Dividing Property and Debt in Family Law Matters

If spouses are able to agree on how their property and debts will be divided, they can make a separation agreement setting out the terms of their agreement. However, if they can't agree the court will make an order dividing their property and debt for them after court proceedings are started.

This page talks about how property and debt is divided by the court through court orders and by spouses through separation agreements, when excluded property can be shared between spouses, when family property can be divided unequally and when the court can make orders about property located outside British Columbia.

Introduction

Whether you're able to settle how property and debt are going to be shared by agreement or if you're going to need a court order, it's important to understand how the Family Law Act works. If you're going to start a court proceeding, the court will be required to divide property using the rules set out in the act; if you're going to be able to settle your property issues, the act will be used to measure the fairness of your agreement if either of you ever try to get out of the agreement in the future.

The Plan of the Family Law Act for Property and Debt

Part 5 of the Family Law Act talks about the division of family property and family debt between spouses. It says what counts as shared family property and family debt, and which property is excluded from family property. It talks about when family property and family debt can be divided unequally and the circumstances in which excluded property may be divided between spouses. Part 6 talks about how pensions, which Part 5 says are family property, get divided between spouses. This is how Part 5 works...

• Section 97(2)(a): This section says that the court can make declarations concerning the possession and ownership of property and to make orders as may be necessary to give effect to such declarations.
• Section 106: This section says when the courts of British Columbia have the authority to divide property and debt if there is another court which also make orders dividing property and debt.
• Section 81: This section states the basic principle that when spouses separate, each spouse takes a one-half interest in family property as a tenant in common and each becomes responsible for one-half of the family debt.
• Sections 84 and 85: These sections tell you how to figure out which property is family property and which property is excluded property.
• Section 94(1): This section gives the court the authority of the court to make orders for the division of property and debt.
• Sections 95 and 95: These sections say when the court should divide excluded property between spouses and when it should divide family property unequally.
• Section 109(1): This section allows the court to make orders for the ownership and division of property outside of British Columbia.

Interestingly, there isn't a section that out and out says "the court should make orders dividing family property and family debt equally"; you have to figure this out from s. 81, which says that each spouse should have half of the family property and family debt, and from s. 94, which says that the court can make orders dividing family property and family debt.

Putting the Plan into Action

Here's a step-by-step guide to Part 5. The discussions that follow will go into things in more detail.

Step One

To divide property and debt under the Family Law Act, you first have to figure out whether you're a "spouse" as defined by s. 3(1)(a) or 3(1)(b)(i). You must either be married or have lived with your partner in a marriage-like relationship for at least two years.

If you're not a spouse, stop and read the discussion about people who don't qualify as spouses divide property under the common law relating to trusts and equity in the _____ page.

Step two

Next you need to look at any cohabitation agreement or marriage agreement that you may have signed earlier in your relationship to see whether it talks about how property or debt.

If you have an agreement about property, stop. Section 94(2) says that you cannot apply for a division of property if there's a written agreement about property or debt until that agreement is set aside.

Step Three

Next you have to check that you're making your claim within the time limits set out in s. 198(2). Married spouses must bring their claims for the division of property and debt within two years of the date of their divorce or a declaration declaring their marriage a nullity; unmarried spouses must bring their claims within two years of the date of their separation.

If you're outside the time limits, stop and talk to a lawyer whether you're within the limitation period to ask for an interest in property under the common law relating to trusts and equity.

Step Four

Now you have to figure out whether there's another court somewhere outside of British Columbia that has the authority to make an order affecting you, your spouse and your property. Most of the time the answer to this question will be no, however if:

1. you and your spouse lived somewhere else for a long time;
2. you have property outside of the province; or,
3. you have a cohabitation agreement or a marriage agreement that requires the laws and courts of another place to be used,

there may be a problem. If another court can make an order, you then have to figure out whether the courts of British Columbia should be hearing your case or not under s. 106.

If your case is better dealt with by another court, stop because you'll need to start a court proceeding there. If not, you can continue here

Step Five

Now you have to start sorting what you have into family property and family debt, and excluded property and personal debt. Start from the assumption that everything you have is family property and family debt and the work backwards.

Property and debt that you got after you separated is generally the separate property of each spouse, with two main exceptions:

1. property bought after separation with family property is also family property; and,
2. debt incurred after separation to maintain family property is family debt.

Property you got during your relationship is generally family property, except for certain kinds of property that are excluded from family property. These include:

1. inheritances;
2. gifts;
3. certain court awards; and,
4. certain insurance payments.

