Basic Principles of Property and Debt in Family Law: Difference between revisions
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Basic Principles of Property and Debt in Family Law (view source)
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==Who Gets What under the ''Family Relations Act''== | ==Who Gets What under the ''Family Relations Act''== | ||
Because of the transition provisions of s. 252 of the ''Family Law Act'', the old ''Family Relations Act'', even though it's been cancelled, will still apply to determine the division of property between married spouses if: | |||
#they started a court proceeding to divide property before 18 March 2013, the date when the ''Family Law Act'' came into effect; | |||
#a spouse wants to start a court proceeding to enforce or set aside an agreement about property that was signed before 18 March 2013. | |||
For awhile longer it's going to be important to know to know how family property is divided under the ''Family Relations Act''. | |||
The division and distribution of property between married spouses was governed by Parts 5 and 6 of the ''Family Relations Act''. Part 5 of the act dealt with the division of property, including personal property, financial assets and real estate. Part 6 dealt with the division of pensions. Unmarried couples, including couples who qualify as unmarried spouses, were expressly excluded from the parts of the act that deal with property. | |||
===The Presumption of Equal Sharing=== | |||
When a marriage breaks down, each spouse was presumed to have a one-half interest in all assets that qualify as ''family assets''. Section 56 of the ''Family Relations Act'' said that: | |||
<blockquote><tt>(1) Subject to this Part and Part 6, each spouse is entitled to an interest in each family asset ...</tt></blockquote> | |||
<blockquote><tt>(2) ... as a tenant in common.</tt></blockquote> | |||
As long as an asset qualified under the act as a ''family asset'', each spouse was presumed to have a one-half interest in that asset. Family assets were defined in s. 58(2) of the act, and the focus under the act was on how an asset was ''used during the relationship'' rather than on who bought it, when it was bought or how it was bought: | |||
<blockquote><tt>Property owned by one or both spouses and ordinarily used by a spouse or a minor child of either spouse for a family purposes is a family asset.</tt></blockquote> | |||
This section cast a very broad net: as long as an asset was owned by a spouse and was ordinarily used for a family purpose, the asset would be a "family asset" for the purposes of the ''Family Relations Act'', and it didn't matter whether the asset was brought into the marriage by one spouse, bought afterwards, or bought during the marriage. | |||
To summarize, when a marriage breaks down, the spouses are presumed to own all family assets equally, no matter whose name the asset is in or whether the asset was brought into the marriage by one spouse or bought during the marriage. | |||
This presumption, however, only applies between spouses. As far as the rest of the world was concerned, the only owner of an asset is the persion with legal title to the asset, which might be: | |||
#one of the spouses; | |||
#both spouses as joint tenants; | |||
#both spouses as tenants in common; or, | |||
#one or both spouses, along one or more other people, either as joint tenants or as tenants in common. | |||
===The Triggering Events=== | |||
When a ''triggering event'' happened, all of the property owned by either or both spouses became equally owned by both spouses as tenants in common. If only one spouse owned an asset, both of the spouses became equal owners of that asset as tenants in common. If both spouses owned an asset as joint tenants, the joint tenancy was severed and both of the spouses became equal owners of the asset as tenants in common. | |||
Family law lawyers described the effect of a triggering event as "crystallizing" the interests of the spouses in the family assets because the triggering event made each spouse a legal owner of one-half of the family assets in a way that was also binding on people outside the marriage, like creditors, trustees in bankruptcy, potential purchasers and so forth. After a triggering event happened, all a creditor could lien or seize was the debtor's half-share of an asset, regardless of whether the debtor was the sole owner or the joint owner of the asset before the triggering event. | |||
Section 56(1) of the ''Family Relations Act'' described four triggering events: | |||
#when the parties make and sign a separation agreement; | |||
#when the court made a declaration that the spouses have no reasonable prospect of getting back together and resuming married life; | |||
#when the court made an order for divorce; and, | |||
#when the marriage was annulled. | |||
Once any one of these triggering events happened, each spouse took a one-half legal interest in all of the family assets as a tenant in common, regardless of who bought the asset, who used to own the asset, or when the asset was bought. This new situation lasted until the division of the assets was finally determined by a court order of the court or the parties' agreement. | |||
===The Equal and Unequal Division of Family Assets=== | |||
