Dividing Property and Debt in Family Law Matters

If a couple are able to agree on how their property and debts will be divided, they can make a separation agreement summarizing the terms of their settlement. However, if they can't agree, one or either of them will likely start court proceedings and the court will make an order dividing their property and debt for them.

This section talks about how property and debt are divided between spouses by the court through court orders made under the Family Law Act, and by spouses through separation agreements. It also discusses 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 tries to get out of the agreement in the future.

How the Family Law Act divides 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 shared family debt, and which property is excluded from family property and is supposed to remain the separate property of the owner. It talks about when family property and family debt can be divided unequally, and the circumstances in which excluded property may be shared between spouses. Part 6 talks about how pensions, which count as family property under Part 5, 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 can make orders that 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 that can also make orders dividing property and debt between the same spouses.
• 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 to make orders for the division of property and debt between spouses.
• Sections 95 and 95: These sections say when the court may divide excluded property between spouses and when it may 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 explicitly says "the court should make orders dividing family property and family debt equally"; you have to figure this out from section 81, which says that each spouse should have half of the family property and family debt, and from section 94, which says that the court can make orders dividing family property and family debt.

Dividing property and debt under the Family Law Act

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 section 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 in the introductory section of this chapter, Property & Debt, about the property rights of people who aren't spouses. People who don't qualify as spouses are entitled to share in property that they both own, and may have an interest in property only one of them owns under the common law relating to trusts and equity.

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 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. Accordingly, if you have an agreement about property that you want to vary or set aside, you must seek an order from the court.

Step Three

Next you have to check that you're making your claim within the time limits set out in section 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 that their marriage is 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. Talk to a lawyer to confirm that you're out of time and ask about 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, there may be a problem if:

• you and your spouse lived somewhere else for a long time,
• there is a court action commenced in another jurisdiction seeking the same or similar relief,
• you have property outside of the province, or
• you have a cohabitation agreement or a marriage agreement that requires the laws and courts of another place to be used.

The problem is this. If another court can make an order, you then have to figure out under section 106 whether the courts of British Columbia should be dealing with your proceeding at all.

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 then work backwards.

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

• property bought after separation with family property is also family property (i.e. if the source of the funds used to buy the property can be traced back to family property), and
• 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:

• inheritances,
• gifts from a third party, unless they are gifts to both spouses,
• certain court awards,
• certain insurance payments,
• certain trust property, and
• excluded property which is then gifted by one spouse to the other.

Property that you got before your relationship is generally excluded property that only you will keep, unless you have gifted it to your spouse. The increase in the value of the property you brought into the relationship is family property even where the original amount remains excluded. You will likely remain responsible for debt you brought into the relationship.

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 immediately before you began to live together or got married, whichever came first?
• For property acquired during the relationship, when did you acquire each asset and what was it worth when you received it?
• Was it a gift to you, or you and your spouse together?
• What did you do with your property during your relationship? Is it still around? Did you sell it and buy something else?
• Did you gift it to your spouse?
• 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?
• Did you buy any family property using the proceeds of sale of excluded property? If so, how much did you put toward the purchase of the family property?
• 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? If so, how much new debt was incurred paying for family property?

Step Seven

Now that you've got the numbers worked out, you may want to think about whether an equal division of family property and family debt would be "significantly unfair," bearing in mind the factors listed in section 95(2), which includes, but is not limited to, the duration of the relationship and whether a spouse, after the date of separation, caused a significant decrease or increase in the value of the family property or family debt beyond market forces. 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 may also want 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 section 96(b). If there's no reason to share excluded property, carry on. If there is a reason to share that property, then you've got to figure out what a fair division looks like.

Orders for the division of property and debt

Under the Family Law Act, a person who is a "spouse" under section 3 may apply, within the two-year time limit in section 198, for a division of property under section 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 section 106 and, if so, it must next determine what law it should apply under section 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 person who qualifies as a spouse under section 3 of the Family Law Act can start a court proceeding in British Columbia and ask for orders about the division of property and debt. There's no rule that 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:

• if it should make orders dividing property and debt or leave those issues for the other court, and
• 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 part if no court other than the Supreme Court of British Columbia can make orders about you, your spouse, and your property.)

