace an agreement respecting property division made before the coming into force of this section, or
(b) a proceeding respecting property division started under the former Act
must be started or continued, as applicable, under the former Act as if the former Act had not been repealed.

This rule only applies to married spouses because only married spouses could make property claims under the Family Relations Act; it is not possible for unmarried spouses to "start or continue" a claim under that act.

The division of family property under the Family Relations Act is discussed later on in this section.

Who gets what under the Family Law Act

The general rule about how property and debt are divided under the Family Law Act is found in s. 81:

Subject to an agreement or orderA mandatory direction of the court, binding and enforceable upon the parties to a court proceeding. An "interim order" is a temporary order made following the hearing of an interim application. A "final order" is a permanent order, made following the trial of the court proceeding or the parties' settlement, following which the only recourse open to a dissatisfied party is to appeal. See "appeal," "consent order," "decision" and "declaration." that provides otherwise and except as set out in this Part and Part 6 [Pension Division],
(a) spouses are both entitled to family property and responsible for family debt, regardless of their respective use or contribution, and
(b) on separation, each spouse has a right to an undivided half interest in all family property as a tenant in common, and is equally responsible for family debt.

The rest of Part 5 concerns:

  • the definitions of "family property" and "family debt," and what is excluded from family property,
  • the rules for how the division of property and debt are to be accomplished, and the exceptions to those rules,
  • orders for the division of property and debt, and the circumstances when the court can divide family property unequally or divide excluded property, and
  • agreements for the division of property when the court may set those agreements aside.

Family property and family debt

Family property is defined at s. 84(1) as all of the property owned by either or both spouses on the date of their separation. Family property includes property that is bought after separation with family property, for example if a spouse uses money from a joint bank accountIn law, a lawyer's bill to his or her client or a statement; one person's recollection of events. to buy a new car, after separation, the new car will be family property.

Section 84(2) gets into the specifics of the sorts of things that might be family property:

(2) Without limiting subsection (1), family property includes the following:
(a) a share or an interest in a corporation;
(b) an interest in a partnership, an association, an organization, a business or a venture;
(c) property owing to a spouse
(i) as a refund, including an income tax refund, or
(ii) in return for the provision of a good or service;
(d) money of a spouse in an account with a financial institution;
(e) a spouse's entitlement under an annuity, a pension, a retirement savings plan or an income plan;
(f) property, other than property to which subsection (3) applies, that a spouse disposes of after the relationship between the spouses began, but over which the spouse retains authority, to be exercised alone or with another person, to require its return or to direct its use or further disposition in any way;
(g) the amount by which the value of excluded property has increased since the later of the date
(i) the relationship between the spouses began, or
(ii) the excluded property was acquired.
(3) Despite subsection (1) of this section and subject to section 85 (1) (e), family property includes that part of trustIn law, a form of possession of property in which a "trustee" keeps and manages property for the benefit of another person, the "beneficiary." The trustee holds the property ''in trust'' for the beneficiary. See "constructive trust," "ownership," "possession" and "resulting trust." property contributed by a spouse to a trust in which
(a) the spouse is a beneficiaryA person for whom a trustee holds a trust; the recipient or intended recipient of property given in a will. See "heir," and "trust.", and has a vested interest in that part of the trust property that is not subject to divestment,
(b) the spouse has a power to transferIn law, the act of an owner of a thing giving ownership of that thing to another person, in exchange for money or other property in the case of a sale or in exchange for other rights in the case of a family law agreement. See "family law agreements," "ownership" and "sale." to himself or herself that part of the trust property, or
(c) the spouse has a power to terminate the trust and, on termination, that part of the trust property reverts to the spouse.

Boiling this all down somewhat, family property includes:

  • a spouse's business, regardless of the nature of the business interest,
  • money owed to a spouse,
  • bank accounts, savings accounts, investment accounts and pension accounts,
  • family property that a spouse transferred after separation but can get back, and
  • property in a trust that the spouse created and can get back.

Perhaps most importantly, under s. 84(2)(g), family property includes the increase in value of a spouse's excluded property after it was received or brought into the relationship.

