Protecting Property and Debt in Family Law Matters

It's sometimes necessary to take steps to protect family property, family debt, and excluded property until a final agreement or order dividing assets is made. Failing to take these steps can sometimes result in property being sold, lessened in value, used as collateral for a loan, moved out of province, or being seized by a trustee in bankruptcy or a creditor. Most of the time it only becomes important to protect property after a couple has separated.

This section reviews some important initial steps that you can take to secure family property and family debt. It also looks at the restraining orders that can stop family property from being disposed of, the problems posed by third-party claims such as debts and bankruptcy, and how assets located outside British Columbia can be protected.

Initial steps

It may seem a bit neurotic to be worrying about assets when your relationship is falling apart, but this is precisely the time to be concerned. It certainly isn't the case that every spouse is busy squirrelling money away in Switzerland or Antigua, or hatching plans to transfer the title of the family home to a loan shark from Las Vegas, but there are certain steps you should take regardless of how well you think you know your spouse.

There is, as they say, no sense in bolting the barn door after the horses have gone. It's fairly reasonable to take steps to protect your own interests, and in most cases you probably should.

Take stock of property and debt

Firstly, you might want to take a careful, but not too obvious, tally of what each of you owns and owes. This might be difficult if you and your spouse keep separate bank accounts and maintain your own investments, but make your best efforts. A list of the bank accounts, RRSP and investment accounts, cars, properties, loans, lines of credit and credit cards you have may prove to be extremely useful. Even if you can't get all the account details, a record of the names of the financial institutions that are sending your spouse mail can be extremely useful.

Make it clear that you've separated

Once you've decided that your relationship can't continue, and you're sure that it can't continue, you need to separate. This doesn't mean that you and your spouse need to move into separate homes, but you need to announce your decision and you should probably do it in writing so that you have a record of the date of separation.

Under s. 81(b) of the provincial Family Law Act, when separation happens each spouse takes a one-half in all family property as tenants in common, regardless of how the property was owned before separation, and becomes responsible for one-half of all family debt. This can be critical to protect your share of the family property from creditors, your spouse's bankruptcy, or court orders made in other court proceedings.

While it's always a good idea to consult with a lawyer if you have a family law problem, be especially sure to do so if you're not certain whether separating would be helpful or harmful.

There are only a few times when a separation is a bad idea, usually when the effect of separation will limit a claim to one-half of the family property when there's a good chance that it might be more. Say, for example, that a spouse is in poor health and dying when the parties separate. The effect of separation may mean that a surviving spouse will get no more than half of the deceased spouse's estate when the spouse might have received more than half as surviving joint tenant.

Register your interest in property

Registering an interest in real property will stop the property from being sold and may prevent the property from being borrowed against. The two most common ways to do this are by filing an entry under the Land (Spouse Protection) Act with the Land Title and Survey Authority a Certificate of Pending Litigation under the Land Title Act or by filing a Certificate of Pending Litigation under the Land Title Act.

Entries under the Land (Spouse Protection) Act

Married spouses and unmarried spouses may file an entry on the title of the family home under the provincial Land (Spouse Protection) Act. The entry will prevent a spouse from transferring, selling, leasing, or making a gift of the family home without the knowledge and approval of the spouse filing the entry.

The great thing about these entries is that you can get one whether court proceedings have started or not. This is an ideal way to protect yourself if you only have a slight concern about your relationship or the trustworthiness of your spouse, but don't have the need to begin a proceeding just yet. The downside, of course, is that entries under this act only protect the single property that is or was used as the family home.

Certificates of pending litigation under the Land Title Act

Where a court proceeding has started in the Supreme Court, a Certificate of Pending Litigation(CPL), formerly called a lis pendens, can be registered against the title of any property owned by you and your spouse at the Land Title and Survey Authority. As long as you have asked for a CPL in your Notice of Family Claim or Counterclaim and made a claim for the division of family property, you will be entitled to register a CPL.

The effect of a CPL is to announce to anyone interested in the property, such as a mortgagee or a creditor or a potential buyer, that ownership of the property may change as a result of the litigation. This discourages and usually prevents the sale, or the use of the property as collateral.