When another court might be able to make orders about the same people and the same property, section 106(2) provides the rules to help the court here determine when it may make orders dividing that property between those people 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:

• the claim about property was made by a counterclaim in the BC Supreme Court proceeding,
• both spouses agree that the court should make orders about property and debt,
• either spouse normally lived here when the proceeding started, or
• 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 they make 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 section 106(2) conditions are met, under section 106(4) the court can 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:

(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 will require 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 section 106(2) factors is met, and that it hasn't decided to refuse to make orders anyway under section 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 sections 107 and 108. That law could be the law of British Columbia, namely Part 5 of the Family Law Act, or it could be the law of another place.

Section 108 is just as complicated as section 106, but what it all comes down to is this:

1. under section 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 section 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 section 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 out 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:

• the law of the place where the spouses most recently lived together,
• the law of the place where the spouses lived together the longest, or
• if the spouses never lived together, the law of the place where the spouse making the claim for the division of property and debt normally lives.

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

Property and debt inside British Columbia

Section 97 is the key to Part 5 of the Family Law Act and gives the court its general power to make orders about the division of property and debt. Under this section, the court may:

• make decisions about any issue concerning the ownership, possession, or division of property or debt,
• make any order necessary to divide property or debt,
• declare who should own or possess property,
• make a spouse pay compensation if they have sold or transferred property that should have been shared,
• require the sale of a property and payment to the spouses from the proceeds of the sale,
• make one spouse be responsible for debt,
• require the sale of property to pay debt, and
• make orders transferring property to a spouse.

Under section 97, the court can make whatever orders are needed to equally divide family property and family debt between spouses, whatever extra orders are needed to divide family property and family debt unequally under section 95, and whatever extra orders are needed to divide excluded property under section 96.

Interim orders

An interim order is a temporary order made after a court proceeding has started and before it has wrapped up with a trial or a settlement. Under section 88, a spouse can apply to court for an interim order about property at any time until a final order or a final agreement has been made about the division of property and debt.

Paying for dispute resolution processes

Under section 89, the court can make an order for the interim distribution of some of the family property to a party to pay for:

• the cost (i.e. legal fees) of the court proceeding,
• the cost of another dispute resolution process, like mediation, arbitration, and collaborative settlement processes, and
• the cost of expert's reports, like needs of the child assessments under section 211, property appraisals, or business valuation.

In practice, the court will usually make an order for an interim distribution for legal fees if the court feels it is necessary to "level the playing field" between spouses. By making such an order, the court tries to ensure that the spouse who has all the money and can afford a lawyer does not have an advantage over the spouse who does not have as much money and may not be able to afford to pay for a lawyer without an interim distribution for legal fees.

Use of property

Under section 90, the court can make an interim order that one spouse have the exclusive right to live in the family home and use the property (i.e. household contents and furnishings) kept at the family home. The court will make these orders if it's no longer possible for the spouses to share the home and if the convenience to the spouse who's staying in the home outweighs the inconvenience to the spouse who's being made to leave. Usually, if there are children (especially young children), the spouse who has primary care of the children will be the spouse who remains in the family home because the children require the stability and security of remaining in the family home.

Under section 91(2)(a), the court can make other interim orders "for the possession, delivery, safekeeping and preservation of property." This might include orders that a spouse must return personal property to the other spouse or that a spouse will have the sole use of personal property, like a car that's necessary to go to work or take the kids to school.

Financial restraining orders

Under section 91(1) and (2), the court can make some really important interim orders that are intended to freeze any property that is at issue in the court proceeding, including family property and property that might be excluded property, until the property is finally divided by an order or an agreement.

(1) On application by a spouse, the Supreme Court must make an order restraining the other spouse from disposing of any property at issue under this Part or Part 6 [Pension Division] until or unless the other spouse establishes that a claim made under this Part or Part 6 will not be defeated or adversely affected by the disposal of the property.

(2) The Supreme Court may make one or more of the following orders:

(b) for the purpose of protecting the applicant's interest in property from being defeated or adversely affected,

(i) prohibiting the other spouse from disposing of, transferring, converting, or exchanging into another form, property in which the applicant may have an interest, or

(ii) vesting all or a portion of property in, or in trust for, the applicant.

A couple of important points about this section deserve mention:

• the order must be made when a spouse asks for it, unless the other spouse can show that there are sufficient assets so that the claim to the property won't be frustrated if they happen to sell some of the assets,
• the order can be made without giving the other spouse notice of the application, and
• the order includes not just "family property" but all property in dispute, including property that might be excluded property.

