Basic Principles of Property and Debt in Family Law

People who are married or who lived together in a marriage-like relationship for at least two years are entitled to share in the property they acquired during their relationship, and are entitled to keep any property they each brought into the relationship. The same thing goes for debt. Spouses are presumed to be equally responsible for debt accumulating during the relationship but be separately responsible for any debt that they had going into the relationship.

This all sounds pretty straightforward but there are lots of details that can make the division of property and debt complicated. This page talks about how property and debt are divided between spouses under the Family Law Act, what property is shareable family property and which property is excluded from division, and the role marriage agreements and cohabitation agreements can play in controlling the impact of the Family Law Act.

Introduction

The basic plan for the division of property and debt under the provincial Family Relations Act is pretty straightforward. Keep what you bring into the relationship and you split what you get during the relationship. Of course it's a lot more complicated than this, but this is the basic concept that the act is built on.

Part 5 of the Family Law Act deals with the division of property and debt, and provides the definitions of family property and family debt, the things that are presumed to be shared between spouses, and excluded property which is presumed to remain the property of the spouse who owns it. Part 6 talks about the division of pensions between spouses and says which portion of a pension is supposed to be shared and which parts remember the property of the pension member. This page looks into the nooks and crannies of Part 5 in some detail but it doesn't say much about pensions because the division of pensions can be extremely complicated. For information about that, you should speak to a family law lawyer.

Standing

The people who are entitled to ask to divide property and debt are spouses, but not all spouses just spouses who are married to each other or who have lived together in a marriage-like relationship for at least two years. Section 3 says this:

(1) A person is a spouse for the purposes of this Act if the person

(a) is married to another person, or

(b) has lived with another person in a marriage-like relationship, and

(i) has done so for a continuous period of at least 2 years, or

(ii) except in Parts 5 [Property Division] and 6 [Pension Division], has a child with the other person.

(2) A spouse includes a former spouse.

Unmarried spouses who have lived together for less than two years are not eligible to ask for orders about the division of property or debt under the Family Law Act. The rules about property that apply to these spouses and other people who aren't spouses are discussed in the first page of this chapter, ______.

Period of Entitlement

Under s. 81(a) of the Family Law Act, spouses are presumed to each be entitled to share in family property. Family property is defined at s. 84(1) as:

(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

The end date for the accumulation of family property, then, is presumed to be the date of separation. The start date is found in the definition of excluded property at s. 85:

(1) The following is excluded from family property:

(a) property acquired by a spouse before the relationship between the spouses began

The start date and the end date with respect to the accumulation of family debt is stated more simply in s. 86:

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

As you can see, the dates when "the relationship between the spouses began" and the date "the spouses separate" are very important. They are the dates that mark the end of acquiring excluded property and personal debt, the start of acquiring shareable family property and family debt, and the end of acquiring family property and family debt.

The Date of Cohabitation and the Date of Marriage

Section 3(3) says when a relationship between spouses begins:

(3) A relationship between spouses begins on the earlier of the following:

(a) the date on which they began to live together in a marriage-like relationship;

(b) the date of their marriage.

For married spouses, their relationship starts on the earlier of the date they began to live together in a marriage-like relationship or got married. For unmarried spouses, once the parties have lived together for two years, their relationship as spouses is considered to have started on the date they began to live together.

The date of a couple's marriage is pretty obvious. It isn't always so obvious when a couple "begins" to live together in a marriage-like relationship. The judge in a 2003 case from the Saskatchewan Court of Queen's Bench, Yakiwchuk v. Oaks, expressed the problem this way:

"With married couples, the relationship is easy to establish. The marriage ceremony is a public declaration of their commitment and intent. Relationships outside marriage are much more difficult to ascertain. Rarely is there any type of 'public' declaration of intent. Often people begin cohabiting with little forethought or planning. Their motivation is often nothing more than wanting to 'be together'. Some individuals have chosen to enter relationships outside marriage because they did not want the legal obligations imposed by that status. Some individuals have simply given no thought as to how their relationship would operate. Often the date when the cohabitation actually began is blurred because people 'ease into' situations, spending more and more time together. Agreements between people verifying when their relationship began and how it will operate often do not exist."

Hands up, anyone who began to "cohabit with little forethought or planning"!

Date of Separation

Separation usually happens when one spouse decides that the relationship cannot continue, says so and then takes steps to end the partnership-like qualities of the relationship, usually by stopping sleeping together, stopping doing chores for the other person, stopping going out together as a couple and so on. Section 3 (4) offers some guidance on when a spousal relationship ends.

(4) For the purposes of this Act,

(a) Spouses may be separated despite continuing to live in the same residence, and

(b) the court may consider, as evidence of separation,

(i) communication, by one spouse to the other spouse, of an intention to separate permanently, and

(ii) an action, taken by a spouse, that demonstrates the spouse's intention to separate permanently.

It's easy to imagine that the date of separation could be argued about, especially if the spouses reconciled for a period of time or if a spouse's commitment to ending the partnership-like aspect of a relationship wavered from time to time. In order to avoid spending money on lawyers arguing about this issue, you might consider documenting the date of separation in some way, perhaps by sending a letter or an email to your spouse stating your intention to separate. Do remember to keep a copy.

Time Limits

Section 198(2) of the Family Law Act sets out some important time limits on when claims for the division of property and debt can be brought:

1. married spouses must bring their claim within two years of the date of their divorce or a declaration annulling their marriage; and,
2. unmarried spouses must bring their claim within two years of the date of separation.

Under s. 198(5), however, the running of this time limit is considered to be suspended while the parties are engaged in family dispute resolution with a family dispute resolution professional. Both of these terms are defined in s. 1, and the running of the time limit will not stop if their dispute resolution process doesn't fall within the definition of "family dispute resolution" or if the spouses are not using the services of someone who falls within the definition of "family dispute resolution professional".

A Partnership of Acquests

The scheme for the division of property under the Family Law Act is technically a deferred partnership of acquests regime. Under the old Family Relations Act, property was divided under a deferred community of property regime. A "partnership of acquests" scheme for family property means that the spouses both own all of the property acquired during their relationship, whether the property is owned by one spouse or by both spouses jointly; our model is deferred because the right to an equal share in this property doesn't arise until the spouses have separated.

Family Relations Act and the Family Law Act

Under the Family Relations Act, married spouses shared in all property that was "ordinarily used for a family purpose". This meant that you didn't need to look at who owned something on paper, how something was acquired, or whether property was acquired before or during the relationship; what mattered was how the property was used. For most couples everything they had wound up being ordinarily used for a family purpose in one way or another.

Under the Family Law Act, use is irrelevant. In fact that's exactly what s. 81(a) says:

spouses are both entitled to family property and responsible for family debt, regardless of their respective use or contribution

What matters now is when property was acquired (was it before or during the spouses' relationship?) and how property was acquired (was it bought with a spouse's excluded property or with shared family property?).

Cohabitation Agreements and Marriage Agreements

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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