You can file your CPL at the same time as you file your Notice of Family Claim or Counterclaim. The registry will stamp your CPL and you must take the stamped CPL and file it in the Land Title and Survey Authority together with a copy of your Notice of Family Claim or Counterclaim.

Notices and financing statements under the Family Law Act

Spouses who have made a cohabitation agreement, a marriage agreement, or a separation agreement dealing with real property can file a notice of the agreement against the title of the property with the Land Title and Survey Authority under s. 99 of the Family Law Act. A notice can be filed whether court proceedings have started or not, and will prevent the other spouse from transferring, selling, leasing, or otherwise dealing with the property without the voluntary cancellation of the notice or a court order.

A financing statement can be filed in the Personal Property Registry against a manufactured home under s. 100. This will stop the manufactured home from being transferred, and any new debts registered against the manufactured home will come in second to the spouse's interest under the financing statement.

Make sure the rent gets paid and the lights stay on

Section 226 of the Family Law Act allows the Provincial Court and the Supreme Court to make a conduct order that can require a party to keep paying the household bills and prevent a party from terminating services to the family home:

A court may make an order to do one or more of the following:

(a) require a party to make payments respecting rent, mortgage, specified utilities, taxes, insurance and other expenses related to a residence;

(b) prohibit a party from terminating specified utilities for a residence;

Most of the time, people don't stop paying the mortgage or cut off the electricity to the former family home when they move out. However, it can be very tempting to do this when emotions are running high, when there's not enough money to pay rent at the new place plus rent for the old place, or when the BC Hydro account at the former family home is in the name of the person who needs to arrange for the electricity to be hooked up at his or her new place. The court is not likely to make orders under s. 226 when there's not enough money to pay for everything, but it will step in where someone is acting out of spite or malice.

Financial restraining orders

A restraining order is an order of the Supreme Court requiring someone to do something or to not do something. A typical restraining order relating to family assets reads something like this:

The Respondent shall be and is hereby restrained from disposing or encumbering, or attempting to dispose of or encumber, the family property and other property at issue without the express written agreement of the Claimant or the further order of this Honourable Court.

In other words, unless the respondent comes to an agreement with the claimant or the court makes another order, under a restraining order like this the respondent is not allowed to sell any real property or personal property, or use that property as collateral for a loan or a mortgage. An order on terms like these is usually all that will be necessary for most couples in most circumstances and will cover real and personal property in British Columbia and personal property outside of British Columbia.

Remember that the Provincial Court does not have the power to make orders affecting property, including restraining orders about property.

The Family Law Act

The easiest way for married and unmarried spouses to obtain a financial restraining order is to apply for an order under s. 91(1) of the Family Law Act. This section says that:

(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 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.

A couple of important points about this section deserve mention.

• The order must be granted on a party's application, unless the other party can show that there are enough assets that the applicant's claim to the property won't be frustrated if he or she happens to sell some of the assets.
• The order can be made without the other party being given notice of the application.
• The order includes not just family property but all "property at issue," which might include excluded property.

This is an important order and should probably be applied for whenever a claim is being made for the division of property. Again, this is a matter of simply 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.

The Rules of Court

Rule 12-4 of the Supreme Court Family Rules gives the court the authority to make a general restraining order, also called an injunction, to make someone to do something or not do something. The potential scope of these restraining orders is very broad, and can include, for example, a restraining order identical to that provided for in s. 91 of the Family Law Act as well as an order stopping someone from racking up debt by drawing on credit cards and lines of credit.

Rule 12-4 says little more that "the court can issue an injunction." A 1986 case of the British Columbia Court of Appeal, British Columbia v. Wale, 1986 CanLII 171 (BCCA) offers some guidance. In that case, the court held that someone applying for an injunction had to prove three things. In a family law context involving unmarried parties, these are that:

1. you have a reasonable claim against assets owned by your spouse,
2. your spouse has disposed of or encumbered his or her assets or is likely do so, and
3. the inconvenience that will be suffered by your spouse as a result of the injunction is less severe than the inconvenience you will suffer if the injunction isn't granted.