The definition of family debt is at s. 86 and is much shorter:

Family debt includes all financial obligations incurred by a spouse
(a) during the period beginning when the relationship between the spouses begins and ending when the spouses separate, and
(b) after the date of separation, if incurred for the purpose of maintaining family property.

In other words, all of the debt accumulating from the date the spouses began to live together or got married, whichever is earlier, to the date of separation is family debt. Family debt includes debt that is incurred after separation if the debt was incurred for family property, for example if a spouse takes out a loan to make the mortgageThe conditional transfer of the title to real property by an owner to another person in return for money given as a loan, while retaining possession of the property. The party to whom title is given, the "mortgagee," usually a bank, is allowed to register the title of the property in his or her name if the person taking the loan, the "mortgagor," fails to make the required payments. See "encumbrance" and "real property." payments on the family homeIn family law, the dwelling occupied by a family as their primary residence. See "family property" and "real property.". Since the family home is family property, the loan is a family debt that both spouses are responsible for.

Separation

When the spouses separate, all of the family property owned by either or both spouses becomes equally owned by both spouses as tenants in common. If only one spouse owns an asset, both of the spouses become equal owners of the asset as tenants in common. If both spouses own an asset as joint tenants, the joint tenancyA form of property co-ownership in which each joint tenant has a right of ownership of the whole property that is indistinct from the ownership rights of the other joint tenants. See "tenancy in common." is severed and both of the spouses become equal owners of the asset as tenants in common. This is all a bit complicated to explain, so please bear with me.

How property is owned

There are two ways that more than one person can own the same property in British Columbia: they can own the property as "joint tenants" or as "tenants in common."

When two or more people own a thing as joint tenants, they are each owners of the whole thing. This is a fuzzy kind of shared ownershipA legal right to have a thing that is enforceable in court. See "possession." because the interests of one owner can't be separated out from the interests of the other because they each own the whole thing. To put it another way, a joint tenant doesn't own a particular slice of the pie, a joint tenant owns the whole pie.

When a joint tenant dies, his or her interest in the asset disappears, and the surviving joint tenants continue to own the whole asset as they always had. As a result, joint tenancies are extremely handy estateThe personal property and real property that a person owns or in which he or she has an interest, usually in connection with the prospect or event of the person's death. planning tools.

When people own a thing as tenants in common, each owner's interest in a property is separate and distinct. The tenants in common of a property each own their particular slice of the pie; collectively, they all own the whole pie, but individually they just own their personal share.

Because each owner's interest is separate from the other owners, a tenant in common can sell his or her share in the asset to someone else, put a mortgage on his or her interest or use it as collateral, or give it to someone else as a giftA voluntary transfer of property from one person to another, without expectation of payment or reward. Gifts to one spouse do not usually qualify as family property, and are excluded from the pool of property to be divided. See "donee," "donor," "excluded property," and "family property.". If a tenant in common dies, his or her interest in the thing becomes a part of his or her estate to be distributed according to his or her will.

The effect of the Separation

S. 81(b) of the Family Law Act states:

on separation, each spouse has a right to an undivided half interest in all family property as a tenant in common, and is equally responsible for family debt.

From a family law perspective, the most important thing about owning an asset as tenants in common, which is how assets are owned after the spouses separate, is this idea of two separate interests in an asset. Say the family home is registered in only one spouse's name and that spouse goes bankrupt. If there has been a separation and each spouse takes a one-half interest as a tenant in common, the only part of the house that can be taken by the bankrupt's trusteeA person who holds property in trust for the benefit of another person. See "trust." is the bankrupt's one-half interest; the other spouse's interest in that asset will be preserved from the bankrupt's creditors, and it doesn't matter who owns the asset on paper. This can be hugely important.

Family law lawyers describe the effect of a separation as "crystallizing" the spouses' interests in the family property because the separation makes each spouse the legal owner of one-half of the family assets in a way that is also bindingIn law, a requirement or obligation to honour and abide by something, such as a contract or order of the court. A judge's order is "binding" in the sense that it must be obeyed or a certain punishment will be imposed. Also refers to the principle that a higher court's decision on a point of law must be adopted by a lower court. See "contempt of court" and "precedent." on people outside the relationship, like creditors, trustees in bankruptcy, potential purchasers and so forth. After a separation happens, all a creditor can lien or seize to secure or pay a debt is the debtor's half-share of an asset, regardless of whether the debtor was the sole owner or the joint owner of the asset before the separation.

