Property and Debt in Family Law Matters: Difference between revisions

{{JPBOFL Start Chapter

|Related = [[Basic Principles of Property & Debt in Family Law|Basic Principles]]{{·}}[[Protecting Property & Debt in Family Law Matters|Protecting Property & Debt]]{{·}}[[Dividing Property & Debt in Family Law Matters|Dividing Property & Debt]]  

}}This chapter focuses on the division of property and debt between married spouses and unmarried spouses. Under the provincial ''[[Family Law Act]]'', spouses are presumed to keep the property that each of them brought into their relationship and to share in the things they acquired during their relationship. The same rules apply about debt. Spouses are presumed to share responsibility for the debts that accumulated during their relationship. The federal ''[[Divorce Act]]'' doesn't talk about the division of property or debt.

This introductory section provides basic information about property and debt. It also looks at the rules about property that apply to couples who are not spouses, and reviews some of the income tax issues that can come up when dividing property. The sections that follow will go into the rules about the [[Basic Principles of Property & Debt in Family Law|division of property and debt]] in a lot more detail, the steps that you can take to [[Protecting Property & Debt in Family Law Matters|protect family property]], and [[Dividing Property & Debt in Family Law Matters|how property and debt are divided]] by the court through court orders and by spouses through separation agreements.

==Dividing property and debt under the ''Family Law Act''==

The parts of the ''[[Family Law Act]]'' that talk about the division of property and debt apply to people who are ''spouses''. The definition of spouse for these parts of the act are a bit different from the rest of the act. For the division of property and debt, a spouse is:

#someone who is married or was married to someone else, or

#someone who is or was living in a "marriage-like relationship" with someone else for at least two years.  

===Family property, excluded property and family debt===

All property owned by either or both spouses at the date of separation is ''family property''. This includes things like real property, bank accounts, pensions, business, debts owing to a spouse, and so forth. Family property is presumed to be shared equally between spouses, regardless of their use of or contribution to that property.

*property that was bought with the property brought into the relationship,  

*inheritances and gifts, and

Excluded property is presumed to remain the property of the spouse who owns it.

As you can see, certain dates in a couple's relationship are really important. The date a relationship begins ― the earlier of the date the spouses begin to live together or marry ― is the date that separates the excluded property brought into the relationship from the family property acquired during their relationship and is the date when spouses begin to share responsibility for new debts. The date the spouses separate, generally speaking, marks the end of the accumulation of shared property and shared debt.

Under s. 3(3) of the ''[[Family Law Act]]'', a relationship between spouses begins  

Since the definition of ''spouse'' at s. 3(1)(b)(i) includes people who have lived together "for a continuous period of at least 2 years," once you have reached the two-year mark:

#you and your partner are spouses, and

#your relationship as spouses began two years earlier, on the date you began to live together.

Although a married couple are married until they get a divorce, the key date for the division of property and debt under the ''[[Family Law Act]]'' is the date of separation. This date is important for both married spouses and unmarried spouses.

Although many people move out when they separate, other couples separate and remain living under the same roof. A physical separation is not necessary to separate; there must simply be an intention to end both the relationship and the intimacies that go along with it. Often the <span class="noglossary">decision</span> to separate is made by both spouses, but it only takes one spouse decide to end a relationship, and one spouse's <span class="noglossary">decision</span> to separate doesn't require the consent of the other spouse.

Section 3(4) of the act says this:

In other words, to separate, one spouse must announce the end of the relationship and then take steps that would demonstrate an intention to end the relationship. Separation is discussed in more detail in the chapter [[Separation & Divorce]], in the section [[Separation]].

Under s. 85(1)(a), property that was brought into a relationship is excluded from the pool of family property that is supposed to be divided equally between spouses. Under s. 96, the court "must not" order a division of excluded property, except in limited circumstances. A spouse is therefore normally entitled to keep the excluded property he or she owned when the relationship began. Under s. 85(2), however, it is up to the person who's saying that property is excluded property to prove that the property is excluded property.

For most couples, property brought into a relationship will form the largest component of a spouse's excluded property. However, when most people marry or move in together, counting up their assets is not the foremost thing on their mind. This means that you may wind up having to do some historical accounting to figure out what you had one, two or more years ago. Whether you're just starting a relationship or are trying to figure out what you once had, these are the documents you need to look for:

*RRSP, RIF, LIRA and other retirement savings <span class="noglossary">account</span> statements for the same period,

It will be a harder to look back in time to figure out the value of things like cars, motorcycles, trailers, boats, snowmobiles and so on. If you're entering a relationship now, it will be helpful to look up the [http://www.canadianblackbook.com/ Canadian Black Book] or [http://www.kbb.com/ Kelley Blue Book] estimated values for vehicles. Boats and trailers may need to be specially valued by a dealer.

====Family property====

Under s. 84(1) of the ''[[Family Law Act]]'', family property is the property owned by one or both spouses on the date of their separation, including any property bought after separation with family property. Section 84(2) give some examples of specific assets that are family property, including:

*interests in companies, businesses, partnerships and ventures,  

*bank accounts, savings, pensions and RRSPs.

