Anonymous

Difference between revisions of "Basic Principles of Property and Debt in Family Law"

From Clicklaw Wikibooks

Basic Principles of Property and Debt in Family Law (view source)

Revision as of 15:06, 26 March 2013

4,903 bytes added ,  15:06, 26 March 2013
no edit summary
Line 96: Line 96:


====Transition Provisions====
====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 continue under the old ''Family Relations Act'' as if it hadn't been cancelled:
<blockquote><tt>(2) Unless the spouses agree otherwise, </tt></blockquote>
<blockquote><blockquote><tt>(a) a proceeding to enforce, set aside or replace an agreement respecting property division made before the coming into force of this section, or</tt></blockquote></blockquote>
<blockquote><blockquote><tt>(b) a proceeding respecting property division started under the former Act</tt></blockquote></blockquote>
<blockquote><tt>must be started or continued, as applicable, under the former Act as if the former Act had not been repealed.</tt></blockquote>
''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.


==Who Keeps What==
==Who Keeps What==


===Family Proeprty and Family Debt===
The general rule about how property and debt are divided under the ''Family Law Act'' is found in s. 81:
 
<blockquote><tt>Subject to an agreement or order that provides otherwise and except as set out in this Part and Part 6 [Pension Division],</tt></blockquote>
<blockquote><blockquote><tt>(a) spouses are both entitled to family property and responsible for family debt, regardless of their respective use or contribution, and</tt></blockquote></blockquote>
<blockquote><blockquote><tt>(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.</tt></blockquote></blockquote>
 
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 divided family property unequally or divide excluded property; and,
#agreements for the division of property when the court may set those agreements aside.


====Trriggering Event====
===Family Property and Family Debt===


====Valuation and Valuation Date====
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:
 
<blockquote><tt>(2) Without limiting subsection (1), family property includes the following:</tt></blockquote>
<blockquote><blockquote><tt>(a) a share or an interest in a corporation; </tt></blockquote></blockquote>
<blockquote><blockquote><tt>(b) an interest in a partnership, an association, an organization, a business or a venture; </tt></blockquote></blockquote>
<blockquote><blockquote><tt>(c) property owing to a spouse</tt></blockquote></blockquote>
<blockquote><blockquote><blockquote><tt>(i) as a refund, including an income tax refund, or</tt></blockquote></blockquote></blockquote>
<blockquote><blockquote><blockquote><tt>(ii) in return for the provision of a good or service; </tt></blockquote></blockquote></blockquote>
<blockquote><blockquote><tt>(d) money of a spouse in an account with a financial institution; </tt></blockquote></blockquote>
<blockquote><blockquote><tt>(e) a spouse's entitlement under an annuity, a pension, a retirement savings plan or an income plan; </tt></blockquote></blockquote>
<blockquote><blockquote><tt>(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; </tt></blockquote></blockquote>
<blockquote><blockquote><tt>(g) the amount by which the value of excluded property has increased since the later of the date</tt></blockquote></blockquote>
<blockquote><blockquote><blockquote><tt>(i) the relationship between the spouses began, or</tt></blockquote></blockquote></blockquote>
<blockquote><blockquote><blockquote><tt>(ii) the excluded property was acquired. </tt></blockquote></blockquote></blockquote>
<blockquote><tt>(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</tt></blockquote>
<blockquote><blockquote><tt>(a) the spouse is a beneficiary, and has a vested interest in that part of the trust property that is not subject to divestment, </tt></blockquote></blockquote>
<blockquote><blockquote><tt>(b) the spouse has a power to transfer to himself or herself that part of the trust property, or</tt></blockquote></blockquote>
<blockquote><blockquote><tt>(c) the spouse has a power to terminate the trust and, on termination, that part of the trust property reverts to the spouse. </tt></blockquote></blockquote>
 
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 property is at s. 86 and is much shorter:
 
<blockquote><tt>Family debt includes all financial obligations incurred by a spouse</tt></blockquote>
<blockquote><blockquote><tt>(a) during the period beginning when the relationship between the spouses begins and ending when the spouses separate, and</tt></blockquote></blockquote>
<blockquote><blockquote><tt>(b) after the date of separation, if incurred for the purpose of maintaining family property.</tt></blockquote></blockquote>


===Excluded 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.