Under the Family Law Act there is no requirement that the parties start a court proceeding or sign an agreement in order to be separated.

The valuation of property and valuation date

Although the pool of family property to be shared between spouses is crystallized when the separation happens, under s. 87(b), the value of the family property is not fixed until the date of the trialThe testing of the claims at issue in a court proceeding at a formal hearing before a judge with the jurisdiction to hear the proceeding. The parties present their evidence and arguments to the judge, who then makes a determination of the parties' claims against one another that is final and binding the parties unless appealed. See "action," "appeal," "argument," "claim," "evidence" and "jurisdiction." or agreement that divides the property. This makes sense, because it can take two or three years for the division of property to wrap up at a trial, and it can take four of five months to finish an agreement for the division of property.

Under s. 87(a), the value of property is its fair market value, the amount a reasonable buyer would pay for the property in its current condition, not the purchase price of the property, the insured value of the property, or the replacement cost of the property. In other words, value of the reconstituted leather living room suite you got from the Brick for $999 five years ago isn't what you paid for it, it's the $100 that someone would likely give you for it at the date of the trial or agreement.

Excluded property

The definition of family property at s. 84 starts from the assumption that all property either or both spouses own on the date of separation is shareable family property. Under s. 85(2), the spouse who claims that an asset should be excluded from the pool of family property is responsible for proving that the asset is excluded property.

Excluded property is defined at s. 85(1):

(1) The following is excluded from family property:
(a) property acquired by a spouse before the relationship between the spouses began;
(b) gifts or inheritances to a spouse;
(c) a settlementA resolution of one or more matters at issue in a court proceeding or legal dispute with the agreement of the parties to the proceeding or dispute, usually recorded in a written agreement or in an order that all parties agree the court should make. A court proceeding can be settled at any time before the trial. See "action," "consent order," "family law agreements" and "offer." or an award of damagesAn award of money payable by one party to a court proceeding to another, usually as compensation for loss or harm suffered as a result of the other party’s actions or omissions. In family law, damages are usually awarded to one party in compensation for breach of contract or spousal abuse. See "breach of contract" and "tort." to a spouse as compensation for injury or loss, unless the settlement or award represents compensation for
(i) loss to both spouses, or
(ii) lost income of a spouse;
(d) money paid or payable under an insurance policy, other than a policy respecting property, except any portion that represents compensation for
(i) loss to both spouses, or
(ii) lost income of a spouse;
(e) property referred to in any of paragraphs (a) to (d) that is held in trustA phrase describing how property is held by one person for the benefit of another person who is ultimately entitled to the use or proceeds of sale of that property. Money held ''in trust'' is held in a lawyer's bank account on the lawyer’s promise not to use that money except as may be agreed. for the benefit of a spouse;
(f) property held in a discretionary trust
(i) to which the spouse did not contribute,
(ii) of which the spouse is a beneficiary, and
(iii) that is settled by a person other than the spouse;
(g) property derived from property or the disposition of property referred to in any of paragraphs (a) to (f).

To boil all this down, a spouse's excluded property is all the property that the spouse owns on the date of cohabitation or the date of marriage, whichever is earlier. Other property acquired during the relationship can also be a spouse's excluded property, including:

  • gifts,
  • inheritances,
  • court awards,
  • insurance payments, and
  • property held in a trust that was contributed by someone else.

Perhaps most importantly, under s. 85(1)(g), excluded property includes property bought during the relationship with excluded property. Say, for example, that a spouse receives an inheritanceReal property or personal property received as a result of the provisions of a will or the ''Estate Administration Act''. Inheritances do not usually qualify as family property subject to division between spouses. See "family property," "real property" and "will." of $10,000 and buys a collection of vintage Pyrex. The Pyrex collection would be that spouse's excluded property because it was bought with excluded property, even if the Pyrex collection was used in the day-to-day course of the couple's life together. Remember, whether something was "ordinarily used for a family purpose" is not a consideration under the Family Law Act.