The Law and Equity Act

Section 39 of the provincial Law and Equity Act does pretty much the same thing as Rule 12-4 of the Supreme Court Family Rules. Section 39 says this:

(1) An injunction ... may be granted ... in all cases in which it appears to the court to be just or convenient that the order should be made.

(2) An order made under subsection (1) may be made either unconditionally or on terms and conditions the court thinks just.

(3) If an injunction is requested either before, at or after the hearing of a cause or matter, to prevent any threatened or apprehended waste or trespass, the injunction may be granted if the court thinks fit, whether the person against whom the injunction is sought is or is not in possession under any claim of title or otherwise or, if out of possession, does or does not claim a right to do the act sought to be restrained under any colour of title, and whether the estates claimed by both or by either of the parties are legal or equitable.

This section gives the court a fairly broad authority to make an injunctions where the injunction is justified. Much like injunctions under Rule 12-4, you will have to show that:

1. you have a reasonable claim against assets owned by your spouse,
2. your spouse has disposed of or encumbered his or her assets or is likely do so, and
3. the inconvenience that will be suffered by your spouse as a result of the injunction is less severe than the inconvenience you will suffer if the injunction isn't granted.

Applying for restraining orders without notice

The court can only make orders, including restraining orders, when a court proceeding has been started. When there is an urgent problem, as might be the case if a spouse is threatening to sell or move an asset, applications for injunctions and restraining orders can be made with little or notice to the spouse and sometimes before the spouse has even been notified of the court proceeding.

It's important to know that if you are applying for an injunction or restraining order without notice to the other spouse, the court will require that you make full and complete disclosure of all of the relevant facts, even of those facts that aren't in your favour. If it is discovered that you haven't made full disclosure, the court can set aside the injunction, make an award of costs against you, or make an award of damages to compensate the other party for any inconvenience caused by the injunction. In a 1986 Supreme Court case called Morin v. Morin, 1986 CanLII 896 (BCSC), this resulted in a spouse having the injunction cancelled and getting awarded special court costs of the application.

Debts, bankruptcies and third-party claims

Apart from the possibility that your spouse will be less than forthright in dealing with the family property and family debt, you may also need to protect your interest in those assets from claims made by creditors and third parties, and against the possibility of your spouse's bankruptcy or your spouse racking up further debt. These issues can be dealt with, for the most part, by ensuring that you:

1. separate, to convert the ownership of all property to a shared ownership with your spouse as tenants in common,
2. register a CPL against all real property in which your spouse has an interest, and
3. obtain a financial restraining order under one or more of s. 91 of the Family Law Act, s. 39 of the Law and Equity Act or Rule 12-4 of the Supreme Court Family Rules.

The problem here is that property that is owned only by your spouse, or by both of you as joint tenants, may be vulnerable to your spouse's creditors and in the event of his or her bankruptcy. Say, for example, your spouse has put up his or her car as collateral for a loan. You would normally be entitled to one-half the car's value as a family property, assuming the car was bought during your relationship. If your spouse defaults on the loan, the car can be seized and you could find, especially where there are few other assets, that you can get no compensation for your interest in the car's value once the lender's default fees and legal fees are added on.

Your spouse's creditors or trustee in bankruptcy will not usually be able to seize assets held only in your name or your interest in property as a tenant in common unless you are responsible for your spouse's debts for some reason, like co-signing or guaranteeing a loan, or using a secondary credit card on your spouse's account. Although, under the Family Law Act both spouses are responsible for the debts incurred during their relationship, this obligation is only between spouses and doesn't give any extra rights to creditors.

Creditors

Creditors have a wide range of remedies available to them when a debtor fails to live up to the conditions of a loan, a line of credit or a credit card. Among other things, a creditor can:

• seize any asset put up as collateral on the loan,
• sue the debtor for the amount owing,
• put a lien on property owned by the debtor,
• garnish the debtor's wages,
• force the sale of the debtor's property to meet the debt, or
• register a judgment against the debtor's property.