This is a powerful interim order and you should probably think about asking for this order if you are asking for a share of property. This is just a matter of being prudent. You may have no cause to believe that your spouse would do something that would jeopardize your interests, but it almost always pays to be cautious.

Rule 12-4 of the Supreme Court Family Rules gives the court the authority to make a general restraining order, called an injunction, to require someone to do something or not do something. The same authority is given to the court by section 39 of the provincial Law and Equity Act. See this chapter's section on Protecting Propery & Debt for more information.

Dividing property and debt equally

Under section 81(a) of the Family Law Act, "spouses are both entitled to family property and responsible for family debt, regardless of their respective use or contribution." Under section 81(b), each spouse's share of the family property is presumed to be an "undivided half interest" and each spouse is "equally responsible for family debt." Section 97 gives the court the ability to make whatever orders are necessary to divide family property and family debt between spouses.

Section 84 says what family property is:

(1) Subject to section 85 [excluded property], family property is all real property and personal property as follows:

(a) on the date the spouses separate,

(i) property that is owned by at least one spouse, or

(ii) a beneficial interest of at least one spouse in property;

(b) after separation,

(i) property acquired by at least one spouse if the property is derived from property referred to in paragraph (a) (i) or from a beneficial interest referred to in paragraph (a) (ii), or from the disposition of either, or

(ii) a beneficial interest acquired by at least one spouse in property if the beneficial interest is derived from property referred to in paragraph (a) (i) or from a beneficial interest referred to in paragraph (a) (ii), or from the disposition of either.

(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.

Section 86 says what family debt is:

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.

Dividing property and debt unequally

Under section 95(1) of the Family Law Act, the court may divide family property or family debt unequally, but only if equal division would be "significantly unfair" in the context of the factors mentioned in section 95(2). Recent court decisions explain that the unfairness must be "weighty, meaningful or compelling." A judge can only order an unequal division of family property where the result of equal division would be so unfair as to be unjust or unreasonable. It is highly unlikely that a court would find the circumstances to be "significantly unfair" merely because one spouse worked during the marriage and the other spouse did not.

Section 95(2) provides a list of factors considered when deciding if equal division of property and debt is significantly unfair:

(2) For the purposes of subsection (1), the Supreme Court may consider one or more of the following:

(a) the duration of the relationship between the spouses;

(b) the terms of any agreement between the spouses, other than an agreement described in section 93 (1) [setting aside agreements respecting property division];

(c) a spouse's contribution to the career or career potential of the other spouse;

(d) whether family debt was incurred in the normal course of the relationship between the spouses;

(e) if the amount of family debt exceeds the value of family property, the ability of each spouse to pay a share of the family debt;

(f) whether a spouse, after the date of separation, caused a significant decrease or increase in the value of family property or family debt beyond market trends;

(g) the fact that a spouse, other than a spouse acting in good faith,

(i) substantially reduced the value of family property, or

(ii) disposed of, transferred or converted property that is or would have been family property, or exchanged property that is or would have been family property into another form, causing the other spouse's interest in the property or family property to be defeated or adversely affected;

(h) a tax liability that may be incurred by a spouse as a result of a transfer or sale of property or as a result of an order;

(i) any other factor, other than the consideration referred to in subsection (3), that may lead to significant unfairness.

In some cases, judges find that the unequal contribution of one person, along with other factors, warrants unequal division. In other cases, unequal contribution is not enough to establish "significant unfairness."

Under section 95(3), the court can also take into account issues relating to spousal support in deciding whether to divide family property and family debt unequally:

(3) The Supreme Court may consider also the extent to which the financial means and earning capacity of a spouse have been affected by the responsibilities and other circumstances of the relationship between the spouses if, on making a determination respecting spousal support, the objectives of spousal support under section 161 [objectives of spousal support] have not been met.

This provision will apply when there is an obvious need for spousal support to be paid, but the potential payor doesn't have the surplus income from which to pay. In this situation, the spouse in need of support might get more of the family property to make up for the support that can't be paid. See the chapter on Spousal Support for more information about when spousal support might be payable.

