Protecting Property and Debt in Family Law Matters: Difference between revisions

{{JP Boyd on Family Law TOC|expanded = assets}}

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| link = [http://www.clicklaw.bc.ca/resource/1639 How to divide property and debts]

Firstly, you might want to take a careful, but not too obvious, tally of what each of you owns and owes. This might be difficult if you and your spouse keep separate bank accounts and maintain your own investments, but make your best efforts. A list of the bank accounts, RRSP and investment accounts, cars, properties, loans, lines of credit and credit cards you have may prove to be extremely useful. Even if you can't get all the <span class="noglossary">account</span> details, a record of the names of the financial institutions that are sending your spouse mail can be extremely useful.

Once you've decided that your relationship can't continue, and you're sure that it can't continue, you need to separate. This doesn't mean that you and your spouse need to move into separate homes, but you need to announce your <span class="noglossary">decision</span> and you should probably do it in writing so that you have a record of the date of separation.

Under s. 81(b) of the provincial ''[[Family Law Act]]'', when separation happens each spouse takes a one-half in all family property as tenants in common, regardless of how the property was owned before separation, and becomes responsible for one-half of all family debt. This can be critical to protect your share of the family property from creditors, your spouse's bankruptcy, or court orders made in other court proceedings.

While it's always a good idea to consult with a lawyer if you have a family law problem, be especially sure to do so if you're not certain whether separating would be helpful or harmful.

Registering an interest in real property will stop the property from being sold and may prevent the property from being borrowed against. The two most common ways to do this are by filing an entry under the ''[http://canlii.ca/t/8451 Land (Spouse Protection) Act]'' with the Land Title and Survey Authority, or by filing a Certificate of Pending Litigation under the ''[http://canlii.ca/t/8456 Land Title Act]'' with the Land Title and Survey Authority.  

Married spouses and unmarried spouses may file an ''entry'' on the title of the family home under the provincial ''Land (Spouse Protection) Act''. The entry will prevent a spouse from transferring, selling, leasing, or making a gift of the family home without the knowledge and approval of the spouse filing the entry.

Where a court proceeding has started in the Supreme Court, a ''Certificate of Pending Litigation'' (CPL), formerly called a ''lis pendens'', can be registered against the title of any property owned by you and your spouse at the Land Title and Survey Authority. As long as you have asked for a CPL in your Notice of Family Claim or Counterclaim and made a claim for the division of family property, you will be entitled to register a CPL.  

The effect of a CPL is to announce to anyone interested in the property, such as a mortgagee or a creditor or a potential buyer, that ownership of the property may change as a result of the litigation. This discourages and usually prevents the sale, or the use of the property as collateral.

You can file your CPL at the same time as you file your Notice of Family Claim or Counterclaim. The registry will stamp your CPL, and you must take the stamped CPL and file it in the Land Title and Survey Authority together with a copy of your Notice of Family Claim or Counterclaim.

Spouses who have made a cohabitation agreement, a marriage agreement, or a separation agreement dealing with real property can file a ''notice'' of the agreement against the title of the property with the Land Title and Survey Authority under s. 99 of the ''Family Law Act''. A notice can be filed whether court proceedings have started or not, and will prevent the other spouse from transferring, selling, leasing, or otherwise dealing with the property without the voluntary cancellation of the notice or a court order.

A ''financing statement'' can be filed in the [http://www.bcregistryservices.gov.bc.ca/bcreg/pprpg/ppinfo.page Personal Property Registry] against a manufactured home under s. 100. This will stop the manufactured home from being transferred, and any new debts registered against the manufactured home will come in second to the spouse's interest under the financing statement.

Most of the time, people don't stop paying the mortgage or cut off the electricity to the former family home when they move out. However, it can be very tempting to do this when emotions are running high, when there's not enough money to pay rent at the new place plus rent for the old place, or when the BC Hydro <span class="noglossary">account</span> at the former family home is in the name of the person who needs to arrange for the electricity to be hooked up at his or her new place. The court is not likely to make orders under s. 226 when there's not enough money to pay for everything, but it will step in where someone is acting out of spite or malice.

The easiest way for married and unmarried spouses to obtain a financial restraining order is to apply for an order under s. 91(1) of the ''Family Law Act''. This section says that:

*The order ''must'' be granted on a party's application, unless the other party can show that there are enough assets that the applicant's claim to the property won't be frustrated if he or she happens to sell some of the assets.

This is an important order and should probably be applied for whenever a claim is being made for the division of property. Again, this is a matter of simply being prudent. You may have no cause to believe that your spouse would do something that would jeopardize your interests, but it almost always pays to be cautious.

Rule 12-4 of the [http://canlii.ca/t/8mcr Supreme Court Family Rules] gives the court the authority to make a general restraining order, also called an ''injunction'', to make someone to do something or not do something. The potential scope of these restraining orders is very broad, and can include, for example, a restraining order identical to that provided for in s. 91 of the ''Family Law Act'' as well as an order stopping someone from racking up debt by drawing on credit cards and lines of credit.

