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Difference between revisions of "Dividing Property and Debt in Family Law Matters"
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Dividing Property and Debt in Family Law Matters (view source)
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{{JP Boyd on Family Law TOC|expanded = assets}}{{JPBOFL Editor Badge | {{JP Boyd on Family Law TOC|expanded = assets}}{{JPBOFL Editor Badge | ||
|CoAuthor = [[Trudy Hopman]] and [[Beatrice McCutcheon]] | |||
|ChapterEditors = [[Helen Chiu]] and [[Matthew Ostrow]] | |ChapterEditors = [[Helen Chiu]] and [[Matthew Ostrow]] | ||
}}{{LSSbadge | }}{{LSSbadge | ||
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===How the ''Family Law Act'' divides property and debt=== | ===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. | 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. It also talks about how ownership of pets, or ''companion animals'', should be determined, as the normal presumptions about family property and excluded property no longer apply to these animals starting 15 January 2024. Part 6 talks about how pensions, which count as family property under Part 5, get divided between spouses. | ||
This is how Part 5 works: | This is how Part 5 works: | ||
*'''Section 97(2)(a):''' | *'''Section 97(2)(a):''' says that the court can make declarations concerning the ownership, right of possession or division of property (including companion animals) and family debt, and can make orders that may be necessary to give effect to such declarations. | ||
*'''Section 106:''' | *'''Section 106:''' 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:''' | *'''Section 81:''' 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:''' | *'''Sections 84 and 85:''' tell you how to figure out which property is family property and which property is excluded property. | ||
*'''Section 94(1):''' | *'''Section 92''': gives spouses the right to make agreements about property division should they separate, determine what items of property will or won't be included or excluded, divide property equally or unequally, make their own determinations on value of property, and agree about ownership or possession of companion animals, including shared ownership or possession. | ||
*'''Sections 95 and | *'''Section 94(1):''' gives the court the authority to make orders for the division of property and debt between spouses. | ||
*'''Section 109(1):''' | *'''Sections 95 and 96:''' say when the court may divide family property and family debt unequally, and when division of excluded property is permitted. | ||
*'''Section 97(4)''': says that excluded property can only be divided as permitted under section 96, or if the excluded property is a companion animal. | |||
*'''Sections 97(4.1)-(4.3)''': say what the court must consider when declaring ownership of a companion animal, prohibits declarations of shared ownership or possession of one, and says sections 95 and 96 do not apply to such orders. | |||
*'''Section 109(1):''' 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. | 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. | ||
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: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. | :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 and Debt in Family Law Matters#Property claims and people who aren't spouses|Property and 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. | :If you're not a spouse, ''stop'' and read the discussion in the introductory section of this chapter, [[Property and Debt in Family Law Matters#Property claims and people who aren't spouses|Property and Debt in Family Law Matters]], 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''' | '''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. | :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. Oral agreements are harder to prove, but you should consider the special circumstances of your relationship and question if an oral agreement about property or debt might be argued (either by you or the other spouse). | ||
:If you have | :If you have a written 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 a written agreement about property that you want to vary or set aside, you must seek an order from the court. If an oral agreement exists or might exist, this will not interrupt the steps you take next, but it may be a reason for the court to make an order for unequal division of property under section 95(2)(b) that adjusts for what the oral agreement provided for. | ||
'''Step Three''' | '''Step Three''' | ||
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'''Step Five''' | '''Step Five''' | ||
:Now you have to start sorting what you have into ''family property'' and ''family debt'', and ''excluded property'' and | :Now you have to start sorting what you have into ''family property'' and ''family debt'', and ''excluded property'' and excluded debt (i.e. 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 and debt that you got ''after you separated'' is generally the separate property or separate obligation of each spouse, with two main exceptions: | ||
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::*excluded property which is then gifted by one spouse to the other. | ::*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 | :Property that you got ''before your relationship'' is generally excluded property that only you will keep. If you have gifted excluded property to your spouse, section 85(3) should maintain that exclusion for your benefit (but not if your family law case was started prior to May 11, 2023). 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''' | '''Step Six''' | ||