Dividing excluded property

Under section 96 of the Family Law Act, the court may not make an order dividing excluded property between spouses except in two situations: if there's property outside the province that can't be divided under section 109, discussed below; or, if it would be "significantly unfair" not to divide the excluded property in light of the length of the spouses' relationship or one spouse's contributions to the excluded property owned by the other spouse. Section 96 says this:

The Supreme Court must not order a division of excluded property unless

(a) family property or family debt located outside British Columbia cannot practically be divided, or

(b) it would be significantly unfair not to divide excluded property on consideration of

(i) the duration of the relationship between the spouses, and

(ii) a spouse's direct contribution to the preservation, maintenance, improvement, operation or management of excluded property.

As we saw in the discussion about section 95, it's hard to say what "significantly unfair" means. I expect that something that is "significantly unfair" is more unfair than something which is just "unfair," yet is less unfair than something that is "grossly unfair."

Property and debt outside British Columbia

Division 6 of Part 5 of the Family Law Act has a complicated test that the court must apply to determine whether it can and should make orders dividing property and debt between spouses when another court could also make orders about the same people and the same property and debt. This was discussed earlier in this section under the heading "Determining jurisdiction."

If the court decides that it can make orders, it can, in certain circumstances, also make orders about property located outside the province under s 109(2):

(2) For the purposes of dividing extraprovincial property, the Supreme Court, on application by a spouse, may make an order to do one or more of the following:

(a) instead of dividing the extraprovincial property,

(i) require property or family debt within British Columbia to be substituted for rights in the extraprovincial property, or

(ii) require a spouse who has legal title to the extraprovincial property to pay compensation to the other spouse;

(b) if the court is satisfied that it would be enforceable against a spouse in the jurisdiction in which the extraprovincial property is located,

(i) preserve the extraprovincial property,

(ii) provide for the possession of the extraprovincial property,

(iii) require a spouse who has legal title to the extraprovincial property to transfer all or part of the spouse's interest in the extraprovincial property to the other spouse, or

(iv) provide for any other matter in connection with the extraprovincial property;

(c) if the court is satisfied that it would be enforceable in the jurisdiction in which the extraprovincial property is located, provide for non-monetary relief.

To put this another way:

1. under section 109(2)(a), the court can divide family property here unequally to compensate for property outside the province, just like how the court can divide excluded property for the same reason under section 96(a),
2. under section 109(2)(b)(i), the court can make a kind of restraining order to stop the property outside the province from being sold, just like how the court can make restraining orders about property inside the province under section 91(1), and
3. under section 109(2)(b)(ii) and (iii) and section 109(3), the court can make orders about which spouse should be able to possess or own property outside the province and orders transferring property outside the province between spouses.

Separation agreements for the division of property and debt

A separation agreement is a contract that records a settlement of the issues that arise when a relationship ends. Separation agreements can be an effective and inexpensive way of settling things. However, the terms of the agreement must be reasonable, and the parties must be able to get along well enough to negotiate the deal and then put it into action when it's done.

The ways that a separation agreement can deal with the division of family property and family debt are virtually unlimited. Under the Family Law Act, each spouse is presumed to keep the property they brought into the relationship and share in the property bought during the relationship as well as the increase in the value of any property brought in. Although spouses are presumed to be each half responsible for any debt incurred during the relationship, you can make whatever other arrangements you want, as long as both spouses agree to those arrangements and they're reasonably fair. In fact, section 92 says this:

Despite any provision of this Part but subject to section 93 [setting aside agreements respecting property division], spouses may make agreements respecting the division of property and debt, including agreements to do one or more the following:

(a) divide family property or family debt, or both, and do so equally or unequally;

(b) include as family property or family debt items of property or debt that would not otherwise be included;

(c) exclude as family property or family debt items of property or debt that would otherwise be included;

(d) value family property or family debt differently than it would be valued under section 87 [valuing family property and family debt].

In other words, in making an agreement about the division of property and debt, spouses can divide unequally the things they're supposed to divide equally, divide things they're not supposed to divide, and not divide things that are supposed to be divided. As long as you both agree, you can do pretty much whatever you want in a separation agreement.

The effect of a valid agreement

When spouses have written, signed, and witnessed an agreement about the division of property and debt, section 94(2) of the Family Law Act says that the court cannot make an order about the division of family property, excluded property, or family debt, unless the parts of the agreement that deal with property and debt are set aside by a court order. This gives agreements on the division of property and debt a lot more protection against later court challenges than was provided to agreements under the old Family Relations Act.