Rule 12-4 says little more that "the court can issue an injunction." A 1986 case of the British Columbia Court of Appeal, ''[http://canlii.ca/t/1q5c1 British Columbia v. Wale]'', 1986 CanLII 171 (BCCA) offers some guidance. In that case, the court held that someone applying for an injunction had to prove three things. In a family law context involving unmarried parties, these are that:

#you have a reasonable claim against assets owned by your spouse,  

#your spouse has disposed of or encumbered his or her assets or is likely do so, and

#the inconvenience that will be suffered by your spouse as a result of the injunction is less severe than the inconvenience you will suffer if the injunction isn't granted.

#you have a reasonable claim against assets owned by your spouse,

#your spouse has disposed of or encumbered his or her assets or is likely do so, and

#the inconvenience that will be suffered by your spouse as a result of the injunction is less severe than the inconvenience you will suffer if the injunction isn't granted.

It's important to know that if you are applying for an injunction or restraining order without notice to the other spouse, the court will require that you make full and complete disclosure of all of the relevant facts, even of those facts that aren't in your favour. If it is discovered that you haven't made full disclosure, the court can set aside the injunction, make an award of costs against you, or make an award of damages to compensate the other party for any inconvenience caused by the injunction. In a 1986 Supreme Court case called ''[http://canlii.ca/t/213m5 Morin v. Morin]'', 1986 CanLII 896 (BCSC), this resulted in a spouse having the injunction cancelled and getting awarded special court costs of the application.

Apart from the possibility that your spouse will be less than forthright in dealing with the family property and family debt, you may also need to protect your interest in those assets from claims made by creditors and third parties, and against the possibility of your spouse's bankruptcy or your spouse racking up further debt. These issues can be dealt with, for the most part, by ensuring that you:

#separate, to convert the ownership of all property to a shared ownership with you and your spouse as tenants in common,

#obtain a financial restraining order under one or more of s. 91 of the ''Family Law Act'', s. 39 of the ''Law and Equity Act'' or Rule 12-4 of the Supreme Court Family Rules.

The problem here is that property that is owned only by your spouse, or by both of you as joint tenants, may be vulnerable to your spouse's creditors and in the event of his or her bankruptcy. Say, for example, your spouse has put up his or her car as collateral for a loan. You would normally be entitled to one-half the car's value as a family property, assuming the car was bought during your relationship. If your spouse defaults on the loan, the car can be seized and you could find, especially where there are few other assets, that you can get no compensation for your interest in the car's value once the lender's default fees and legal fees are added on.

Your spouse's creditors or trustee in bankruptcy will not usually be able to seize assets held only in your name or your interest in property as a tenant in common unless you are responsible for your spouse's debts for some reason, like co-signing or guaranteeing a loan, or using a secondary credit card on your spouse's <span class="noglossary">account</span>. Although, under the ''Family Law Act'' both spouses are responsible for the debts incurred during their relationship, this obligation is only between spouses and doesn't give any extra rights to creditors.

Creditors have a wide range of remedies available to them when a debtor fails to live up to the conditions of a loan, a line of credit or a credit card. Among other things, a creditor can:

Your spouse might be liable for damages or debt to someone in a court proceeding unrelated to your relationship. Your spouse may also have made a deal with someone outside the family that concerns the family property. These people may have a legitimate claim against the family property. The problem is that even though their claim or entitlement may be restricted to property owned by your spouse in his or her name alone, your interest in that property may be lost if a third party gets there first.

When someone declares bankruptcy, the ownership of his or her property is transferred to a trustee in bankruptcy. The trustee's job is to tally up the list of the bankrupt's debts and then sell as much of the bankrupt's property as is necessary to satisfy his or her creditors. This may include almost all property registered in the bankrupt's name, but will exclude a few specific assets like pensions, clothing, and work tools.

If an asset is family property, the transfer of the asset to the trustee may deprive the other spouse of any interest he or she might have in that asset and, since the owning spouse is bankrupt, he or she may not have any other financial resources from which to compensate the non-bankrupt spouse for the lost interest.

A trustee in bankruptcy cannot take property that doesn't belong to the bankrupt. If the spouses separate before the bankruptcy, only the bankrupt's one-half interest in the family as a tenant in common will go to the trustee.

This issue is a bit difficult, so please bear with me. The law that deals with the division of property between spouses in this province is the ''Family Law Act''. Because the jurisdiction of the government of British Columbia is generally limited to the province of British Columbia, the government cannot usually make laws that affect people and things located outside of British Columbia. For the same reason, the courts of British Columbia usually only have the jurisdiction to deal with things located inside the province of British Columbia.

*A person is considered to have accepted the authority of the court by responding to a court proceeding. Once an out-of-province respondent files a Response to Family Claim in reply to the claimant's Notice of Family Claim, he or she has accepted the jurisdiction of the court to deal with the litigation. This is called ''attorning'' to the jurisdiction.