Under s. 56 of the ''Family Relations Act'', each spouse was presumed to have a one-half interest in all family assets. This was, however, only a presumption, a presumption which could be challenged. When assets were divided more in one spouse's favour than the other, the assets were said to have been ''reapportioned''. | |||
The court could order, or the spouses could agree, that all of the family assets would be reapportioned or that just a few assets would be reapportioned. This might have happened to allow one party to keep more of a pension or more of an inheritance, for example, even though all the other family assets might have been divided equally. | |||
Section 65(1) of the ''Family Relations Act'' described the factors the court could take into account in deciding whether an equal division of the family assets would have been unfair: | |||
<blockquote><tt>(a) the duration of the marriage,</tt></blockquote> | |||
<blockquote><tt>(b) the duration of the period during which the spouses have lived separate and apart,</tt></blockquote> | |||
<blockquote><tt>(c) the date when property was acquired or disposed of,</tt></blockquote> | |||
<blockquote><tt>(d) the extent to which property was acquired by one spouse through inheritance or gift,</tt></blockquote> | |||
<blockquote><tt>(e) the needs of each spouse to become or remain economically independent and self sufficient, or</tt></blockquote> | |||
<blockquote><tt>(f) any other circumstances relating to the acquisition, preservation, maintenance, improvement or use of property or the capacity or liabilities of a spouse</tt></blockquote> | |||
Family assets were most commonly reapportioned when: | |||
#the marriage was short, say less than six or seven years, and one of the spouses brought the majority of the assets into the relationship; | |||
#one of the spouses was responsible for racking up a lot of debts not related to spending for family purposes; | |||
#some of the assets were located outside of British Columbia; | |||
#one of the spouses required more than half of the family assets to become financially independent; | |||
#one of the spouses had wrongfully disposed of family assets or negligently allowed them to decrease in value, especially if this happened after separation; or, | |||
#some of the assets had been bought with a spouse's inheritance. | |||
===Defining "Family Assets"=== | |||
Not all assets were shareable family assets. The sections of the ''Family Relations Act'' quoted above only provided for the division of assets that qualified as ''family assets''; other sorts of assets might have been exempt from division, so that the spouse who owned the asset would be allowed to keep that asset, without necessarily having to compensate the other spouse for its value. | |||
Family assets were defined in s. 58 of the ''Family Relations Act'' as: | |||
<blockquote><tt>(2) Property owned by one or both spouses and ordinarily used by a spouse or a minor child of either spouse for a family purpose is a family asset.</tt></blockquote> | |||
<blockquote><tt>(3) Without restricting subsection (2), the definition of family asset includes the following:</tt></blockquote> | |||
<blockquote><blockquote><tt>(a) if a corporation or trust owns property that would be a family asset if owned by a spouse,</tt></blockquote></blockquote> | |||
<blockquote><blockquote><blockquote><tt>(i) a share in the corporation, or</tt></blockquote></blockquote></blockquote> | |||
<blockquote><blockquote><blockquote><tt>(ii) an interest in the trust</tt></blockquote></blockquote></blockquote> | |||
<blockquote><blockquote><tt>owned by the spouse;</tt></blockquote></blockquote> | |||
<blockquote><blockquote><tt>(b) if property would be a family asset if owned by a spouse, property</tt></blockquote></blockquote> | |||
<blockquote><blockquote><blockquote><tt>(i) over which the spouse has, either alone or with another person, a power of appointment exercisable in favour of himself or herself, or</tt></blockquote></blockquote></blockquote> | |||
<blockquote><blockquote><blockquote><tt>(ii) disposed of by the spouse but over which the spouse has, either alone or with another person a power to revoke the disposition or a power to use or dispose of the property;</tt></blockquote></blockquote></blockquote> | |||
<blockquote><blockquote><tt>(c) money of a spouse in an account with a savings institution if that account is ordinarily used for a family purpose;</tt></blockquote></blockquote> | |||
<blockquote><blockquote><tt>(d) a right of a spouse under an annuity or a pension, home ownership or retirement savings plan;</tt></blockquote></blockquote> | |||
<blockquote><blockquote><tt>(e) a right, share or an interest of a spouse in a venture to which money or money's worth was, directly or indirectly, contributed by or on behalf of the other spouse.</tt></blockquote></tt></blockquote></blockquote> | |||
If an asset did not fall into these categories, it may not have been something that the spouses were both entitled to share. The basic rule of thumb was this: an asset was a family asset if it was ordinarily used or was intended to be ordinarily used for a family purpose. | |||
==Cohabitation Agreements and Marriage Agreements== | ==Cohabitation Agreements and Marriage Agreements== | ||