Making a valid agreement

Under the Family Law Act, an agreement about the division of property and debt may be oral or written. However, it is highly recommended that the agreement be in writing so that there is less chance of a dispute over the terms of the agreement.

There are requirements about the validity of agreements that are part of the common law of contracts. These are discussed in a little more detail further on in this section, but for a more thorough discussion you should look at the Family Law Agreements chapter.

It is also highly recommended that each spouse obtain independent legal advice (i.e. hiring a lawyer (separate lawyers) to explain and give advice about the terms of the agreement) before signing the agreement to ensure that each spouse understands the nature, circumstances, terms, and the effect of the agreement, especially if one spouse has a limited understanding of the English language or has limited education.

It is also important to ensure that each spouse has properly and fully disclosed all assets and debts in the spouse's name in the agreement. An agreement that says "mine is mine and yours is yours" without proper disclosure may not be upheld by the court if one spouse seeks to set it aside or vary it.

Asking the court to set aside an agreement

Section 94(2) says that the court cannot make an order dividing property or debt in the face of a written and witnessed agreement on property and debt until it has set aside those parts of the agreement. As a result, if a spouse is unhappy with the terms of a separation agreement on property or debt, the spouse must first ask the court to set aside the agreement and second, ask for an order about the division of property and debt.

Family law agreements and contract law

Family law agreements are private contracts reached between two people. While family law agreements can be attacked and enforced on the principles of contract law, the court will usually give considerable weight to family law agreements. Without proof of some serious problem like duress or coercion, or some other issue, the court will treat the agreement as representing the honest and informed intentions of the parties to settle their dispute.

Because of the importance the court will usually give to an agreement, it can sometimes be necessary to attack the agreement itself under the law that applies to contracts. An agreement might be found to be invalid for one or more of the following reasons:

• one of the parties was forced to enter into the agreement,
• one party was too much under the influence or control of the other party in consenting to the terms of the agreement,
• the agreement is fundamentally unfair, or
• one party lied to the other party or hid information from that party, and these misleading representations were the basis on which the other party signed the agreement.

All of these arguments are based on the law of contracts, not on a particular piece of legislation.

Agreements on property and debt and the Family Law Act

The Family Law Act provides two tests to help the court decide when an agreement on property and debt should be set aside. Under the first test, at section 93(3), the court must look at the situation of the parties when they were negotiating and executing the agreement. The court is required to consider whether the following circumstances existed when the parties were making their agreement:

(a) a spouse failed to disclose significant property or debts, or other information relevant to the negotiation of the agreement;

(b) a spouse took improper advantage of the other spouse's vulnerability, including the other party's ignorance, need or distress;

(c) a spouse did not understand the nature or consequences of the agreement;

(d) other circumstances that would under the common law cause all or part of a contract to be voidable.

The last part of this test, at subsection (d), is about whether there is a defect under the law of contracts that might make the agreement void or voidable. The other parts of the test are all about the fairness of the parties' negotiations.

Now, even if there are problems with an agreement under section 93(3), the court can still decide not to set aside the agreement if "it would not replace the agreement with an order that is substantially different from the terms set out in the agreement" under section 93(4). In other words, if the court wouldn't make a different order than the arrangements the parties agreed to, it might just leave the agreement alone.

If there are no problems under section 93(3), the second test, at section 93(5), allows the court to set aside agreements that are "significantly unfair", taking into account:

(a) the length of time that has passed since the agreement was made;

(b) the intention of the spouses, in making the agreement, to achieve certainty;

(c) the degree to which the spouses relied on the terms of the agreement;

If the court sets aside an agreement under section 93(3) or (5), the court will then make an order dividing property and debt between the spouses in place of the agreement.

Resources and links

Legislation

• Family Law Act
• Law and Equity Act
• Family Relations Act

Links

• Canadian Bar Association BC Branch: Dividing property and debts
• Justice Education Society: Workbook for parents separated with children on dealing with finances
• Legal Services Society’s Family Law website: How to divide property and debts

This information applies to British Columbia, Canada. Last reviewed for legal accuracy by Helen Chiu, May 14, 2019.

JP Boyd on Family Law © John-Paul Boyd and Courthouse Libraries BC is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 2.5 Canada Licence.