Disclaimer: The information contained in this article is general in nature and does not constitute legal advice. You should contact Jeff Li or a family lawyer if you are concerned about your family law issues.
When couples separate or divorce, the issue arises of how to divide the family property. For married couples, the Family Law Act provides a regime of dividing the matrimonial property. However, the Family Law Act does not apply to unmarried or common law couples. The division of property for them is governed by another regime of law.
General rules of property division
The Family Law Act sets out a regime for the division of property upon marriage breakdown. What is property? For the purposes of valuing and dividing family property, the Family Law Act defines property very broadly, including real estate, pensions, RRSPs, vehicles and boats, stocks, money that is owed to you (such as income tax refunds), shares in a company, stock options (the right to purchase shares), the right to collect money (royalties), tools, jewelry, electronic equipment, furniture, collectibles, art, and any interest you may have in an unincorporated business. This is not an exhaustive list; other things, including rights and interests a spouse has, may be considered as property too.
The Family Law Act provides a basic principle of dividing family property; that is, the value of any kind of property that was acquired by either spouse during the marriage, and still exists at separation, must be divided equally between the spouses. To achieve this, each spouse will first calculate their own net worth on the date of marriage and on the date of separation, and the increase is the “net family property.” The spouse with greater net family property will then pay the spouse with less net family property one half of the difference, which is called “equalization payment.”
Excluded properties
The Family Law Act specifies a number of exceptions in the calculation of net family property. First, certain assets are excluded from the net family property. These include life insurance proceeds, gifts, inheritances, and monetary damages arising from personal injury awards. The property generated by these excluded assets is also excluded from the calculation of net family property. While the value of these properties must still be listed, they will be subtracted later, leaving no impact on one’s net family property. To exclude these properties, however, the claiming spouse must be able to identify them on the date of separation and/or trace them back to one of the excluded sources.
Special “properties” of matrimonial home
Another important exception to the calculation of net family property is the matrimonial home, which is dealt with by special rules in family law. For more details, refer to the author’s separate blog on the matrimonial home.
Special issues concerning certain types of Property
Like the matrimonial home, other properties may have their own issues and must be dealt with by following some special rules. Pension, for example, is a typical asset that spouses should pay special attention to. For the Canadian Pension Plan, spouses may only need to apply to the Canadian Revenue Agency for credit splitting, following the Agency’s own rules. For private pensions, however, often times an actuary must be retained to assess their values.
If you own a business, the value of your business or of your share in a business must be included in the calculation of your net family property. Estimating how much the business is worth normally requires assistance from a professional business valuator. Retaining a business valuator can be an expensive and complicated process, and you should consult with a lawyer to get the best possible advice.
Finally, while the normal rule for dividing the family assets is to distribute them equally between the two spouses, under certain circumstances spouses may agree, or ask the court, to divide assets differently. An unequal division of matrimonial property will be allowed if the court finds equal division of property is “unconscionable”.
Common Law Couples
Most of the above rules concerning family property and matrimonial home do not apply to unmarried, common law couples. However, in appropriate situations, a common law may claim a trust on the properties owned by the other spouse, and therefore acquire certain property rights in the “family assets.” The trust solution to the division of property is an equitable remedy. More details about trust claims will be discussed in a separate blog.
Although their property rights are very different, common law spouses do have the same right as married couples to claim child support and spousal support, under appropriate circumstances.
Domestic Contracts
The rules concerning division of family property are complex and you may or may not like them. It is advisable, if possible, for couples to reach an agreement, either before, upon or after separation, to specify the ways you would like to divide the family assets. Certain rights of spouses, like child support, may not be waived even with such an agreement. The Agreement should also be fair to all parties if it is to be approved and enforced by the court. To ensure your rights and interests are protected, and the agreement is enforceable, you should always consult a lawyer before finalizing and signing an agreement.
Copyright: Jeff Jiehui Li
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