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

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Part 5 of the ''Family Law Act'' deals with the division of property and debt, and provides the definitions of ''family property'' and ''family debt'', the things that are presumed to be shared between spouses, and ''excluded property'', which is presumed to remain the property of the spouse who owns it. Part 6 of the ''Family Law Act'' talks about the division of pensions between spouses and says which portion of a pension is supposed to be shared and which parts remain the property of the pension member.  
Part 5 of the ''Family Law Act'' deals with the division of property and debt, and provides the definitions of ''family property'' and ''family debt'', the things that are presumed to be shared between spouses, and ''excluded property'', which is presumed to remain the property of the spouse who owns it. Part 6 of the ''Family Law Act'' talks about the division of pensions between spouses and says which portion of a pension is supposed to be shared and which parts remain the property of the pension member.  


This section looks into the nooks and crannies of Part 5 of the act in some detail, but it doesn't say much about pensions because the division of pensions can be extremely complicated. For information about that, you should speak to a family law lawyer.
This section looks into the nooks and crannies of Part 5 of the act in some detail, but it doesn't say much about pensions because the division of pensions can be extremely complicated. For information about that, you should speak to a family law lawyer. A pension can be a very valuable asset. It is important to include it when dividing property.


===Standing===
===Standing===
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<blockquote><blockquote><tt>(ii) in which at least one spouse has a beneficial interest</tt></blockquote></blockquote>
<blockquote><blockquote><tt>(ii) in which at least one spouse has a beneficial interest</tt></blockquote></blockquote>


The ''end date'' for the accumulation of family property, then, is presumed to be the date of separation. The ''start date'' is the date the spouses' relationship begins, and is found in the definition of ''excluded property'' at s. 85:
The ''end date'' for the accumulation of family property is presumed to be the date of separation. The ''start date'' is the date the spouses' relationship begins, and is found in the definition of ''excluded property'' at s. 85:


<blockquote><tt>(1) The following is excluded from family property:</tt></blockquote>
<blockquote><tt>(1) The following is excluded from family property:</tt></blockquote>
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===Family property and family debt===
===Family property and family debt===


Family property is defined at s. 84(1) as all of the property owned by either or both spouses ''on the date of their separation''. Family property includes property that is bought ''after separation'' with family property, for example when a spouse trades in the old family Ford Windstar as the down payment for shiny new Porsche Boxster. The Windstar was family property that both spouses have an interest in; since the Boxster was bought with the family property, it too is family property that both spouses have an interest in.
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 if a spouse uses money from a joint bank account to buy a new car, after separation, the new car will be family property.


Section 84(2) gets into the specifics of the sorts of things that might be family property:
Section 84(2) gets into the specifics of the sorts of things that might be family property:
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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 if a spouse takes out a loan to make the mortgage payments on the family home. Since the family home is family property, the loan is a family debt that both spouses are responsible for.
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 if a spouse takes out a loan to make the mortgage payments on the family home. Since the family home is family property, the loan is a family debt that both spouses are responsible for.


====The triggering event====
====Separation====


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. This is all a bit complicated to explain, so please bear with me.
When the spouses separate, 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. This is all a bit complicated to explain, so please bear with me.


=====How property is owned=====
=====How property is owned=====
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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.
Because each owner's interest is separate from the other owners, a tenant in common can sell his or her share in the asset to someone else, put a mortgage on his or her interest or use it as collateral, or give it to someone else as a gift. If a tenant in common dies, his or her interest in the thing becomes a part of his or her estate to be distributed according to his or her will.


=====The effect of the triggering event=====
=====The effect of the Separation=====


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. If there's a triggering event and each spouse takes a one-half interest as a tenant in common, 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.
S. 81(b) of the ''Family Law Act'' states:
 
Family law lawyers describe the effect of a triggering event as "crystallizing" the spouses' interests in the family property because the triggering event makes each spouse the legal owner of one-half of the family assets in a way that is also binding on people outside the relationship, like creditors, trustees in bankruptcy, potential purchasers and so forth. After a triggering event happens, all a creditor can lien or seize to secure or pay a debt is the debtor's half-share of an asset, regardless of whether the debtor was the sole owner or the joint owner of the asset before the triggering event.
 
=====The date of separation=====
 
Under s. 81(b), the one triggering event under the ''Family Law Act'' is the ''date of separation'':


<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>
<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>


If this sounds odd to you, it's probably because the old ''Family Relations Act'' had four triggering events, each of which required a spouse to have taken some sort of legal step following seaparation. The triggering events under the old act were:
From a family law perspective, the most important thing about owning an asset as tenants in common, which is how assets are owned after the spouses separate, 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. If there has been a separation and each spouse takes a one-half interest as a tenant in common, 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.


#the annulment of the spouses' marriage,
Family law lawyers describe the effect of a separation as "crystallizing" the spouses' interests in the family property because the separation 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 separation 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 separation.
#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.


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.
Under the ''Family Law Act'' there is no requirement that the parties start a court proceeding or sign an agreement in order to be separated.


====The valuation of property and valuation date====
====The valuation of property and valuation date====


Although the pool of family property to be shared between spouses is crystallized when the triggering event happens, under s. 87(b), the ''value'' of the family 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 take four of five months to finish an agreement for the division of property.
Although the pool of family property to be shared between spouses is crystallized when the separation happens, under s. 87(b), the ''value'' of the family 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 take four of five months to finish an agreement for the division of property.


Under s. 87(a), the value of property is its ''fair market value'', the 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.
Under s. 87(a), the value of property is its ''fair market value'', the 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.
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{{REVIEWED | reviewer = [[JP Boyd]], March 24, 2013}}
{{REVIEWED | reviewer = [[Megan Ellis, QC]], January 23, 2015}}


{{JP Boyd on Family Law Navbox|type=chapters}}
{{JP Boyd on Family Law Navbox|type=chapters}}
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