Basic Principles of Property and Debt in Family Law

triggering event, defintoins, FRA claim,s and s. 252

how property is owned

This presumption, however, only applies between spouses. As far as the rest of the world is 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. Before going any further, it will be helpful to understand the difference between owning something as joint tenants and owning it as tenants in common.

1. Owning Property as Joint Tenants A "joint tenancy" is a kind of shared ownership of a thing. When two or more people own a thing as joint tenants, they are each owners of the whole thing. This is a fuzzy kind of shared ownership because the interests of one owner can't be separated out from the interests of the other — each of the owners own the whole thing. To put it another way, a joint tenant doesn't own a particular slice of the pie, a joint tenant owns the whole pie.

This quality of joint tenancy ownership is very handy for people who need to worry about estates and property transfer taxes, because when a joint tenant dies the surviving joint tenants continue to own the whole property and the interest of the deceased person just sort of disappears. Since the survivors continue to own the property and have the same interest as they had before the death, there's no need to transfer the deceased person's property interest.

2. Owning Property as Tenants in Common A "tenancy in common" is another kind of shared ownership. In this type of ownership, each owner's interest in a property is separate and distinct. The tenants in common of a property each own their particular slice of the pie; collectively, they all own the whole pie, but individually they just own their personal share.

Because each owner's interest is separate from the other owners, a tenant in common can sell his or her share in the asset to someone else, put a mortgage on his or her interest or use it as collateral, or give it to someone else as a gift. Also, if a tenant in common dies, his or her interest in the thing becomes a part of his or her estate to be distributed according to the deceased person's will.

From a family law perspective, the most important thing about owning an asset as a tenant in common is this idea of two separate, distinct interests in an asset. Say the family home is registered in only one spouse's name and that spouse goes bankrupt. The only part of the house that can be taken by the bankrupt's trustee is the bankrupt's one-half interest; the other spouse's interest in that asset will be preserved from the bankrupt's creditors, and it doesn't matter who owns the asset on paper. This can be hugely important.

B. The Triggering Events When a "triggering event" happens, all of the property owned by either or both spouses becomes equally owned by both spouses as tenants in common. If only one spouse owns an asset, both of the spouses become equal owners of the asset as tenants in common. If both spouses own an asset as joint tenants, the joint tenancy is severed and both of the spouses become equal owners of the asset as tenants in common.

Family law lawyers describe the effect of a triggering event as "crystallizing" the interests of the spouses in the family assets because the triggering event makes each spouse the legal owner of one-half of the family assets in a way that is also binding on people outside the marriage, like creditors, trustees in bankruptcy, potential purchasers and so forth. After a triggering event happens, all a creditor can lien or seize is 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 describes four triggering events:

when the parties make and sign a separation agreement; when the court makes a declaration that the spouses have no reasonable prospect of getting back together and resuming married life, called a "section 57 declaration;" when the court makes an order for divorce; and, when the marriage is annulled. Once any one of these triggering events happens, each spouse has 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 situtation will last until the division of the assets is finally determined by an order of the court or is otherwise agreed to by the parties in a settlement the matter.

Triggering events are discussed in more detail in the next segment following this introduction, and I've also discussed the importance of triggering events in my blog.

B. The Effect of a Triggering Event When a triggering event happens, each spouse has a separate and distinct one-half interest in all of the family assets, regardless of how the assets were owned prior to the triggering event. As a result, a triggering event will help to protect a spouse's property interests from things like:

a claim a third-party creditor might have against one spouse for a debt; the bankruptcy of a spouse and the consequent loss of his or her assets from the pool of family assets available for division; a unilateral decision to sell an asset made by a spouse; and, a claim against the estate of a deceased spouse. Needless to say, it can be critical to obtain a triggering event early on in a family action.

Getting a triggering event can be a bad idea, however, when a spouse is asking for a reapportionment of the family assets and the other spouse is looking at bankruptcy or is in danger of dying before the litigation is resolved. In both cases, the triggering event fixes the spouse's interest in the assets when the spouse might have gotten more than half the family assets. If you have any concerns about the effect of a triggering event, you must speak to a family law lawyer immediately.

defining famiy proeprty

D. Defining "Family Assets" Of course not all assets are family assets. The sections of the Family Relations Act quoted above only provide for the division of assets that qualify as family assets; other sorts of assets may be exempt from division, so that the spouse who owns the asset will be allowed to keep that asset, without necessarily having to compensate the other spouse for its value.

Family assets are defined in s. 58 of the Family Relations Act as:

(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. (3) Without restricting subsection (2), the definition of family asset includes the following: (a) if a corporation or trust owns property that would be a family asset if owned by a spouse, (i) a share in the corporation, or (ii) an interest in the trust owned by the spouse; (b) if property would be a family asset if owned by a spouse, property (i) over which the spouse has, either alone or with another person, a power of appointment exercisable in favour of himself or herself, or (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; (c) money of a spouse in an account with a savings institution if that account is ordinarily used for a family purpose; (d) a right of a spouse under an annuity or a pension, home ownership or retirement savings plan; (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. If an asset does not fall into these categories, it may not be something in which both parties can share. The basic rule of thumb is this: an asset is a family asset if it was ordinarily used or was intended to be ordinarily used for a family purpose.

The definition of "family asset" and the sorts of assets which don't qualify as family assets are discussed more thoroughly in the chapter Family Assets > Basic Principles.

(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.

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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