Difference between revisions of "Property and Debt in Family Law Matters"

{{JP Boyd on Family Law TOC|expanded = assets}}

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This chapter focuses on the division of property and debt between married spouses and unmarried spouses. Under the provincial ''[[Family Law Act]]'', spouses are presumed to keep what each of them brought into their relationship and to share in the things they acquired during their relationship. The same rules apply about debt: spouses are presumed to share responsibility for the debts that accumulated during their relationship. The federal ''[[Divorce Act]]'' doesn't talk about the division of property or debt.

This introductory section provides basic information about property and debt. It also looks at the rules about property that apply to couples who are not spouses, and reviews some of the income tax issues that can come up when dividing property. The sections that follow will go into the rules about the [[Basic Principles of Property & Debt in Family Law|division of property and debt in a lot more detail]], steps that you can take to [[Protecting Property & Debt in Family Law Matters|protect family property]], and [[Dividing Property & Debt in Family Law Matters|how property and debt are divided]] by the court through court orders and by spouses through separation agreements.

The parts of the ''[[Family Law Act]]'' about the division of property and debt apply to people who are ''spouses''. The definition of spouse for these parts of the act are a bit different from the rest of the act. For the division of property and debt, a spouse is:

All property owned by either or both spouses at the date of separation is ''family property''. This includes things like real property, bank accounts, pensions, business, debts owing to a spouse, and so forth. Family property is presumed to be shared equally between spouses, regardless of their use of or contribution to that property.

''Excluded property'' is any property that is excluded from the pool of family property to be split between spouses. This includes the property a spouse acquired before the date of marriage or the date the spouses began living together, whichever is earlier, plus certain property acquired during the spouses' relationship, including:

*some kinds of insurance proceeds and court awards.

Excluded property is presumed to remain the property of the spouse who owns it.

As you can see, certain dates in a couple's relationship are really important. The date a relationship begins ― the earlier of the date the spouses begin to live together or marry ― is the date that separates the excluded property brought into the relationship from the family property acquired during their relationship and the date when they begin to share responsibility for new debts. The date the spouses separate, generally speaking, marks the end of the accumulation of shared property and shared debt.

Although many people move out when they separate, other couples separate and remain living under the same roof. A physical separation is not necessary to separate; there must simply be an intention to end the relationship and the intimacies that go along with it. Often the <span class="noglossary">decision</span> to separate is made by both spouses, but it only takes one spouse decide to end a relationship, and a spouse's <span class="noglossary">decision</span> to separate doesn't require the consent of the other spouse.

In other words, to separate, one spouse must announce the end of the relationship and then take steps that would demonstrate an intention to end the relationship. Separation is discussed in more detail in the chapter [[Separation & Divorce]] within the section [[Separation]].

Under s. 85(1)(a), property that was brought into a relationship is excluded from the pool of family property that is supposed to be divided equally between spouses. Under s. 96, the court "must not" order a division of excluded property, except in limited circumstances. A spouse is therefore entitled to keep the excluded property he or she owns. Under s. 85(2), however, it is up to the person who's saying that property is excluded property to prove that the property is excluded property.

For most couples, property brought into a relationship will form the largest component of a spouse's excluded property. However, when most people marry or move in together, counting up their assets is not the foremost thing on their mind. This means that you may wind up having to do some historical accounting to figure out what you had one, two or more years ago. Whether you're just starting a relationship or are trying to figure out what you once had, these are the documents you need to look for:

It will be a harder to look back in time to figure out the value of things like cars, motorcycles, trailers, boats, snowmobiles and so on. If you're entering a relationship now, it will be helpful to look up the Canadian Black Book or Kelley Blue Book estimated values for vehicles. Boats and trailers may need to be specially valued by a dealer.

*gifts,  

*court awards and settlements,  

*insurance payments, and

People are not spouses within the ''[[Family Law Act]]'' definition at s. 3, described above, cannot make a claim for the division of property or debt through that act. When people who aren't spouses own an asset jointly, like a house or a car, they are presumed to each be entitled to half of the value of that property. Where a person claims a share of property owned only by the other person, he or she will have to prove an entitlement to that asset through the principles of the common law.

Where a couple are both on the title of an asset, whether the family home, a car or a bank account, they are each assumed to have an equal interest in the asset. When one party refuses to give the other his or her share of that asset, it is open to that person to start a court proceeding for either:

#an order for payment in compensation for his or her interest in the asset.

