Dividing Property and Debt in Family Law Matters

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

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

Introduction

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

The Plan of the Family Law Act for Property and Debt

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

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

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

Putting the Plan into Action

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

Step One

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

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

Step two

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

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

Step Three

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

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

Step Four

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

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

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

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

Step Five

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

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

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

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

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

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

Step Six

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

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

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

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

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

Step Seven

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

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

Orders for the Division of Property and Debt

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

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

Determining Jurisdiction

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

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

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

Determining Whether the Court Should Make Orders

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

(a) the interests of the spouses;

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

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

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

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

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

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

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

(g) any other circumstances the court considers relevant.

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

Determining the Law to Apply When the Court May Make Orders

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

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

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

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

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

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

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

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

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

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

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

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

Property and Debt in British Columbia

Section 97 is the 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:

1. make decisions about any issue concerning the ownership, possession or division of property or debt;
2. make any order necessary to divide property or debt;
3. declare who should own or possess property;
4. make a spouse to pay compensation if or she has sold or transferred property that should have been shared;
5. require the sale of a property and payment to the spouses from the proceeds of the sale;
6. make one spouse be responsible for debt;
7. require the sale of property to pay debt; and,
8. make orders transferring property to a spouse.

Under s. 97, the court can make whatever orders are needed to equally divided family property and family debt between spouses, whatever extra orders are needed to divide family property and family debt unequally under s. 95 and whatever extra orders are needed to divide excluded property under s. 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 s. 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 s. 89, the court can make an order for the interim distribution of some of the family property to pay for:

1. the cost of the court proceeding;
2. the cost of another dispute resolution process, like mediation, arbitration and collaborative settlement processes; and
3. the cost of expert's reports, like needs of the child assessments under s. 211, property assessments or business valuation.

Use of Property

Under s. 90, the court can make an order that one spouse have the exclusive right to live in the family home and use the property 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.

Under s. 91(2)(a), the court make make other 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 s. 91(1) and (2), the court can make some really important orders that are intended to freeze the 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.

1. the order must be made when a spouse asks for it, unless the other spouse can show that there are enough assets that the claim to the property won't be frustrated if he or she happens to sell some of the assets;
2. the order can be made without giving the other spouse notice of the application; and,
3. the order includes not just "family property" but all property in dispute, including property that might be excluded property.

This is a powerful 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 s. 39 of the provincial Law and Equity Act. See the previous page, ______ , for more information about protecting property.

Dividing Property and Debt Equally

Under s. 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 s. 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, property

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

(ii) in which at least one spouse has a beneficial interest;

(b) after separation, property

(i) acquired by at least one spouse, or

(ii) in which at least one spouse acquires a beneficial interest,

that is derived from the property referred to in paragraph (a) or from the disposition of that property.

(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 s. 95(1) of the Family Law Act, the court may divide family property or family debt unequally, but only if an equal division would be "significantly unfair". It's hard to say what "significantly unfair" means, because the Divorce Act doesn't use this phrase and the old Family Relations Act only talked about things that are just unfair and things that are grossly unfair. It seems reasonable to assume that something which is significantly unfair is more unfair than something which is just unfair yet is less unfair than something that is grossly unfair.

Section 95(2) provides a list of factors that the court may take into account in deciding whether an equal division of property and debt would be 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.

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(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.

Further Reading in this Chapter

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Page Resources and Links

Legislation

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

Links

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