==Cohabitation Agreements and Marriage Agreements==
====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.


This presumption, however, only applies between spouses. As far as the rest of the world is concerned, the only owner of an asset is the persion with legal title to the asset, which might be:
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.


one of the spouses;
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.
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.
Before going any further, it will be helpful to understand the difference between owning something as joint tenants and owning it as tenants in common.


1. Owning Property as Joint Tenants
=====The Effect of the Triggering Event=====
A "joint tenancy" is a kind of shared ownership of a thing. 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 — each of the owners 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.


This quality of joint tenancy ownership is very handy for people who need to worry about estates and property transfer taxes, because when a joint tenant dies the surviving joint tenants continue to own the whole property and the interest of the deceased person just sort of disappears. Since the survivors continue to own the property and have the same interest as they had before the death, there's no need to transfer the deceased person's property interest.
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.


2. Owning Property as Tenants in Common
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.
A "tenancy in common" is another kind of shared ownership. In this type of ownership, 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. Also, 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 the deceased person's will.
=====The Triggering Event=====


From a family law perspective, the most important thing about owning an asset as a tenant in common is this idea of two separate, distinct 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.
Under s. 81(b), the one triggering event under the ''Family Law Act'' is the ''date of separation'':


B. The Triggering Events
<blockquote><tt>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.</tt></blockquote>
When a "triggering event" happens, all of the 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.


Family law lawyers describe the effect of a triggering event as "crystallizing" the interests of the spouses in the family assets 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 marriage, like creditors, trustees in bankruptcy, potential purchasers and so forth. After a triggering event happens, all a creditor can lien or seize 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.
If this sounds odd to you, it's probably because the old ''Family Relations Act'' had four triggering events:


Section 56(1) of the Family Relations Act describes four triggering events:
#the annulment of the spouses' marriage;
#the spouses' divorce;
#the court making a declaration that the spouses are unable to reconcile and resume married life; and,
#the signing of a separation agreement.


when the parties make and sign 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.
when the court makes a declaration that the spouses have no reasonable prospect of getting back together and resuming married life, called a "section 57 declaration;"
when the court makes an order for divorce; and,
when the marriage is annulled.
Once any one of these triggering events happens, each spouse has 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 situtation will last until the division of the assets is finally determined by an order of the court or is otherwise agreed to by the parties in a settlement the matter.


Triggering events are discussed in more detail in the next segment following this introduction, and I've also discussed the importance of triggering events in my blog.
====Valuation and Valuation Date====


B. The Effect of a Triggering Event
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.
When a triggering event happens, each spouse has a separate and distinct one-half interest in all of the family assets, regardless of how the assets were owned prior to the triggering event. As a result, a triggering event will help to protect a spouse's property interests from things like:


a claim a third-party creditor might have against one spouse for a debt;
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.
the bankruptcy of a spouse and the consequent loss of his or her assets from the pool of family assets available for division;
a unilateral decision to sell an asset made by a spouse; and,
a claim against the estate of a deceased spouse.
Needless to say, it can be critical to obtain a triggering event early on in a family action.


Getting a triggering event can be a bad idea, however, when a spouse is asking for a reapportionment of the family assets and the other spouse is looking at bankruptcy or is in danger of dying before the litigation is resolved. In both cases, the triggering event fixes the spouse's interest in the assets when the spouse might have gotten more than half the family assets. If you have any concerns about the effect of a triggering event, you must speak to a family law lawyer immediately.
===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''.