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:Next you need to figure out what everything is worth and where it is. This will be the hard part. | :Next you need to figure out what everything is worth and where it is. This will be the hard part. | ||
:For ''excluded property'' and | :For ''excluded property'' and excluded 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? | ::*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? | ::*For property acquired during the relationship, when did you acquire each asset and what was it worth when you received it? | ||
::* | ::*If it was a gift from a third party, was this gift to you only, or you and your spouse together? And can you prove this? | ||
::*What did you do with your property during your relationship? Is it still around? Did you sell it and buy something else? | ::*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? | ::*Did you gift it to your spouse? (Again, this should not matter anymore, and you should be able to keep this exclusion unless your family law case was started before May 11, 2023.) | ||
::*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? | ::*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? | ::*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? | ||
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: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. | :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. | :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). These factors include: | ||
::*a spouse's direct contribution to the preservation, maintenance, improvement, operation or management of the excluded property, | |||
::*the terms of any oral or written agreement about the excluded property (a written agreement that met the requirements of section 93 would need to be handled at step two, however if there is an agreement that's in writing but is unwitnessed then this kind of written agreement could be a factor the court will consider), or | |||
::*if an unequal division of family property is not enough to address the significant unfairness, excluded property can be divided. | |||
: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== | ==Orders for the division of property and debt== | ||
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===Property and debt inside British Columbia=== | ===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 | Section 97 is the key to Part 5 of the ''[[Family Law Act]]'' and gives the court its general power to make orders that give effect to the other sections relating to 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 decisions about any issue concerning the ownership, possession, or division of property or debt, | ||
*make any order necessary to divide property or debt, | *make any order necessary to divide property or debt, | ||
*declare who should own or possess property, | *declare who should own or possess property, including companion animals, | ||
*make a spouse pay compensation if they have sold or transferred property that should have been shared, | *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, | *require the sale of a property and payment to the spouses from the proceeds of the sale, | ||
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*make orders transferring property to a spouse. | *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. | 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 (except with respect to companion animals), and | |||
* whatever extra orders are needed to divide excluded property under section 96 (except with respect to companion animals). | |||
One thing to note about section 97 is that on 15 January 2024 it expanded to include the rules for how ownership of companion animals is decided by the courts. Section 97(4.1) contains the special factors that a court must consider when making an order about a companion animal, as explained in the section below. | |||
====Interim orders==== | ====Interim orders==== | ||
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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." | 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." | ||
====Ownership and possession of pets==== | |||
As mentioned earlier, companion animals have special treatment under the ''Family Law Act'' as of 15 January 2024. As of that date, these animals are also unique in that they are the only type of property that the BC Provincial Court has jurisdiction to decide ownership about. The Provincial Court has no jurisdiction to make orders about any other type of property under Part 5 of the Act. | |||
Under section 97(4.2) a court cannot make an order that the parties share ownership of a pet. If a judge is to make an order, they must specify which spouse is the owner. Parties acting on their own initiative can make a family law agreement agreeing to shared ownership of their pet, if that's what they want, but a court is restricted and can only make an order that one or the other party is the owner. This idea that companion animals should not be "divided up" the same way as other kinds of property that are primarily about monetary value, is consistent with the other amendments in section 97 that relate to companion animals: | |||