*Whether a court has in personam jurisdiction or not, it usually won't have jurisdiction over real property located outside the province. This kind of jurisdiction is called "''in rem'' jurisdiction." Real property and things attached to real property like buildings are called ''immovable assets''.

*the Supreme Court of British Columbia can deal with out-of-province assets that are movable, like RRSPs, stocks, bank accounts, chattels and what not, as long as the owner has attorned to the court's jurisdiction, and

However, the ''Family Law Act'' contains some provisions that are meant to give the court ''in rem'' jurisdiction out of province under certain circumstances and, if those circumstances are met, allow the court to make an order restraining a person from disposing of property located outside the province. Although it remains to be seen how effective this legislation will be in imposing on the authority of another jurisdiction, the act's out-of-province restraining orders are discussed below.

===Immovable property: real property===

Generally speaking, subject to the exception in the ''Family Law Act'' discussed below, there is nothing that can be done to stop someone from selling or otherwise dealing with real property located outside of British Columbia, even property that would normally qualify as a family asset. Usually, the only way to effectively protect that asset from sale or being used as collateral is to start a court proceeding in the jurisdiction in which the property is located.

<blockquote>Zygmunt has a farm in Flin Flon, Manitoba worth $50,000. Zygmunt and Ivan both own the family home in Vernon, British Columbia worth $100,000. Assuming both properties were bought after the relationship began and that both are family property, with an equal division each of the spouses would be entitled to $25,000 for the farm in Manitoba and $50,000 for the family home in British Columbia.</blockquote>

<blockquote>Since the court can't normally make an order requiring the sale or transfer of the property in Flin Flon, an equal division of the assets in the jurisdiction would give each spouse $50,000, half the value of the family home, but this would short Ivan of his interest in the farm. To avoid this unfairness, the court could simply divide the family home in Vernon in favour of Ivan, and give him a $75,000 share rather than an equal share.</blockquote>

<blockquote>This would reapportion the value of the property the court can deal with (the family home) to compensate Ivan for the interest he ought to have in the property the court can't deal with (the farm). Zygmunt is still left with half of the family property, as he remains the sole owner of the farm, $50,000, and gets a $25,000 share of the family home, for a total property interest of $75,000.</blockquote>

In truly exceptional circumstances, it is possible to get an order stopping someone from disposing of real property located outside the province with something called a "''Mareva'' injunction." A ''Mareva'' injunction will stop someone from selling or encumbering assets outside of British Columbia, providing that certain conditions are met. (The name of this order comes from an old English case in which the relief was first granted, ''Mareva Compania Naviera S.A. v. International Bulkcarriers S.A.'', [1980] 1 All E.R. 213) To qualify for this order, you must:

Under Division 6 of Part 5 of the ''Family Law Act'', the Supreme Court of British Columbia may, in certain circumstances, make orders about the ownership and division of property located outside British Columbia. If the court has the ability to make orders dividing property located outside the province, it may also make an order to preserve the property from being disposed of. Section 109(2)(b) says this:

<blockquote><blockquote><tt>(i) preserve the extraprovincial property ...</tt></blockquote></blockquote>

<blockquote><blockquote><tt>(iv) provide for any other matter in connection with the extraprovincial property;</tt></blockquote></blockquote>

 

This part of the act is extremely complicated and you should get advice from a lawyer whenever you may need to deal with movable and immovable property located outside of British Columbia.

===Movable property: financial assets===

Where a spouse has accepted the court's authority, the court can make a restraining order stopping the spouse from disposing of movable property located outside of British Columbia under s. 91 of the ''Family Law Act''. Movable property includes things like bank accounts, stocks, investment accounts, and similar assets that aren't real estate and can be taken or transferred from place to place.

Inside British Columbia, a s. 91 order will stop a spouse from dealing with everything that is family property or other "property at issue," including real property. Outside British Columbia, a s. 91 restraining order will only stop a spouse from dealing with movable assets.

The court can be reluctant to issue a s. 91 order that is intended to deal with assets located outside the province, since in most cases the courts of British Columbia cannot make orders about things located outside the province. In a 2002 case called ''[http://canlii.ca/t/50dw Boyd v. Boyd]'', 2001 BCCA 535, the Court of Appeal confirmed that the court can make ''in personam'' restraining orders that are effective against movable assets located outside the province.

If a s. 91 order is not available for some reason, a ''Mareva'' injunction will have the same effect. However, ''Mareva'' injunctions are not granted automatically and you must satisfy the test described just above.

<!---HIDDEN

* <span style="color: red;">bulleted list of other pages in this chapter, linked</span>

* ''[http://laws-lois.justice.gc.ca/eng/Const/index.html Constitution Acts, 1867 to 1982]''

* ''[http://canlii.ca/t/8451 Land (Spouse Protection) Act]''

*[http://www.bcregistryservices.gov.bc.ca/bcreg/pprpg/ppinfo.page BC Personal Property Registry Website]

* [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]

 

{{REVIEWED | reviewer = [[JP Boyd]], March 24, 2013}}