Any one of these remedies can harm the interest the other spouse has in what would otherwise be family property, even if the other spouse had nothing to do with how or why the debt was incurred. The effect of separation can help to shield the other spouse's presumptive one-half interest in the family property from creditors and limit their ability to recover to the half of the property owed by the debtor spouse.

Third-party claims

Your spouse might be liable for damages or debt to someone in a court proceeding unrelated to your relationship. Your spouse may also have made a deal with someone outside the family that concerns the family property. These people may have a legitimate claim against the family property. The problem is that even though their claim or entitlement may be restricted to property owned by your spouse in his or her name alone, your interest in that property may be lost if a third party gets there first.

As we've discussed, both spouses have a presumptive interest in the family property, including property owned only by the other spouse, as long as it qualifies as family property. A third-party claim or entitlement can result in the loss of an asset or in the loss of value of property. By the time the family property is divided, without separation or a restraining order, the assets might very well be in the hands of someone else and no longer be available for division.

Bankruptcy

When someone declares bankruptcy, the ownership of his or her property is transferred to a trustee in bankruptcy. The trustee's job is to tally up the list of the bankrupt's debts and then sell as much of the bankrupt's property as is necessary to satisfy his or her creditors. This may include almost all property registered in the bankrupt's name, but will exclude a few specific assets like pensions, clothing, and work tools.

If an asset is family property, the transfer of the asset to the trustee may deprive the other spouse of any interest he or she might have in that asset and, since the owning spouse is bankrupt, he or she may not have any other financial resources from which to compensate the non-bankrupt spouse for the lost interest.

A trustee in bankruptcy cannot take property that doesn't belong to the bankrupt. If the spouses separate before the bankruptcy, only the bankrupt's one-half interest in the family as a tenant in common will go to the trustee.

Protecting property outside British Columbia

This issue is a bit difficult, so please bear with me. The law that deals with the division of property between spouses in this province is the Family Law Act. Because the jurisdiction of the government of British Columbia is generally limited to the province of British Columbia, the government cannot usually make laws that affect people and things located outside of British Columbia. For the same reason, the courts of British Columbia usually only have the jurisdiction to deal with things located inside the province of British Columbia.

There are some exceptions to these general rules.

• The Supreme Court of British Columbia can make an order requiring a person to do or not do something when that person accepts the authority of the court, even where that person lives outside the province.
• A person is considered to have accepted the authority of the court by responding to a court proceeding. Once an out-of-province respondent files a Response to Family Claim in reply to the claimant's Notice of Family Claim, he or she has accepted the jurisdiction of the court to deal with the litigation. This is called attorning to the jurisdiction.
• When someone attorns to the jurisdiction of the courts of British Columbia, they submit to the court's authority. The court still may not have the authority to make orders about things located outside the province, but it does have the authority to make orders about the person located outside the province. This is called "in personam jurisdiction".
• A court with in personam jurisdiction over a person can make orders requiring the person to do or not do things involving certain kinds of things located outside the province, such as assets like bank accounts, stocks, investment accounts, and similar assets that aren't real estate. These assets are called movable assets.
• Whether a court has in personam jurisdiction or not, it usually won't have jurisdiction over real property located outside the province. This kind of jurisdiction is called "in rem jurisdiction". Real property and things attached to real property like buildings are called immovable assets.

The upshot of all of this is the following general rules:

• the courts of British Columbia generally cannot deal with real property located in other provinces or outside of Canada,
• the Supreme Court of British Columbia can deal with out-of-province assets that are movable, like RRSPs, stocks, bank accounts, chattels and what not, as long as the owner has attorned to the court's jurisdiction, and
• the Provincial Court cannot deal with out-of-province issues at all.

However, the Family Law Act contains some provisions that are meant to give the court in rem jurisdiction out of province under certain circumstances and, if those circumstances are met, allow the court to make an order restraining a person from disposing of property located outside the province. Although it remains to be seen how effective this legislation will be in imposing on the authority of another jurisdiction, the act's out of province restraining orders are discussed below.

This area of the law is extremely complex, and you really should consider hiring a lawyer to help you whenever you have an interest in assets located outside the province.