However, where a married person puts what would be excluded property in the name of the other spouse, it may be that the excluded property becomes family property. Similarly, where a parentIn family law, the natural or adoptive father or mother of a child; may also include stepparents, depending on the circumstances and the applicable legislation; may include the donors of eggs or sperm and surrogate mothers, depending on the circumstances and the terms of any assisted reproduction agreement. See "adoptive parent," "natural parent" and "stepparent." gives money or property during the relationship it is open to the son-in-law or daughter-in-law, or the common lawThe legal principle under which courts are bound to follow the principles established by previous courts in similar cases dealing with similar facts. The system of justice used in non-criminal cases in all provinces and territories except Quebec. spouse, to argue that it was a gift to the couple and is not excluded property.

Taking stock at the beginning of a relationship

As you can see, it's rather important to know what you owned when you and your spouse began to live together. If you are just starting a relationship, here's what you do.

First, gather the documents listed below for the period that spans the date on which you and your spouse began to live together or got married, whichever is earlier:

  • statements for all financial accounts, including savings accounts, investment accounts, RRSP accounts and other retirement savings accounts,
  • statements for any workplace pension plans,
  • statements for all credit accounts, including credit cards, loans, mortgages and lines of credit,
  • your personal income tax return, complete with all of the schedules and attachments,
  • your BC Assessments for all real propertyA parcel of land and the buildings on that land. See "chattel," "ownership" and "possession.", or, if you want to be more accurate than that, proper appraisals,
  • black book values or dealer quotes for any vehicles you own,
  • appraisals for works of art and collections, and
  • anything else that helps to establish the value of something you brought into the relationship in a credible way.

Next, once you've gathered these documents, staple them together and keep them together in some place that you're not likely to lose them, like a safety deposit box.

You should still be able to gather much the same collection of documents even if you've already been married or living together for some time. Banks and other financial institutions will give you copies of old statements, but there will be a charge; pension plan administrators should be able to provide old values; and, BC Assessments for past years are available online. You may, however, have a problem valuing old vehicles.

Keeping track during a relationship

It's also important that you keep track of new excluded property acquired during your relationship, and what's going on with the excluded property you brought into the relationship. It may be easiest to keep a journal that:

  • shows the dates and amounts of any inheritances, gifts, court awards and insurance proceeds received during the relationship,
  • tracks money received from the saleAn agreement to transfer the ownership of property from one person to another in exchange for the reciprocal transfer of something else, usually money. See "agreement." of excluded property, and what you did with the money, particularly if the money was pooled with your spouse's money to buy something,
  • tracks property bought in exchange for excluded property,
  • shows the intent of any gift or transfer of property, and
  • records any changes in the value of excluded property during the relationship.

Remember, under s. 85(2) it's up to the person claiming the property is excluded property to prove it.

Who got what under the Family Relations Act

Because of the transition provisions of s. 252 of the Family Law Act, the old Family Relations Act, even though it's been cancelled, will still apply to determine the division of property between married spouses if:

  • they started a court proceeding to divide property before 18 March 2013, the date when the Family Law Act came into effect,
  • a spouse wants to start a court proceeding to enforce or set aside an agreement about property that was signed before 18 March 2013.

As a resut, it's going to be important to know how family property is divided under the Family Relations Act for a while longer.

The division and distribution of property between married spouses was governed by Parts 5 and 6 of the Family Relations Act. Part 5 of the act dealt with the division of property, including personal propertyChattels, goods, money; property other than real property. See "chattel" and "real property.", financial assets, and real estate. Part 6 dealt with the division of pensions. Unmarried couples, including couples who qualify as unmarried spouses, were expressly excluded from the parts of the act that deal with property.

The presumption of equal sharing

When a marriage breaks down, each spouse was presumed to have a one-half interest in all assets that qualify as family assets. Section 56 of the Family Relations Act said that:

(1) Subject to this Part and Part 6, each spouse is entitled to an interest in each family asset ...
(2) ... as a tenant in common.