==defining famiy proeprty==
Excluded property is defined at s. 85(1):


D. Defining "Family Assets"
<blockquote><tt>(1) The following is excluded from family property: </tt></blockquote>
Of course not all assets are family assets. The sections of the Family Relations Act quoted above only provide for the division of assets that qualify as family assets; other sorts of assets may be exempt from division, so that the spouse who owns the asset will be allowed to keep that asset, without necessarily having to compensate the other spouse for its value.
<blockquote><blockquote><tt>(a) property acquired by a spouse before the relationship between the spouses began; </tt></blockquote></blockquote>
<blockquote><blockquote><tt>(b) gifts or inheritances to a spouse; </tt></blockquote></blockquote>
<blockquote><blockquote><tt>(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</tt></blockquote></blockquote>
<blockquote><blockquote><blockquote><tt>(i) loss to both spouses, or</tt></blockquote></blockquote></blockquote>
<blockquote><blockquote><blockquote><tt>(ii) lost income of a spouse; </tt></blockquote></blockquote></blockquote>
<blockquote><blockquote><tt>(d) money paid or payable under an insurance policy, other than a policy respecting property, except any portion that represents compensation for</tt></blockquote></blockquote>
<blockquote><blockquote><blockquote><tt>(i) loss to both spouses, or</tt></blockquote></blockquote></blockquote>
<blockquote><blockquote><blockquote><tt>(ii) lost income of a spouse; </tt></blockquote></blockquote></blockquote>
<blockquote><blockquote><tt>(e) property referred to in any of paragraphs (a) to (d) that is held in trust for the benefit of a spouse;</tt></blockquote></blockquote>
<blockquote><blockquote><tt>(f) property held in a discretionary trust</tt></blockquote></blockquote>
<blockquote><blockquote><blockquote><tt>(i) to which the spouse did not contribute, </tt></blockquote></blockquote></blockquote>
<blockquote><blockquote><blockquote><tt>(ii) of which the spouse is a beneficiary, and</tt></blockquote></blockquote></blockquote>
<blockquote><blockquote><blockquote><tt>(iii) that is settled by a person other than the spouse; </tt></blockquote></blockquote></blockquote>
<blockquote><blockquote><tt>(g) property derived from property or the disposition of property referred to in any of paragraphs (a) to (f).</tt></blockquote></blockquote>


Family assets are 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.
==Cohabitation Agreements and Marriage Agreements==
(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 does not fall into these categories, it may not be something in which both parties can share. The basic rule of thumb is this: an asset is a family asset if it was ordinarily used or was intended to be ordinarily used for a family purpose.


The definition of "family asset" and the sorts of assets which don't qualify as family assets are discussed more thoroughly in the chapter Family Assets > Basic Principles.




<blockquote><tt>(a) a share or an interest in a corporation;</tt></blockquote>
<blockquote><tt>(b) an interest in a partnership, an association, an organization, a business or a venture;</tt></blockquote>
<blockquote><tt>(c) property owing to a spouse</tt></blockquote>
<blockquote><blockquote><tt>(i) as a refund, including an income tax refund, or</tt></blockquote></blockquote>
<blockquote><blockquote><tt>(ii) in return for the provision of a good or service;</tt></blockquote></blockquote>
<blockquote><tt>(d) money of a spouse in an account with a financial institution;</tt></blockquote>
<blockquote><tt>(e) a spouse's entitlement under an annuity, a pension, a retirement savings plan or an income plan;</tt></blockquote>
<blockquote><tt>(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;</tt></blockquote>
<blockquote><tt>(g) the amount by which the value of excluded property has increased since the later of the date</tt></blockquote>
<blockquote><blockquote><tt>(i) the relationship between the spouses began, or</tt></blockquote></blockquote>
<blockquote><blockquote><tt>(ii) the excluded property was acquired.</tt></blockquote></blockquote>


==Further Reading in this Chapter==
==Further Reading in this Chapter==
Line 206: Line 242:


* <span style="color: red;">bulleted list of linked legislation referred to in page</span>
* <span style="color: red;">bulleted list of linked legislation referred to in page</span>
Family Law Act, Divorce Act, Constutution Act 1867 at least
Family Law Act


===Links===
===Links===
Retrieved from "https://wiki.clicklaw.bc.ca/index.php?title=Special:MobileDiff/2178"