Immovable property: real property

The general rule

Generally speaking, subject to the exception in the Family Law Act discussed below, there is nothing that can be done to stop someone from selling or otherwise dealing with real property located outside of British Columbia, even property that would normally qualify as a family asset. Usually, the only way to effectively protect that asset from sale or being used as collateral is to start a court proceeding in the jurisdiction in which the property is located.

The courts of this province will, however, usually compensate a spouse for an interest in out-of-province property by reapportioning the property that the court can deal with, property located inside British Columbia, to compensate for the property that it can't deal with. Here's an example:

Zygmunt has a farm in Flin Flon, Manitoba worth $50,000. Zygmunt and Ivan both own the family home in Vernon, British Columbia worth $100,000. Assuming both properties were bought after the relationship began and that both are family property, with an equal division each of the spouses would be entitled to $25,000 for the farm in Manitoba and $50,000 for the family home in British Columbia.

Since the court can't normally make an order requiring the sale or transfer of the property in Flin Flon, an equal division of the assets in the jurisdiction would give each spouse $50,000, half the value of the family home, but this would short Ivan of his interest in the farm. To avoid this unfairness, the court could simply divide the family home in Vernon in favour of Ivan, and give him a $75,000 share rather than an equal share.

This would reapportion the value of the property the court can deal with (the family home) to compensate Ivan for the interest he ought to have in the property the court can't deal with (the farm). Zygmunt is still left with half of the family property, as he remains the sole owner of the farm, $50,000, and gets a $25,000 share of the family home, for a total property interest of $75,000.

In truly exceptional circumstances, it is possible to get an order stopping someone from disposing of real property located outside the province with something called a "Mareva injunction". A Mareva injunction will stop someone from selling or encumbering assets outside of British Columbia, providing that certain conditions are met. (The name of this order comes from an old English case in which the relief was first granted, Mareva Compania Naviera S.A. v. International Bulkcarriers S.A., [1980] 1 All E.R. 213) To qualify for this order, you must:

1. show a strong case for your entitlement to a share of those assets,
2. show that there is a real risk that the other party will dispose of those assets before a final order is made, and
3. guarantee that you will make good any harm the other party might suffer if the order is made.

The Family Law Act

Under Division 6 of Part 5 of the Family Law Act, the Supreme Court of British Columbia may, in certain circumstances, make orders about the ownership and division of property located outside British Columbia. If the court has the ability to make orders dividing property located outside the province, it may also make an order to preserve the property from being disposed of. Section 109(2)(b) says this:

(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 ...

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

The first stumbling block is to figure out whether the court can divide the out-of-province property, and that requires a difficult analysis under ss. 106, 107 and 108 of the act. Assuming the court can make such orders, the next step is to find out whether the order would "enforceable against a spouse" in the place where the property is located. If the answer to both questions is yes, then the court may make an order for the preservation of the foreign property.

This part of the act is extremely complicated and you should get advice from a lawyer whenever you may need to deal with movable and immovable property located outside of British Columbia.

Movable property: financial assets

Where a spouse has accepted the court's authority, the court can make a restraining order stopping the spouse from disposing of movable property located outside of British Columbia under s. 91 of the Family Law Act. Movable property includes things like like bank accounts, stocks, investment accounts, and similar assets that aren't real estate and can be taken or transferred from place to place.

Inside British Columbia, a s. 91 order will stop a spouse from dealing with everything that is family property or other "property at issue," including real property. Outside British Columbia, a s. 91 restraining order will only stop a spouse from dealing with movable assets.

The court can be reluctant to issue a s. 91 order that is intended to deal with assets located outside the province, since in most cases the courts of British Columbia cannot make orders about things located outside the province. In a 2002 case called Boyd v. Boyd, 2001 BCCA 535, the Court of Appeal confirmed that the court can make in personam restraining orders that are effective against movable assets located outside the province.

If a s. 91 order is not available for some reason, a Mareva injunction will have the same effect. However, Mareva injunctions are not granted automatically and you must satisfy the test described just above.

Resources and links

Legislation

• Family Law Act
• Divorce Act
• Constitution Acts, 1867 to 1982
• Land (Spouse Protection) Act

Links

• BC Personal Property Registry Website
• 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