As long as an asset qualified under the act as a family asset, each spouse was presumed to have a one-half interest in that asset. Family assets were defined in s. 58(2) of the act, and the focus under the act was on how an asset was used during the relationship rather than on who bought it, when it was bought, or how it was bought:

Property owned by one or both spouses and ordinarily used by a spouse or a minorA person who is younger than the legal age of majority, 19 in British Columbia. See "age of majority." child of either spouse for a family purpose is a family asset.

This section cast a very broad net: as long as an asset was owned by a spouse and was ordinarily used for a family purpose, the asset would be a "family asset" for the purposes of the Family Relations Act, and it didn't matter whether the asset was brought into the marriage by one spouse, or bought during the marriage.

To summarize, when a marriage breaks down, the spouses are presumed to own all family assets equally, no matter whose name the asset is in or whether the asset was brought into the marriage by one spouse or bought during the marriage. This presumption, however, only applies between spouses. As far as the rest of the world was concerned, the only owner of an asset is the person with legal titleIn law, a document demonstrating ownership of a thing. See "ownership." to the asset, which might be:

  • one of the spouses,
  • both spouses as joint tenants,
  • both spouses as tenants in common, or
  • one or both spouses, along one or more other people, either as joint tenants or as tenants in common.

The triggering events

When a triggering event happened, all of the property owned by either or both spouses became equally owned by both spouses as tenants in common. If only one spouse owned an asset, both of the spouses became equal owners of that asset as tenants in common. If both spouses owned an asset as joint tenants, the joint tenancy was severed and both of the spouses became equal owners of the asset as tenants in common.

Family law lawyers described the effect of a triggering event as "crystallizing" the interests of the spouses in the family assets because the triggering event made each spouse a legal owner of one-half of the family assets in a way that was also binding on people outside the marriage, like creditors, trustees in bankruptcy, potential purchasers and so forth. After a triggering event happened, all a creditor could lien or seize was the debtor's half-share of an asset, regardless of whether the debtor was the sole owner or the joint owner of the asset before the triggering event.

Section 56(1) of the Family Relations Act described four triggering events:

  1. when the parties made and signed a separation agreementA contract intended to resolve all or some of the issues outstanding following the breakdown of a relationship and intended to guide the parties in their dealings with one another thereafter. A typical separation agreement is signed following a settlement reached through negotiations and deals with issues including guardianship, parenting arrangements, contact, support, the division of property and the division of debt. See "family law agreements.",
  2. when the court made a declaration that the spouses had no reasonable prospect of getting back together and resuming married life,
  3. when the court made an order for divorce, and
  4. when the marriage was annulled.

Once any one of these triggering events happened, each spouse took a one-half legal interest in all of the family assets as a tenant in common, regardless of who bought the asset, who used to own the asset, or when the asset was bought. This new situation lasted until the division of the assets was finally determined by a court order of the court or the parties' agreement.

The equal and unequal division of family assets

Under s. 56 of the Family Relations Act, each spouse was presumed to have a one-half interest in all family assets. This was, however, only a presumption, a presumption that could be challenged. When assets were divided more in one spouse's favour than the other, the assets were said to have been reapportioned.

The court could order, or the spouses could agree, that all of the family assets would be reapportioned or that just a few assets would be reapportioned. This might have happened to allow one partyIn law, a person named as an applicant, claimant, respondent or third party in a court proceeding; someone asserting a claim in a court proceeding or against whom a claim has been brought. See "action" and "litigant." to keep more of a pension or more of an inheritance, for example, even though all the other family assets might have been divided equally.