Family property also includes the amount that any excluded property grows in value after the date the spouses' relationship began or after the excluded property was acquired, whichever is later.  

Under s. 81, family property is presumed to be shared between the spouses equally, regardless of their use or contribution to that property.

For information on how to share CPP credits see [[How Do I Divide Our CPP Pensions after We're Divorced?]] It's located in the ''How Do I?'' part of this resource in the ''Miscellaneous'' section.

====Excluded property====

The sort of excluded property that can be acquired during a relationship is described in s. 85(1), and includes:

*gifts,  

Excluded property that is acquired during a relationship is presumed to remain the property of the spouse who owns it. However, under s. 85(2), it is up to the person who's saying that property is excluded property to prove that the property is excluded property.

====Family debt====

Under s. 86, family debt is all debt incurred by either or both spouses during their relationship up to the date of their separation, but can include debt incurred after separation if the debt was incurred to maintain family property, like a loan taken out to pay the property taxes.

This definition means that debt incurred by a spouse before the spouses married or began to live together is that spouse's personal debt; it's only the new debt that they share. Under s. 81, responsibility for family debt is presumed to be shared between the spouses equally, regardless of their use or contribution to that debt.

<blockquote>Harkamal moved in to live with Baljinder in his home in 2009, when Baljinder's home was worth $300,000; Baljinder has no mortgage.</blockquote>

<blockquote>Harkamal starts going to college in 2010 and because she's not working, she takes a personal loan to help pay for her tuition fees, lab fees and textbook costs. Baljinder keeps working while Harkamal is at school, and with his income, he pays for the property taxes, car insurance, utilities and groceries and so forth. He's also able to put some money away into RRSPs.</blockquote>

<blockquote>Harkamal and Baljinder separate in 2013. When they separate, Harkamal owes $12,000 for her personal loan, Baljinder's house is worth $400,000 and Baljinder has saved $30,000 in RRSPs.</blockquote>

In this example, Baljinder's house is his ''excluded property''. It was worth $300,000 when Harkamal began living with him, and it has increased in value by $100,000. The ''family property'' is the RRSPs that Baljinder saved, plus the increase in value of Baljinder's house during the relationship. The ''family debt'' is Harkamal's loan which was incurred entirely during the parties' relationship and is now up to $12,000.

Boiling this all down, Baljinder would get:

*$300,000 as the value of the home he brought into the relationship,

*$50,000 for one-half of the growth in the value of his house to the date of separation,

*responsibility for $6,000 of Harkamal's loan.

Harkamal would get:

*$50,000 for one-half of the growth in the value of Baljinder's house,

*responsibility for the remaining $6,000 of her loan.

People are not spouses within the ''[[Family Law Act]]'' definition at s. 3, described above, cannot make a claim for the division of property or debt through that act. When people who aren't spouses own an asset jointly, like a house or a car, they are presumed to each be entitled to half of the value of that property. Where a person claims a share of property owned only by the other person, he or she will have to prove an entitlement to that asset through the principles of the common law.

Where a couple are both on the title of an asset, whether the family home, a car or a bank account, they are each assumed to have an equal interest in the asset. When one party refuses to give the other his or her share of that asset, it is open to that person to start a court proceeding for either:

#an order for payment in compensation for his or her interest in the asset.

Where a person believes that he or she should have an interest in property owned only by the other person, a claim against that property can only be made under the common law, specifically the law of equity and the law of trusts.

The essential point of this sort of claim is that the non-owning party has, or should be considered to have, a stake in property owned by the other party. The non-owning party's interest in that property is said to be held ''in trust'' for the non-owning party by the person who owns the property on paper. The non-owning party is the beneficiary of that trust and should be entitled to receive compensation for his or her interest in the property under the trust.

A ''resulting trust'' happens when the behaviour of the parties will let the court infer the existence of a trust relationship; an ''express trust'' is a trust relationship that people intentionally enter into; and, a ''constructive trust'' is imposed in order to compensate someone for their interest in property when the interest can't be paid out immediately. Resulting and constructive trusts are the most common kind of trusts involved in family law disputes about property.

Needless to say, this area of the law can be complex. If you find yourself in a situation where your only claim to an asset or a share of an asset is through trust law, it is recommended that you hire a lawyer to handle your claim.

*one party loans or gives money to the other party to allow him or her to buy an asset, and the person buying the asset owns the asset in his or her name alone, or

In each case, the person who transfers the money or asset to the other party is said to retain an interest, called a ''beneficial interest'', in the property even though the property is held by the other party in his or her name alone. In a court proceeding based on a resulting trust, the person making the claim, the ''claimant'', is asking for compensation for his or her beneficial interest in the property owned by the ''respondent'', the person against whom the claim is brought.

