Family lawyers are frequently asked how family property and debt are divided after a separation. It may seem like a simple question, but the answer can become very complicated, as we’ll discuss below.
First, you will need to sort out three important dates:
This is either the Date of Marriage or the Date of Cohabitation (the date you began living together in a marriage-like relationship), whichever is earlier.
We generally use the Date of Cohabitation as the date that the spousal relationship began because most couples live together before getting married. However, if you and your spouse got married before you began living together, you would use the Date of Marriage.
This is the date that either of the spouses expresses an intention to end the relationship and takes some form of action to confirm this intention – for example, by sleeping in a separate bedroom; informing friends and family members that you have separated; or entering a marital status of ‘Separated’ in his or her income tax return. The Date of Separation can be subjective, and you should speak with a lawyer if it’s unclear. Choosing an incorrect Date of Separation can have significant implications.
The date that the issues of property and debt division are resolved is important, as there is a presumption that all Family Property and Family Debts should be valued as of this date. This might be the date that:
• an agreement is reached in mediation;
• an award is made by an arbitrator; or
• a final order is made by a judge at trial.
We’ll call this the “Date of the Decision.”
What Property is Excluded from Division?
Excluded property refers to property that the other spouse isn’t entitled to. The most common forms of Excluded Property are:
• property that either spouse had before the Date of Cohabitation (or the Date of Marriage if you did not live together before the Date of Marriage);
• property that was a gift to either of the spouses (and not a joint gift to both of the spouses);
• inheritances; and
• earnings or assets acquired after the Date of Separation (unless an asset was acquired using Family Property).
What Debts are Excluded from Division?
Excluded Debt refers to debts that the other spouse isn’t responsible for. The most common forms of Excluded Debts are:
• debt that either spouse had before the Date of Cohabitation; and
• debts incurred after the Date of Separation (unless incurred for the purpose of maintaining Family Property).
What is Family Property and what is Family Debt?
There is a presumption that both spouses are equally entitled to all Family Property and responsible for all Family Debts, with the values to be determined as of the Date of the Decision. However, this can become complicated when assets or debts fluctuate after the Date of Separation due to a combination of market forces and a person’s actions.
Family Property includes:
• All property acquired by either or both of the spouses between the Date of Cohabitation and the Date of Separation, regardless of the spouse’s respective use or contribution towards the property.
• The increase in value of all Family Property between the Date of Separation and the Date of the Decision (subject to adjustments if either of the spouses caused a significant decrease or increase in value between the Date of Separation and the Date of the Decision).
• The increase in value of either spouse’s “Excluded Property” between the Date of Cohabitation (or the date it was acquired, if it was acquired during the relationship) and the Date of the Decision (subject to adjustments if either of the spouses caused a significant decrease or increase in value between the Date of Separation and the Date of the Decision).
Family Debt includes:
• All debts acquired by either or both of the spouses between the Date of Cohabitation and the Date of Separation, regardless of the spouse’s respective use or contribution towards the debt.
• The increase in Family Debt (e.g., due to accruing interest) between the Date of Separation and the Date of the Decision (subject to adjustments if either of the spouses caused a significant decrease or increase in the balance owing between the Date of Separation and the Date of the Decision).
Significant Unfairness
If it seems significantly unfair for you to have to equally share all of the property you acquired during the relationship or all of the debts your spouse incurred during the relationship, there’s a chance that a judge (or mediator, or arbitrator) might agree with you.
Section 81 of the Family Law Act says that spouses are equally entitled to all Family Property and equally responsible for all Family Debts incurred between the Date of Cohabitation and the Date of Separation, regardless of their respective use or contribution. However, Section 95 of the Family Law Act says that people can argue for unequal division of Family Property and Family Debts if it would be significantly unfair.
It’s unfair, but is it significantly unfair?
There is a strong presumption that all Family Property and Family Debts should be divided equally, so you will need to prepare strong arguments pursuant to one or more of the grounds listed in Section 95 of the Family Law Act.
These grounds include:
Arguing “significant unfairness” under Section 95 of the FLA is challenging and risky because the threshold for “significant unfairness” is high. There must be a real sense of injustice that would permeate the result if the court did not deviate from the presumptive equal division.
In other words, a judge might agree that you’ve been dealt an unfair hand, but you could still lose your case if it doesn’t meet the high threshold of significant unfairness. To add insult to injury, if you lose, you may be required to compensate your spouse for a portion of his or her legal fees.
Although it is challenging to win an argument for significant unfairness, there are many cases in which Family Property and Family Debt have been unequally divided under Section 95 of the FLA. For example:
• if the spouses had a very short relationship and one spouse would receive a windfall for assets that he or she had no involvement with;
• if a spouse recklessly squandered family assets during the relationship;
• if a spouse incurred significant gambling debts without the other’s knowledge or involvement; or
• if a spouse attempts to hide assets and refuses to provide fulsome and accurate disclosure of his or her assets and/or debts.