Property and debt that you got before your relationship is generally excluded property and personal debt.

Step Six

Next you need to figure out what everything is worth and where it is. This will be the hard part.

For excluded property and personal debt, what you need to know is:

• What was the value of each asset on the date you began to live together or got married, whichever was first?
• For property acquired during the relationship, when did you acquire each asset and what was it worth when you received it?
• What did you do with your property during your relationship? Is it still around? Did you sell it and buy something else?
• Do you still have any debts from before your relationship started? If so, how much did you owe on the date you began to live together or got married, whichever was first?
• Have you incurred any new debt after the date of your separation? Did you add to any debts incurred during your relationship after separation? If so, how much new debt have you racked up?

For family property and family debt, you need to know:

• What is the value of each asset now?
• Is there any property that was bought after separation with family property? If so, what is the value of those assets?
• What are the debts owed by you, by your spouse or by both of you, and how much is owing now?
• If new debt was incurred after the date of separation, was any of it incurred to pay for family property? It so, how much new debt was spent on family property?

Step Seven

Now that you've got the numbers worked out, you have to think about whether an equal division of family property and family debt would be "significantly unfair", bearing in mind the factors listed in s. 95(2). If it wouldn't be significantly unfair, then split the family property and family debt equally and go on with your life. If it would be significantly unfair, then you've got to figure out what a fair split looks like and I wish you the best of luck sorting this out in a speedy manner.

Finally, you have to think about whether there's a reason to share in some or all of the excluded property. Excluded property can be divided if there's property outside of British Columbia that ought to be family property but can't easily be divided or if it would be "significantly unfair" not to share excluded property bearing in mind the factors listed in s. 96(b). If there's no reason to share excluded property, carry on. If it there is a reason to share that property, then you've got to figure out what a fair division looks like; good luck.

Orders for the Division of Property and Debt

Under the Family Law Act, a person with standing as a "spouse" under s. 3 may apply, within the two-year time limit in s. 198, for a division of property under s. 94(1). Where another court may also make an order for the division of property, the court here must first determine whether it should go ahead under s. 106 and, if so, it must next determine what law it should apply under s. 108. However, where no other court may make an order respecting property, the court here may make orders dividing property and debt under Part 5 of the act without any more complications.

The usual order under Part 5 is an order that decides which property is family property and which debt is family debt, and then divides them both equally. However, in some circumstances the court can divide family property and family debt unequally; in others the court can even divide excluded property between spouses.

Determining Jurisdiction

A spouse who is married or has lived with his or her spouse in a marriage-like relationship can start a court proceeding in British Columbia and ask for orders about the division of property and debt. There's no rule which says that a person who starts a court proceeding in British Columbia must live in British Columbia, but there must be some sort of connection with this province and the court proceeding. Maybe the other spouse lives here. Maybe the property or debt is here. Maybe British Columbia is where the spouses lived for most of their relationship. Either way, there must be some connection between the court proceeding and British Columbia.

However, where another court might be able to make orders about the same people and the same property, the court here must decide:

1. if it should make orders dividing property and debt or leave those issues for the other court; and,
2. if it should make orders, the law it should apply in dividing the property and debt.

Determining Whether the Court Should Make Orders

You should skip this discussion if no court other than the court of British Columbia can make orders about you, your spouse and your property.

Where another court might be able to make orders about the same people and the same property, s. 106(2) says when the court here can make an order under Part 5:

(2) Despite any other provision of this Part, the Supreme Court has authority to make an order under this Part only if one of the following conditions is met:

(a) a spouse has started another proceeding in the Supreme Court, to which a proceeding under this Part is a counterclaim;

(b) both spouses submit, either in an agreement or during the proceeding, to the Supreme Court's jurisdiction under this Part;

(c) either spouse is habitually resident in British Columbia at the time a proceeding under this Part is started;

(d) there is a real and substantial connection between British Columbia and the facts on which the proceeding under this Part is based.

In other words, the court here can make an order if:

1. the claim about property is a counterclaim to the court proceeding;
2. both spouses agree that the court should make orders about property and debt;
3. either spouse normally lived here when the proceeding started; or,
4. if there is a "real and substantial connection" between this province and the proceeding.

Section 106(3) helps to explain what "real and substantial connection" means:

(3) For the purposes of subsection (2) (d), a real and substantial connection is presumed to exist if one or more of the following apply:

(a) property that is the subject of the proceeding is located in British Columbia;

(b) the most recent common habitual residence of the spouses was in British Columbia;

(c) a notice of family claim with respect to the spouses has been issued under the Divorce Act (Canada) in British Columbia.

