Assets of Couples (3:IX)
A. General
The FRA only applies to proceedings started prior to March 18, 2013 and to agreements made before the FLA came into force.
The division of property on marriage breakdown is dealt with in Part 5 of both the FRA and the FLA. The FRA creates a basic presumption of equal entitlement to family assets, real and personal property that is ordinarily used for a family purpose. Part 6 deals with the division of pensions. These two parts of the FRA do not apply to common law relationships, although common law partners could contract into the property provisions of the FRA. Also, the rights of the parties to family assets may be resolved by agreement, mediation or litigation. All litigation relating to property must be dealt with at the Supreme Court level. The Provincial Court does not have the jurisdiction to deal with assets.
The FLA significantly changes the property law regime in British Columbia, and reduces judicial discretion. It is a simpler model that is designed to help parties achieve resolutions out of Court. Itoperates on the presumption that spouses are equally entitled to family property that is proper and equally responsible for family debt (s 81). It also provides that unmarried spouses (who have lived together in a marriage-like relationship for at least two years) may avail themselves of the property and liability provisions of the FLA in Part 5 and 6.
B. Legislation
1. Divorce Act [DA]
The DA does not deal with property division.
2. Family Law Act [FLA]
Section 81 of the FLA outlines that each spouse is entitled to an undivided, one half interest of family property and is equally responsible for debt upon separation (Stonehouse v Stonehouse, 2014 BCSC 1057; Joffres v Joffres, 2014 BCSC 1778). However, the FLA substantially changes what is considered to be family property, essentially allowing spouses to keep property they bring into a relationship and share only in the increase in value of that property and the net value of new property obtained after cohabitation.
The FLA carves out a category of excluded property under section 85.
Section 85 (1) of the FLA reads as follows:
The following is excluded from family property:
(a) property acquired by a spouse before the relationship between the spouses began; (b) inheritances to a spouse; (b.1) gifts to a spouse from a third party; (c) a settlement or an award of damages to a spouse as compensation for injury or loss, unless the settlement or award represents compensation for
- (i) loss to both spouses, or
- (ii) lost income of a spouse;
(d) money paid or payable under an insurance policy, other than a policy respecting property, except any portion that represents compensation for
- (i) loss to both spouses, or
- (ii) lost income of a spouse;
(e) property referred to in any of paragraphs (a) to (d) that is held in trust for the benefit of a spouse; (f) a spouse's beneficial interest in property held in a discretionary trust (i) to which the spouse did not contribute, and (ii) that is settled by a person other than the spouse; (g) property derived from property or the disposition of property referred to in any of paragraphs (a) to (f).
Any increases in the value of the excluded property that occur during the relationship are considered family property and are not excluded from division. The spouse claiming that the property in question qualifies as excluded property is responsible for demonstrating that it fits the definition under s 85(1) (Bressette v Henderson, 2013 BCSC 1661).
This property division regime applies to all married spouses as well as all unmarried common law spouses who have lived in a marriage-like relationship for at least two years. The date of separation will be the relevant date used to identify the pool of family property to be divided. However, it is the date of the hearing or agreement which determines the date of valuation of property. Spouses may choose to opt out of these property division rules but must make these different arrangements through an agreement.
Family property is defined at s 84(1):
(a) on the date the spouses separate,
- (i) property that is owned by at least one spouse, or
- (ii) a beneficial interest of at least one spouse in property;
(b) after separation,
- (i) property acquired by at least one spouse if the property is derived from property referred to in paragraph (a) (i) or from a beneficial interest referred to in paragraph (a) (ii), or from the disposition of either, or
- (ii) a beneficial interest acquired by at least one spouse in property if the beneficial interest is derived from property referred to in paragraph (a) (i) or from a beneficial interest referred to in paragraph (a) (ii), or from the disposition of either.
C. Types of Assets
1. Family Assets/ Family Property
Under sections 84 – 85 of the FLA, family property includes all real and personal property owned by one or both spouses at the date of separation unless the asset in question is excluded, in which case only the increase in the value of the asset during the relationship is divisible. It is no longer relevant whether an asset was ordinarily used for a family purpose in deciding if it is family property.
A spouse can choose to prove that property falls under one of the following exclusions:
- Property acquired before or after the relationship;
- Gifts (from a third party) or inheritances to one spouse, unless the gift or inheritance was transferred into the parties’ joint name or the other spouse’s sole name;
- Most damage awards and insurance proceeds, except those intended to compensate both spouses
- Some kinds of trust property
- Under s 85(e), property must be held in trust for the benefit of a spouse
- A spouse's beneficial interest in property held in a discretionary trust to which the spouse did not not contribute, and that is settled by a person other than the spouse are also excluded from family property under s 85 (f)
Family property is presumptively divided equally unless it would be significantly unfair to do so (ss 81 and 95 of the FLA).