A constructive trust is called ''constructive'' because the claimant is asking the court to create or impose a trust on the respondent where there wasn't one before. According to the Supreme Court of Canada's decision in the 1980 case of [http://canlii.ca/t/1mjv ''Pettkus v. Becker''], [1980] 2 S.C.R. 834, one of the most important cases on constructive trusts, the court will impose a trust on a respondent where the claimant is able to show that the respondent has been ''unjustly enriched'' as a result of the claimant's labour or other services. Unjust enrichment is shown by proving that:

''Enrichment'' means to have received a benefit or advantage, such as money or the benefit of unpaid labour or other services. ''Deprivation'' means to have lost the value that might have been otherwise received for the claimant's benefit or advantage, such as the loss of the money or the wages that might have been paid for labour or other services. The deprivation must ''correspond'' to the enrichment, in the sense that the claimant was deprived of exactly the thing from which the respondent benefited. If the claimant can show these things, he or she will have established that the respondent was ''unjustly enriched'' by his or her contributions, and the court may impose a constructive trust to fix the situation.

(There are two other case from the Supreme Court of Canada that are critical in understanding constructive trusts, a 1993 case called ''[http://canlii.ca/t/1fs3f Peter v. Beblow]'', [1993] 1 S.C.R. 980, and a 2011 case called ''[http://canlii.ca/t/2fs3h Kerr v. Baranow]'', [2011] 1 S.C.R. 269 . To get a proper understanding of the law relating to constructive trusts, you should read all of ''Pettkus v. Becker'', ''Peter v. Beblow'', and ''Kerr v. Baranow''.)

Here's an example:

<blockquote>Lois doesn't pay Frank for his labour; perhaps it's understood that Frank is helping out with a common <span class="noglossary">cause</span>, since Lois' company is what provides the family with its income, or perhaps Frank's help is just one of the things he does because he loves Lois. Either way, payment isn't offered and it's not asked for, as is often the case when people are in a relationship.</blockquote>

<blockquote>Frank's labour in the home, cooking, cleaning and tidying, allows Lois to devote her time to the web design company, and saves her from having to hire a housekeeper and a cook, not to mention having to hire an office manager for the company.</blockquote>

<blockquote>Frank, on the other hand, is losing something. Frank could have sold his services as a housekeeper, a launderer and a cook. Frank could certainly have worked as an office manager or bookkeeper for some other company. Furthermore, Frank has made a positive contribution to Lois' company and helped it thrive and prosper.</blockquote>

<blockquote>The months pass. Lois' company has grown in value, and the relationship comes to a tragic end when Frank discovers that Lois' trips to visit the handsome internet service provider in Alberta were for both business and pleasure.</blockquote>

Once an unjust enrichment has been found, the court must determine what the appropriate remedy would be to compensate the applicant for his or her interest in the property. The court will often determine the value of the trust based on the value of the contribution made by the applicant to the property or the purchase of the property.

In the example above, a concrete value can be attached to Frank's contributions to the company and to his labour in the home: what would it have cost to hire a housekeeper and a bookkeeper during that period? Or, how much did Lois' company grow in value as a result of Frank's efforts? This is the beginning of fixing a dollar value on Frank's interest in the company and in Lois' house.

Again, trust claims are complex and the case law supporting and opposing such claims is massive. If you are not a spouse and wish to make claim against property owned only by your partner, I recommended that you hire a lawyer to help.

For many people, there will be no tax impact from the division of their assets. There will, however, be a tax impact if the division creates what the [http://www.cra-arc.gc.ca/menu-eng.html Canada Revenue Agency] deems to be ''income''.

*money received by a shareholder from a company as a dividend or from the sale of his or her shares,  

<blockquote>Say Eli receives $100,000 in cash and George receives a rental house worth $100,000, and the cash and the rental house are all part of the family property. At first glance, this seems like a fair, equal split of the family property, which together comes to a total of $200,000. In fact, it isn't.</blockquote>

<blockquote>No tax will be payable by Eli as a result of receiving the cash. Tax will be payable by George if the rental house has to be sold, since it wasn't the family's primary residence. If the tax payable on the income George earns from the sale is $20,000, really, Eli has received $100,000 and George has received $80,000. If you count the tax that George has to pay, the division of the family property wasn't equal at all.</blockquote>

<blockquote>To make the split equal, Eli should pay George an extra $10,000 so that each spouse will have $90,000 once the rental house is sold.</blockquote>

When RRSPs are to be transferred between spouses according to a separation agreement or court order, the RRSPs are simply transferred between the spouses' RRSP accounts without having to cash them out, and no tax is payable.

When a piece of property is to be transferred between spouses according to a separation agreement or court order, the parties should use the province's [http://www.bcrelinks.com/download/ptt/pttform2.pdf Special Property Transfer Tax Form], to take advantage of the tax-free status of transfers between spouses made pursuant to family agreements and court orders. This form is normally completed during the process of transferring title to the property at the Land Title and Survey Authority, and no tax will be payable on the transfer.

* [http://www.clicklaw.bc.ca/resource/1240 Canadian Bar Association BC Branch: Dividing property and debts]

* [http://www.clicklaw.bc.ca/resource/1529 Justice Education Society: Workbook for parents separated with children on dealing with finances]

* [http://www.clicklaw.bc.ca/resource/1639 Legal Services Society’s Family Law Website: How to divide property and debts]

* [http://www.bcrelinks.com/download/ptt/pttform2.pdf Special Property Transfer Tax Return]

{{REVIEWED | reviewer = [[JP Boyd]], April 19, 2013}}