In other words, there is a "real and substantial connection" between this province and a court proceeding, which may let the court here make orders about the division of property and debt, if:

1. the property is here;
2. the spouses last lived together here; or,
3. the court proceeding includes a claim under the Divorce Act (the reason for this factor is that the Divorce Act requires a spouse to have lived in the province where he or she makes a claim under the act for at least one year before the court proceeding is started).

As if this wasn't complicated enough, even if the court can make an order because one of the s. 106(2) conditions are met, under s. 106(4) the court refuse to make orders for the division of property and debt. Section 106(5) says what the court must take into account in deciding to refuse to make orders:

(5) In determining whether to decline jurisdiction under subsection (4), the court must consider all of the following:

(a) the interests of the spouses;

(b) the relative convenience and expense for the spouses and their witnesses;

(c) if section 108 [choice of law rules] applies, the law to be applied to issues in the proceeding;

(d) the desirability of avoiding multiple proceedings or conflicting decisions in different courts or tribunals;

(e) the extent to which an order respecting property or debt

(i) made in another jurisdiction would be enforceable in British Columbia, and

(ii) made in British Columbia would be enforceable in another jurisdiction;

(f) the fair and efficient working of the Canadian legal system as a whole;

(g) any other circumstances the court considers relevant.

This is a little harder to boil down, but these factors essentially ask the court to think about what is cheapest, fastest and fairest for the spouses and requires the least number of court proceedings.

Determining the Law to Apply When the Court May Make Orders

You should skip this discussion if no court other than the court of British Columbia can make orders about you, your spouse and your property.

Assuming, then, that the court here has decided that it has the authority to make orders for the division of property and debt because one of the s. 106(2) factors is met, and that it hasn't decided to refuse to make orders anyway under s. 106(4), the next thing to figure out is the law that the court should use in deciding how the property and debt should be divided under ss. 107 and 108. That law could be the law of British Columbia — Part 5 of the Family Law Act — or it could be the law of another place.

Section 108 is just as complicated as s. 106 was, but this is what it all comes down to.

1. under s. 108(3), if the spouses have an agreement that says the law of a particular place must be used, the law the court must use is the law of that particular place;
2. under s. 108(4), if the spouses first together lived in a place that divides property like the Family Law Act divides property, the law the court must use is the law of the place where the spouses first lived together;
3. under s. 108(5), if neither of the first two circumstances apply, the law the court must use is the "applicable internal law."

Section 107 says how you figure what the "applicable internal law" is:

The applicable internal law for the purposes of section 108 [choice of law rules] is

(a) the internal law of the jurisdiction in which the spouses had their most recent common habitual residence,

(b) if the jurisdiction under paragraph (a) is outside Canada and is not the jurisdiction most closely associated with the relationship between the spouses, the internal law of the jurisdiction that is most closely associated with the relationship between the spouses, or

(c) if the spouses did not have a common habitual residence, the internal law of the jurisdiction in which the spouse making an application for an order under this Part was most recently habitually resident.

In other words, the "applicable internal law" that should be used to divide property and debt between spouses is:

1. the law of the place where the spouses most recently lived together;
2. the law of the place where the spouses lived together the longest; or,
3. if the spouses never lived together, the law of the place where the spouse making the claim for the division of property normally lives.

In the right circumstances, the "applicable internal law" could be the Family Law Act!

Property and Debt in British Columbia

Section 97 is the central element of Part 5 and gives the court its general powers to effect the division of property and debt. Under s. 97, the court may:

(a) determine any matter respecting the ownership, right of possession, or division of property or debt;

(b) make any order that is necessary to give effect to a division of property or debt;

(c) declare who has ownership of or right of possession to property;

(d) require a spouse to pay compensation to the other spouse if property has been disposed of, transferred, converted, or exchanged into another form, or for the purpose of dividing the property;

(e) require partition or sale of property and payment out of the proceeds of sale to one spouse or both in specified proportions or amounts;

(f) declare that one spouse is responsible for payment of a family debt and must indemnify the other spouse for the debt;

(g) require the sale of property for the purposes of paying a family debt; and,

(h) transfer property to a spouse.

Further Reading in this Chapter

• bulleted list of other pages in this chapter, linked

Page Resources and Links

Legislation

• bulleted list of linked legislation referred to in page

Family Law Act, Divorce Act, Constutution Act 1867 at least

Links

• bulleted list of linked external websites referred to in page