Basic Principles of Property and Debt in Family Law

People who are married or who lived together in a marriage-like relationship for at least two years are entitled to share in the property they acquired during their relationship, and are entitled to keep any property they each brought into the relationship. The same thing goes for debt. Spouses are presumed to be equally responsible for debt accumulating during the relationship but be 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 page talks about how property and debt are divided between spouses under the Family Law Act, what property is shareable family property and which property is excluded from division, and 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. 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 this is the basic concept that the act 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 debt, the things that are presumed to be shared between spouses, and excluded property which is presumed to remain the property of the spouse who owns it. Part 6 talks about the division of pensions between spouses and says which portion of a pension is supposed to be shared and which parts remember the property of the pension member. This page looks into the nooks and crannies of Part 5 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 lawyer.

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 page of this chapter, ______.

Period of Entitlement

Under s. 81(a) of the Family Law Act, spouses are presumed to each be entitled to 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, then, is presumed to be the date of separation. 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 dates when "the relationship between the spouses began" and the date "the spouses separate" are very important. They 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.

The Date of Cohabitation and the Date of Marriage

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 judge in a 2003 case from the Saskatchewan Court of Queen's Bench, Yakiwchuk v. Oaks, expressed the problem this way:

"With married couples, the relationship is easy to establish. The marriage ceremony is a public declaration 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 residence, and

(b) the court may consider, as evidence of separation,

(i) communication, by one spouse to the other spouse, of an intention to separate permanently, and

(ii) an action, 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 claim within two years of the date of their divorce 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 resolution 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 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 proceeding. 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 proceeding 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. 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 page.

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 order 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:

1. the definitions of "family property" and "family debt", and what is excluded from family property;
2. the rules for how the division of property and debt are to be accomplished, and the exceptions to those rules;
3. orders for the division of property and debt, and the circumstances when the court can divided family property unequally or divide excluded property; and,
4. 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 when a spouse trades in the old family Ford Windstar as the down payment for shiny new Porsche Boxster. The Windstar was family property that both spouses have an interest in; since the Boxster was bought with the family property, it too is family property that both spouses have an interest in.

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 trust property contributed by a spouse to a trust in which

(a) the spouse is a beneficiary, 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 transfer 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:

1. a spouse's business, regardless of the nature of the business interest;
2. money owed to a spouse;
3. bank accounts, savings accounts, investment accounts and pension accounts;
4. family property that a spouse transferred after separation but can get back; and,
5. 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 when if a spouse takes out a loan to make the mortgage payments on the family home. Since family home family property, the loan is a family debt that both spouses are responsible for.

The Triggering Event

When a triggering event happens, 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 tenancy is severed and both of the spouses become equal owners of the asset as tenants in common.

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 ownership 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 estate 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 gift. 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 Triggering Event

From a family law perspective, the most important thing about owning an asset as tenants in common, which is how assets are owned after there's a triggering event, 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. The only part of the house that can be taken by the bankrupt's trustee 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 triggering event as "crystallizing" the spouses' interests in the family property because the triggering event makes each spouse the legal owner of one-half of the family assets in a way that is also binding on people outside the relationship, like creditors, trustees in bankruptcy, potential purchasers and so forth. After a triggering event 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 triggering event.

The Date of Separation

Under s. 81(b), the one triggering event under the Family Law Act is the date of separation:

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.

If this sounds odd to you, it's probably because the old Family Relations Act had four triggering events:

1. the annulment of the spouses' marriage;
2. the spouses' divorce;
3. the court making a declaration that the spouses are unable to reconcile and resume married life; and,
4. the signing of a separation agreement.

Under the Family Law Act there is just one triggering event, and it does not require the parties to start a court proceeding or to sign an agreement.

The Valuation of Property and Valuation Date

Although pool of family property to be shared between spouses is crystallized when the triggering event happens, under s. 87(b), value of the property is not fixed until the date of the trial 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 even take a number of months to finish an agreement for the division of property.

Under s. 87(a), the value of property is its fair market value, 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 settlement or an award of damages 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 trust 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 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:

1. gifts;
2. inheritances;
3. court awards;
4. insurance payments; and,
5. 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 inheritance of $10,000 and buys a collection of vintage Pyrex. The Pyrex collection would be spouse's excluded property because is 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.

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

1. statements for all financial accounts, including savings accounts, investment accounts, RRSP accounts and other retirement savings accounts;
2. statements for any workplace pension plans
3. statements for all credit accounts, including credit cards, loans, mortgages and lines of credit;
4. your personal income tax return, complete with all of the schedules and attachments;
5. your BC Assessments for all real property, or, if you want to be more accurate than that, proper appraisals;
6. black book values or dealer quotes for any vehicles you own;
7. appraisals for works of art and collections; and,
8. anything else that helps to establish the value of something you brought into the relationship in a credible way.

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, especially ones that you've sold.

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:

1. shows the dates and amounts of any inheritances, gifts, court awards and insurance proceeds received during the relationship;
2. tracks money received from the sale of excluded property, and what you did with the money, particularly if the money was pooled with your spouse's money to buy something;
3. tracks property bought in exchange for excluded property; and,
4. records any changes in the value of excluded property during the relationship.

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

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 in the event the parties separate and, 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 witness.

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 agreement or a marriage agreement can do that would be better than the division the act expects. Here are some ideas. An agreement could:

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

I'm sure there are options as well.

Further Reading in this Chapter

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Page Resources and Links

Legislation

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Family Law Act

Links

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