Section 65(1) of the Family Relations Act described the factors the court could take into account in deciding whether an equal division of the family assets would have been unfair:

(a) the duration of the marriage,
(b) the duration of the period during which the spouses have lived separate and apart,
(c) the date when property was acquired or disposed of,
(d) the extent to which property was acquired by one spouse through inheritance or gift,
(e) the needs of each spouse to become or remain economically independent and self sufficient, or
(f) any other circumstances relating to the acquisition, preservation, maintenanceIn family law, an antiquated term referring to child support and spousal support. See "child support" and "spousal support.", improvement or use of property or the capacity or liabilities of a spouse

Family assets were most commonly reapportioned when:

  • the marriage was short, say less than six or seven years, and one of the spouses brought the majority of the assets into the relationship,
  • one of the spouses was responsible for racking up a lot of debts not related to spending for family purposes,
  • some of the assets were located outside of British Columbia,
  • one of the spouses required more than half of the family assets to become financially independent,
  • one of the spouses had wrongfully disposed of family assets or negligently allowed them to decrease in value, especially if this happened after separation, or
  • some of the assets had been bought with a spouse's inheritance.

Defining "family assets"

Not all assets were shareable family assets. The sections of the Family Relations Act quoted above only provided for the division of assets that qualified as family assets; other sorts of assets might have been exempt from division, so that the spouse who owned the asset would be allowed to keep that asset, without necessarily having to compensate the other spouse for its value.

Family assets were defined in s. 58 of the Family Relations Act as:

(2) Property owned by one or both spouses and ordinarily used by a spouse or a minor child of either spouse for a family purpose is a family asset.
(3) Without restricting subsection (2), the definition of family asset includes the following:
(a) if a corporation or trust owns property that would be a family asset if owned by a spouse,
(i) a share in the corporation, or
(ii) an interest in the trust
owned by the spouse;
(b) if property would be a family asset if owned by a spouse, property
(i) over which the spouse has, either alone or with another person, a power of appointment exercisable in favour of himself or herself, or
(ii) disposed of by the spouse but over which the spouse has, either alone or with another person a power to revoke the disposition or a power to use or dispose of the property;
(c) money of a spouse in an account with a savings institution if that account is ordinarily used for a family purpose;
(d) a right of a spouse under an annuity or a pension, home ownership or retirement savings plan;
(e) a right, share or an interest of a spouse in a venture to which money or money's worth was, directly or indirectly, contributed by or on behalf of the other spouse.

If an asset did not fall into these categories, it may not have been something that the spouses were both entitled to share. The basic rule of thumb was this: an asset was a family asset if it was ordinarily used or was intended to be ordinarily used for a family purpose.

Cohabitation agreements and marriage agreements

Cohabitation agreements are agreements signed by people who will be or are living together, who may or may not wind up getting married later on down the road. Marriage agreements are signed by people who will be getting or are married. Although there's no reason why these agreements can't be signed well into a relationship, they're usually signed at or shortly after the date the parties begin to live together or marry.

These agreements are often used to say how property and debt will be handled during a relationship and how it will be allocated if the couple separates. Under s. 93(1) of the Family Law Act, they must be in writing and be signed by each spouse in the presence of at least one other person as witnessA person with person knowledge of things; a person giving oral evidence in court on oath or affirmation as to the truth of the evidence given. See "affirm," "evidence," "oath" and "opinion evidence.".

However, since many people are content with the basic plan for the division of property set out in the Family Law Act, the question is often about what a cohabitation agreementAn agreement signed by people who are or have begun to live together in a marriage-like relationship that is intended to govern their rights and obligations in the event of the breakdown of their relationship and, sometimes, their rights and obligations during their relationship. See "family law agreement." or a marriage agreementAn agreement signed by people who are planning on marrying or have married that is intended to govern their rights and obligations in the event of the breakdown of their marriage and, sometimes, their rights and obligations during their marriage. See "family law agreement." can do that would be better than the division the act expects. Here are some ideas. An agreement could:

  • clarify which property is excluded property and what its value was when the relationship begain,
  • allow a spouse to keep not just his or her excluded property but the growth in value of his or her excluded property,
  • say that there will be no shared family property, except for property that is registered in both spouses' names or that the parties agree in writing will be shared family property,
  • give a share of a spouse's excluded property to the other spouse, including a share which increases over time,
  • make all excluded property shareable family property,
  • say how property bought during the relationship will be owned if it's bought with both spouse's excluded property, or
  • say what will happen if a spouse's excluded property decreases in value during the relationship.

I'm sure there are other options as well.

Resources and links

Legislation

Links


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