Family debt, which is new in the FLA, is divided equally, unless equal division would be significantly unfair to one spouse. The value of all property is calculated at either an agreed date, or at the date of a court hearing. Any increases in the value of the excluded property that occur during the relationship are considered family property and are not excluded from division.
2. Savings
Under the FLA, all money held by one spouse in a financial institution is considered family property and equally divisible, unless that spouse can prove that it is excluded property.
3. Pensions and RRSPs
Rights under an annuity, pension, home ownership, or registered retirement savings plan are considered family property, including each party’s Canadian Pension Plan (CPP) credits.
The division of pensions is clarified in the FLA. Unless the pension is proven to be excluded property, it will be divisible. The presumption is equal division unless it would be significantly unfair based on the considerations in s 95 of the FLA. If a spouse is to receive benefits at a later date, they may become a limited member of the plan. They cease to be a limited member then their share is transferred. A spouse can generally either choose to have a lump-sum payment of their share, to have a separate pension payment issued to them (s 115) or a hybrid of both (s 116). This decision may be made at any time (either before or after the pension commences) but the division will only occur after the pension has commenced (s 115).
If an agreement or order regarding the benefits of a pension provides that the benefits are not divisible or is silent on entitlement to benefits, a member and a spouse may agree to have benefits divided before the earliest of:
- Benefits are divided under the original agreement or order
- The member or spouse dies
- Benefits are terminated under the plan
If an agreement or order provides that the member must pay the spouse a proportionate share of benefits under a plan where the member’s pension commences and the member’s pension has not commenced, the member and spouse may agree, by the spouse giving notice to Division 2 of Part 6 of the FLA, to divide the benefits in accordance with the Part, and unless the member and spouse agree otherwise, the original agreement or order must be administered in accordance with the regulations.
NOTE: BC is one of the few provinces that allow spouses to enter into a written agreement to waive the equalization of their pensionable credits under the CPP.
4. Real Property
It is often necessary to take early steps to secure the title to real property when there is a separation. In fact, it is recommended for clients to file as soon as possible to avoid missing any limitation dates and preserve their claim. This is particularly so where property is registered in the name of only one spouse, and there is a risk of that party disposing of or encumbering the property, or where judgments are likely to be registered against one party’s interest, which might prejudice the other party. Under section 91 of the FLA and Rules 12-1 and 12-4 of the Supreme Court Family Rules, one may request an automatic restraining order to prevent the sale or disposal of family property including real property. There are several ways of protecting a spouse’s interest.
a) Certificates of Pending Litigation and Caveats
Caveats and Certificates of Pending Litigation are warnings to potential purchasers and establish claim priority over the property from the day the Caveat or Certificate of Pending Litigation is filed. This document will defeat the presumption of claim priority given to the bona fide purchaser for value. Entitlement to a certificate of pending litigation is limited. See the Land Title Act, RSBC 1996, c250 and Annotated Land Title Act by Gregory and Gregory for the procedure and forms. Note that Caveats have an expiry date and are therefore a temporary measure to protect a party’s interest.
b) Land (Spouse Protection) Act, RSBC 1996, c 246
The Land (Spouse Protection) Act, RSBC 1996, c 246 applies where a party has elected not to commence legal proceedings, but needs to protect his or her interest in real property. It provides an alternative to a Certificate of Pending Litigation for a married spouse (not common law) where the “property” was the “matrimonial home”. The Act allows a charge to be placed on land that will prevent disposition of the property without the written consent of the applicant for the charge (refer to the Land (Spouse Protection) Act and the Land Title Act for the registration procedure). Note that this only applies while the parties are legally married. The charge may be struck out on the death of, or final divorce from, the applicant.
Registration of a charge by one spouse under the Land (Spouse Protection) Act prevents the other spouse from selling or encumbering his or her share, but is not protection against a creditor who could obtain an order for sale of the house. So long as one is legally married to his or her spouse, one may file against the property without the other spouse’s notice or consent, in order to prevent the transfer of the property.
c) Registration of a Notice Under the Land Title Act
A spouse who is a party to a marriage agreement or a separation agreement may file a notice in the Land Title Office regarding any lands to which the agreement relates (FLA, s 99). This applies to married spouses and common law spouses who have lived in a marriage-like relationship for at least two years.
