Dividing Property and Debts (Script 124)

From Clicklaw Wikibooks

This script discusses dividing property and debt between married spouses and unmarried spouses when their relationship breaks down. This script discusses dividing property and debt between married spouses and unmarried spouses when their relationship breaks down.

Who is a “spouse”?

Property and debt are divided between spouses under the Family Law Act. The “spouses” who are entitled to apply for an order dividing property and debt are:

  • people who are married; and
  • people who have lived together in a “marriage-like relationship” for at least two years.

Claims for the division of property and debt must be made within two years of the date married spouses are divorced or their marriage is annulled or, for unmarried spouses, the date of their separation.

If you don’t qualify as a “spouse”, the laws that apply to your situation are different, and this script does not apply to you. You should refer to script 148 on “Other Relationships: Your Income, Support and Property Rights”.

The basic principles of the Family Law Act

The law about dividing property and debt is contained in the Family Law Act. In general:

  • Each spouse is entitled to keep the property they brought into the relationship, plus certain kinds of property received during the relationship, like inheritances and court awards, as his or her “excluded property”. Note, recent court decisions have applied this principle in various ways and at times excluded property has been treated as family property. As a result it is strongly recommended that you consult a family law lawyer to obtain legal advice.
  • Each spouse is entitled to one-half of the property bought during their relationship, plus one-half of the increase in value of each other’s excluded property. The property spouses are entitled to share is called “family property”.
  • Each spouse is responsible for one-half of the debt accrued during the relationship, including any debt incurred after separation to maintain family property. The debt spouses are obliged to share is called “family debt”.

What is “family property”?

Family property is all of the property owned by either or both spouses on the date of separation, minus any excluded property. Family property includes: real property; interests in companies, partnerships and businesses; money owed to a spouse; bank accounts, RRSPs and pensions; and, interests in certain kinds of trusts. Family property also includes the amount of the increase in value of any excluded property.

Each spouse is presumed to have a one-half interest in all family property, regardless of their use of or contribution to that property.

What is “excluded property”?

Excluded property is the property a spouse brings into a relationship, including some kinds of property received during the relationship. Excluded property received after a relationship starts may include inheritances and gifts from people other than the other spouse; court awards; insurance money; and, interests in certain kinds of trusts. Excluded property also includes property bought with excluded property.

Excluded property is presumed to remain the property of the spouse that owns it. However, recent court decisions have complicated what is considered excluded property and when does excluded property lose its exclusion and become family property. As a result it is strongly recommended that you consult a family law lawyer to obtain legal advice.

What is “family debt”?

Family debt is all debt run up by either or both spouses during their relationship. Family debt includes debt run up after separation if the debt was incurred to pay for or maintain family property.

Spouses are presumed to have a one-half responsibility for family debt, regardless of their contribution to the debt or the use that was made of it.

Are RRSPs and pensions family property?

Yes. The amount of any RRSPs or pensions that each spouse accumulated during the relationship is family property. There are special rules in the Family Law Act for dividing most kinds of pension plans. There are separate rules for dividing other pensions and Canada Pension Plan credits that are not found in the Family Law Act. A lawyer can help with this.

Are shares in a company family property?

Yes. A spouse’s shares in a company are family property. This can be a complicated issue and you should speak to a lawyer if you or your spouse has an interest in a company.

Is an inheritance family property?

No. An inheritance that a spouse receives before, during or after a relationship is part of that spouse’s excluded property. However, for inheritances received before separation the amount the inheritance increased in value during the relationship is family property.

What happens if a spouse tries to hide or sell property?

The court can prevent the transfer of property to a third person if the court believes that the transfer is being made to limit or interfere with the other spouse’s interest in that property. The court can also reverse a transfer that’s already occurred, whether before or after separation, and make a “compensation order” to repay a spouse for property that was transferred to frustrate the spouse’s interest in that property.

Are there any exceptions to the equal division rule?

Yes. If an equal division of family property or family debt would be significantly unfair, the court can order a division that is unequal. Although the presumption of an equal division of family property and family debt is very strong, the court’s main duty is to ensure that property is divided fairly.

What does the court look at when dividing family property or family debt unequally?

The factors the court will take into account in determining whether an equal division would be significantly unfair include: the length of the spouses’ relationship; whether debt was incurred in the normal course of the spouses’ relationship and whether the amount of debt exceeds the amount of property; whether a spouse caused a significant increase or decrease in the value of debt or property after separation; and whether taxes must be paid to divide family property between the spouses.

Can spouses agree to an unequal division of family property and family debt?

Yes. Spouses can agree to an unequal division of property and debt in a separation agreement or by a court order called a “consent order”. Also, they might have made a marriage or cohabitation agreement sorting out their interests in excluded property or/and family property when they got married or began to live together.

Courts respect agreements about property and debt division and will uphold them as long as the agreements are fair. For more information on marriage agreements and cohabitation agreements, refer to script 162 on “Marriage Agreements and Cohabitation Agreements”.

Can the court divide excluded property?

Yes. Although the presumption that a spouse should be entitled to keep his or her excluded property is very strong, the court can divide excluded property if: family property or family debt outside British Columbia cannot be divided; or if it would be significantly unfair not to divide excluded property considering the length of the spouses’ relationship and the non-owning spouse’s direct contribution to the excluded property.

Can spouses agree to divide excluded property?

Yes. Spouses can make an agreement at the start, during or end of their relationship that excluded property will be treated like family property and be divided between them.

When does each spouse get their share of the family property and become responsible for the family debt?

On the date the spouses separate, each spouse becomes a one-half owner of all family property as a tenant in common, and each becomes responsible for one-half of the family debt.

When do you have to apply for a division of property and debt?

It is not necessary to start a court case to divide property or debt, and you do not need to get a divorce order first if you’re married. However, if an agreement about dividing property and debt can’t be reached:

  • married spouses must apply to court for a division of property and debt under the Family Law Act within two years of the date the that court made a divorce order or a declaration that their marriage is a nullity; and
  • unmarried spouses must apply to court for a division of property and debt under the act within two years of the date they separated.

Summary

When married or unmarried spouses separate, each spouse is entitled to an interest in all family property and becomes responsible for all family debt. Normally the interest in family property is a one-half interest and the liability for family debt is for one-half of that debt; the division of family property and family debt may be unequal if an equal share would be significantly unfair. Each spouse will usually keep his or her excluded property, but will have to share the amount that the excluded property increased in value during their relationship.

Because the division of family property and family debt raises some very complex legal issues, it’s important to get legal advice immediately. With proper advice and help, it’s often possible to settle the division of property and debt without having to go to court.

More information

For more information about family property, excluded property and family debt, see the property and debt section of the wikibook JP Boyd on Family Law provided by Courthouse Libraries BC.


[updated May 2017]

The above was last reviewed for legal accuracy by Zahra H. Jimale.



© Copyright 2017, Canadian Bar Association British Columbia Branch. Dial-A-Law is a registered trademark owned by Canadian Bar Association British Columbia Branch, a non-profit membership corporation.


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