Where a person believes that he or she should have an interest in property owned only by the other person, a claim against that property can only be made under the common law, specifically the law of equity and the law of trusts.

The essential point of this sort of claim is that the non-owning party has, or should be considered to have, a stake in property owned by the other party. The non-owning party's interest in that property is said to be held ''in trust'' for the non-owning party by the person who owns the property on paper. The non-owning party is the beneficiary of that trust and should be entitled to receive compensation for his or her interest in the property under the trust.

*one party loans or gives money to the other party to allow him or her to buy an asset, and the person buying the asset owns the asset in his or her name alone, or

In each case, the person who transfers the money or asset to the other party is said to retain an interest, called a ''beneficial interest'', in the property even though the property is held by the other party in his or her name alone. In a court proceeding based on a resulting trust, the person making the claim, the ''claimant'', is asking for compensation for his or her beneficial interest in the property owned by the ''respondent'', the person against whom the claim is brought.

A constructive trust is called ''constructive'' because the claimant is asking the court to create or impose a trust on the respondent where there wasn't one before. According to the Supreme Court of Canada's decision in the 1980 case of [http://canlii.ca/t/1mjv ''Pettkus v. Becker''], [1980] 2 S.C.R. 834, one of the most important cases on constructive trusts, the court will impose a trust on a respondent where the claimant has been able to show that the respondent has been ''unjustly enriched'' as a result of the claimant's labour or other services. Unjust enrichment is shown by proving that:

''Enrichment'' means to have received a benefit or advantage, such as money or the benefit of unpaid labour or other services. ''Deprivation'' means to have lost the value that might have been otherwise received for the claimant's benefit or advantage, such as the loss of the money or the wages that might have been paid for labour or other services. The deprivation must ''correspond'' to the enrichment, in the sense that the claimant was deprived of exactly the thing from which the respondent benefited. If the claimant can show these things, he or she will have established that the respondent was ''unjustly enriched'' by his or her contributions, and the court may impose a constructive trust to fix the situation.

<blockquote>Frank moves into a home owned by Lois. Frank's role in the relationship is that of a homemaker while Lois works outside the home and brings home the bacon. Frank also, out of the kindness of his heart, helps Lois with her web design company, doing her books.</blockquote>

<blockquote>Lois doesn't pay Frank for his labour; perhaps it's understood that Frank is helping out with a common cause, since Lois' company is what provides the family with its income, or perhaps Frank's help is just one of the things he does because he loves Lois. Either way, payment isn't offered and it's not asked for, as is often the case when people are in a relationship.</blockquote>

<blockquote>Frank, on the other hand, is losing something. Frank could have sold his services as a housekeeper, a launderer and a cook. Frank could certainly have worked as an office manager for some other company. Furthermore, Frank has made a positive contribution to Lois' company and helped it thrive and prosper.</blockquote>

<blockquote>The months pass. Lois' company has grown in value, and the relationship comes to a tragic end when Frank discovers that Lois' trips to visit the internet service provider in Alberta were for both business and pleasure.</blockquote>

In this example, Lois was ''unjustly enriched'' by Frank's labour in the home and his contribution to the web design company, as she didn't have to hire an office administrator or a housekeeper. Frank, on the other hand, lost out on months of wages as an office administrator, and months of wages as a housekeeper. Lois was enriched by exactly the thing Frank was deprived of: his labour, and the financial value and benefit of his labour.

Once an unjust enrichment has been found, the court must determine what the appropriate remedy would be to compensate the applicant for his or her interest in the property. The court will often determine the value of the trust based on the value of the contribution made by the applicant to the property or the purchase of the property.

Again, trust claims are complex and the case law supporting and opposing such claims is massive. If you are not a spouse and wish to make claim against property owned only by your partner, I recommended that you hire a lawyer to help.

For many people, there will be no tax impact from the division of their assets. There will, however, be a tax impact if the division creates what the Canada Revenue Agency deems to be ''income''.

*money received by a shareholder from a company as a dividend or from the sale of his or her shares,  

When RRSPs are to be transferred between spouses according to a separation agreement or court order, the RRSPs are simply transferred between the spouses' RRSP accounts without having to cash them out, and no tax is payable.

{{REVIEWED | reviewer = [[JP Boyd]], April 19, 2013}}