* Section 97(4.2) says what factors the judge must consider when making an order about a pet, and the needs of the animal, the relationship it has with a child, and the threats of family violence or animal cruelty are all important factors in addition to which spouse cared for and how it was acquired. | |||
* Section 97(4.3) says that sections 95 and 96 do not apply to orders about pets, which means the court isn't concerned about finding ''significant unfairness'', and instead: | |||
**The judge can make an order that a spouse owns 100% of the dog rather than just 50%, even though section 95 would normally only allow an unequal division of family property where there would otherwise be ''significant unfairness''. | |||
**The judge can make an order that one spouse owns the cat, even though the other brought it into the relationship, and even though ''exclusive property'' would normally be divided according to the very specific circumstances in section 96. | |||
In other words, the court doesn't have to make any findings of significant unfairness to divide the pet "unequally" as family property. And a court is not restricted from declaring that a pet that would otherwise be one spouse's ''excluded property'' will now be exclusively owned by the other spouse. | |||
What the judge must do instead, when deciding ownership of a companion animal, is work through section 97(4.1) to consider: | |||
<blockquote><tt>(a) the circumstances in which the companion animal was acquired;</blockquote></tt> | |||
<blockquote><tt>(b) the extent to which each spouse cared for the companion animal;</blockquote></tt> | |||
<blockquote><tt>(c) any history of family violence;</blockquote></tt> | |||
<blockquote><tt>(d) the risk of family violence;</blockquote></tt> | |||
<blockquote><tt>(e) a spouse's cruelty, or threat of cruelty, toward an animal;</blockquote></tt> | |||
<blockquote><tt>(f) the relationship that a child has with the companion animal;</blockquote></tt> | |||
<blockquote><tt>(g) the willingness and ability of each spouse to care for the basic needs of the companion animal;</blockquote></tt> | |||
<blockquote><tt>(h) any other circumstances the court considers relevant.</blockquote></tt> | |||
===Property and debt outside British Columbia=== | ===Property and debt outside British Columbia=== | ||
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===Making a valid agreement=== | ===Making a valid agreement=== | ||
An agreement about the division of property and debt is almost always in writing, signed by both parties, and signed by a witness, even though oral agreements or less formal agreements in writing are possible. There are good reasons for this based on how the ''Family Law Act'' treats properly written agreements versus oral or informal written agreements, and because the terms of oral agreements are notoriously hard to prove. | |||
====Benefits of written versus oral agreements about property==== | |||
As mentioned, if there is a written, signed, and witnessed agreement (which is the criteria in section 93(1)), then a judge cannot make a property division order unless a party has made a successful application to have all or some of the written agreement set aside. This means that a written agreement cannot simply be ignored or sidestepped. By contrast, the ''Family Law Act'' does not prevent a judge from making a property division order in the face of an oral agreement, or an agreement that is written but doesn't meet the criteria in section 93(1). | |||
A written agreement is also much clearer and easier to prove. Proving the terms of an oral agreement is usually a difficult and risky process for the person trying to do that in the face of a spouse who disputes the fact there even was an agreement, or disagrees about what the agreement included. | |||
It is | It is highly recommended that any family law agreement be in writing. | ||
====Requirements of a valid written agreement==== | |||
Requirements about the validity of agreements comes from 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. | |||
====Getting legal advice==== | |||
You can be on totally good terms with the other person, and still get a lawyer to look at your family law agreement. This is standard practice, and strongly advised for every agreement. Each spouse should get their own lawyer. Family lawyers are often approached by individuals to provide independent legal advice, or ''ILA'', about family law agreements. It's not a big deal, and it shouldn't be interpreted as a sign of trouble or dysfunction. The lawyer will explain and give advice about the terms of the agreement before the parties sign it. This step ensures that each spouse understands the nature, circumstances, terms, and the effect of the agreement. An ILA is especially important if one spouse has a limited understanding of the English language or has limited education. | |||
====Fully disclosing all property and debts==== | |||
Each spouse must properly and fully disclosed all assets and debts in the spouse's name in the agreement. A written agreement that merely says "what's mine is mine and yours is yours" without first disclosing what that is, 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=== | ===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. If a spouse is unhappy with the terms any agreement that deals with property or debt, the spouse must: | |||