The information required in the notice includes the names and addresses of the spouses, the legal description of the land, and the provisions of the agreement relating to that land. The Registrar may then register this notice in the same manner as a charge on the land.
Once the notice is registered, there can be no subsequent registration of a lease, mortgage, transfer, etc., unless both spouses or former spouses sign a cancellation or postponement notice in the prescribed form. A spouse or former spouse may apply to the Supreme Court for an order to cancel or postpone a notice where the other party to the agreement cannot be found after reasonable search, or unreasonably refuses to sign a cancellation or postponement, or is mentally incompetent.
The use of this notice also extends to mobile homes.
d) Supreme Court Family Rules
Generally, Rule 15-8 of the Supreme Court Family Rules governs legal remedies for joint tenants. Where a dispute arises, an application can be made to the Supreme Court to settle the matter, but clients should be advised that a court action is costly and a negotiated settlement is generally to their advantage because courts have a wide discretion to distribute matrimonial property under Rule 15-8. E.g., a court could order the sale of property at a time when the housing market is poor, resulting in a low sale price. Sometimes, a spouse should consider selling his or her interest in a property to the other spouse.
e) Limitation Period
A former spouse is considered a “spouse” within the meaning of the FRA (s 1) and FLA (s 3) for the purpose of proceedings to enforce or vary an existing order. However, where an entirely new order is sought, the parties cease to be “spouses” within the meaning of the Act after 2 years has passed since the order granting the divorce was made. This distinction has engendered a debate as to whether there is a limitation period for the redistribution of property “between spouses” under the FRA. See Staires v Staires (1991), 34 R.F.L. (3d) 376 (BCSC) and Tatlock v Tatlock (1992), 71 BCLR (2d) 194 (SC). The Supreme Court of Canada partially addressed the issue in Stein v Stein, [2008] 2 SCR 263, 2008 SCC 35, para. 12: “...the [Family Relations Act] does not place any temporal limits on the division of assets. Nor does it state that once assets have been subject to an initial division, a reapportionment cannot occur at some point in the future”.
The FLA allows common law spouses only two years to apply for property division and spousal support after the separation date (s 198). The limitation period may be suspended for both married and unmarried spouses if they were engaged in family dispute resolution with a family dispute resolution professional.
Under s 198(3), a spouse may make an application to set aside an order or agreement for property division no later than 2 years after the spouse first discovered, or reasonably ought to have discovered, the grounds for making the application.
Under the Limitation Act, there is no limitation date for claims on arrears of spousal and child support payments. Once a distribution scheme for family property is set, either by the Court or by agreement, it is always enforceable subject to the relevant case law.
f) Interim Relief
A court may order temporary exclusive occupation and possession of the family residence and its contents by just one spouse (FLA s 90).
g) Business Assets
Under the FLA, business property is no longer singled out as it was in the FRA. Business property is family property unless it is excluded property under the FLA.
5. Business Assets
Under the FLA, business property is no longer singled out as it was in the FRA. Business property is family property unless it is excluded property under the FLA.
D. Use of Assets
The Court can award one spouse exclusive use of assets pending further agreement between the parties or a Court order. This can include large assets such as a home and car; or smaller assets as may be required to operate a business, or for the departing spouse’s television, computer, books, for example.
E. Unmarried Couples
Under the FLA, unmarried couples who have lived in a marriage-like relationship for at least two years are treated the same way as married couples. Unless an action was started under the FRA, the FLA now applies (as long as the time limit has not expired) and may apply even if proceedings have already beencommenced.
The courts will recognize an equitable interest of a common law spouse in all the property and assets acquired by the couple through the joint efforts of the two spouses, although registered in the name of the other spouse (i.e. a constructive trust). The scope of constructive trusts was greatly expanded in Peter v Beblow (1993), 3 WWR 337, 77 BCLR (2d) 1, in which the Court found a constructive trust arising from the contributions made by homemaking and childcare services, which allowed for the retention of money that would otherwise be paid for such services to be used as mortgage payments. Claims in trust may be constructive, resulting, or express. Constructive trusts are the most common type of trust claim, where the Court imposes a trust to remedy the unjust enrichment of one party at the deprivation of theother. However, there are limits, and a court will not interfere where the elements of constructive trust are not present. A causal connection must be found to exist between the contribution made and the property in question. Refer to a general text for a more comprehensive description of the elements of constructive trust. Because common law constructive trusts are relief granted by a court, spouses can make use of both the FLA requirements for equal division and common law constructive trust principles when seeking relief for unfair division of property.