# ask the court to set aside those parts, and | |||
# ask for an order about the division of property and debt. | |||
Applications to set aside written family law agreements are made under section 93, and to succeed the applicant must typically take a two stage approach. The onus of proof is on the applicant. Can the spouse who wishes to set aside the agreement show that one of the situations at section 93(3) existed when the parties entered the agreement? If so, then the written agreement was unfairly reached and can be set aside. If the spouse can't pass the first stage, then can they show that the written agreement was significantly unfair in light of the factors in section 93(5)? That section gives the court discretion to set aside an agreement as ''significantly unfair'', but requires some factors to also be considered. | |||
====Stage one: circumstances around formation of the agreement==== | |||
A typical challenge to a written agreement is successful because it meets the requirements of this first stage, and the situations listed in section 93(3) apply, which means there is proof that: | |||
* a spouse failed to disclose significant property or debts, | |||
* a spouse took improper advantage of the other spouse's vulnerability, | |||
* one of the spouses did not understand the nature or consequences of the written agreement, or | |||
* the written agreement would be voidable under the common law rules around contracts. | |||
====Stage two: significant unfairness factors==== | |||
If none of the situations in section 93(3) apply, the written agreement might still be challenged at the second stage. It might be set aside under section 93(5) if a spouse can show it is ''significantly unfair''. Significant unfairness represents a high threshold for setting aside an agreement, however. Furthermore, a court could agree that a written agreement is significantly unfair, but still decline to set it aside after considering the factors under section 93(5), which are: | |||
* the length of time that has passed since the written agreement was made, | |||
* the intention of the spouses to achieve certainty when they entered the written agreement, or | |||
* the degree to which the spouses relied on the terms of the written agreement. | |||
These three factors — passage of time, intention to achieve certainty through the agreement, and degree of reliance on the terms of the agreement — could themselves show that an agreement is ''significantly unfair'', but the court can also consider these factors in deciding whether or not a significantly unfair agreement should be set aside or left in place. As the BC Court of Appeal said in ''[https://canlii.ca/t/jd2rs Azanchi v. Mobrhan-Shafiee]'', 2021 BCCA 55 "a court may determine that, despite significant unfairness, an agreement should not be set aside if, for example, the parties have relied heavily on its terms in making their lifestyle choices, or have deliberately risked having to live with an unfair agreement because they placed a high value on certainty." | |||
It's important to remember that section 92 of the ''Family Law Act'' anticipates that people might make agreements to exclude assets from family property, divide assets unequally, or otherwise deviate from the default property division rules in the Act. So long as a written agreement was fairly reached (taking into account the situations listed in section 93(3)) a court will not likely find a written agreement to be significantly unfair just because it deviates significantly from what a party is entitled to under the ''Family Law Act''. | |||
====Family law agreements and contract law==== | ====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 under the common law principles of contract, the court will usually give considerable weight to family law agreements that are in writing. 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 a written agreement, it can sometimes be necessary to attack the agreement itself under the common law that applies to contracts. An agreement might be found to be invalid (or voidable) for one or more of the following reasons: | |||
Because of the importance the court will usually give to | |||
*one of the parties was forced to enter into the agreement, | *one of the parties was forced to enter into the agreement, | ||
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*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. | *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, | All of these arguments for why an agreement is voidable are based on the common law of contracts, and 93(3)(d) lets you make them in an application to set aside an agreement. | ||
====Agreements on property and debt and the ''Family Law Act''==== | ====Agreements on property and debt and the ''Family Law Act''==== | ||
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<blockquote><tt>(d) other circumstances that would under the common law cause all or part of a contract to be voidable.</tt></blockquote> | <blockquote><tt>(d) other circumstances that would under the common law cause all or part of a contract to be voidable.</tt></blockquote> | ||
The last part of this test, | The last part of this test, 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. | 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. | ||
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{{REVIEWED | reviewer = [[ | {{REVIEWED | reviewer = [[Beatrice McCutcheon]], November 22, 2023}} | ||
{{JP Boyd on Family Law Navbox|type=chapters}} | {{JP Boyd on Family Law Navbox|type=chapters}} | ||