After hearing arguments from lawyers and following relevant case law, judges and arbitrators have broad discretion to decide whether something is merely unfair (which is acceptable), as opposed to significantly unfair. If you are self-represented and making an argument for significant unfairness under Section 95 of the Family Law Act, be sure to consult with an experienced family lawyer.
Hypothetical Scenarios:
Separating can be stressful and painful. Many people have trouble coping, so they put their heads in the sand and delay in resolving their financial issues. Long delays can make it very complicated (and more expensive) for your lawyers to calculate the amount of Family Property and Family Debts to be divided as of the Date of the Decision. (* Remember that the value of Family Property and balance of Family Debt is determined as of the Date of the Decision, subject to adjustments if either of the parties caused a significant decrease or increase in the value or balance between the Date of Separation and the Date of the Decision.)
Long Delays in resolving matrimonial disputes after separation can be prejudicial (i.e. harmful) to either party if the assets are increasing or decreasing in value due to market forces or interest.
For example, let’s say that a nice lady named Mary owned a house when she met John. When John and Mary moved in together, the house was worth $400,000 and she had a mortgage of $100,000. John and Mary moved in together and Mary rented the house to tenants throughout their 10-year relationship. She paid off the mortgage during the relationship and it increased in value to $750,000 as of the Date of Separation. We’ll refer to this property as Mary’s “Rental Property.”
The equity in the Rental Property as of the Date of Cohabitation was $300,000 (the value minus the mortgage). The equity in the Rental Property as of the Date of Separation was $750,000 (the full value because it was mortgage-free). The difference of $450,000 is Family Property. If John and Mary signed a Separation Agreement immediately after separation, Mary would likely pay John $225,000 to equalize this Family Property.
Let’s say that Mary and John had a very volatile relationship and Mary couldn’t cope with it, so three years went by before she was willing and able to sit down and start serious negotiations. They couldn’t reach an agreement, so they went to trial another three years later. Now it’s been six years since the Date of Separation, and Mary’s Rental Property has increased in value from $750,000 (as of the Date of Separation) to $1,200,000 (as of the Date of Trial). That’s bad news for Mary and good news for John because this is how the law works:
• Mary still has an excluded property claim of $300,000 (the equity in the Rental Property as of the Date of Cohabitation); and
• the value as of the Date of Trial ($1,200,000) minus Mary’s excluded property claim ($300,000) is $900,000, which is entirely Family Property. John is now presumptively entitled to 50% of that, which amounts to $450,000.
However, there are several arguments that Mary can make to try to reduce the amount of John’s entitlement to her Rental Property. This is referred to as seeking an unequal division of Family Property, pursuant to section 95 of the Family Law Act. See below to read more.
Under s. 95 of the FLA, Mary may have grounds to argue that it would be significantly unfair for John to receive 50% of the increase in equity in her Rental Property between the Date of Cohabitation and the Date of the Decision.
For example, if Mary invested a lot of time, effort, and money into maintenance, repairs, and improvements on the Rental Property after the Date of Separation (thus, significantly increasing the value), she should argue that John would be unjustly enriched if he were to benefit from any increase in value of the Rental Property that can be attributed to her post-separation labour and financial investment.
If Mary can prove how much time and money she spent on the Rental Property after the Date of Separation, the judge will consider giving Mary a credit for her post-separation contributions. Alternatively, the judge could simply estimate what would be fair and reapportion the increase in equity in the Rental Property since the Date of Cohabitation so that Mary receives a greater share (e.g., 70%) and John receives a lesser share (e.g., 30%).
Property Tax Assessments rarely provide an accurate estimate of a property’s market value. Professional real-estate appraisals are usually required to determine the market value of property. If requested, the appraiser can also try to estimate the value attributable to specific improvements made to the property (such as recent renovations or a major repair). Appraisers are often used to obtain retrospective appraisals if the parties need to calculate the increase in value of a property since the Date of Cohabitation.
When someone wants to retain real estate and buy out their spouse’s interest in it, it’s common for that person to want to reduce the value of the property to account for hypothetical real estate fees and commissions that would be incurred if the parties had to sell the property. However, if the spouse’s intention is to keep the property rather than sell it, the value of Family Property will not be reduced to account for speculative and unlikely selling costs.
Tax consequences (such as capital gains) are a valid consideration when one spouse wants to keep a property that hasn’t been the parties’ primary residence. The courts have considered the fact that it would be unfair for one spouse to obtain a tax-free share of the equity in property when the other party will likely incur significant capital gains when the property sells. This argument is even more persuasive if the spouse who retains the property intends to sell it in the foreseeable future. For example, in a 2017 case in the BC Supreme Court, Justice Voith ordered that the Respondent’s share of capital gains would be deducted from the equalization payment awarded to her and would be deposited into a lawyer’s trust account. If the property was not put on the market in 30 days, or if the property was put on the market in 30 days but did not sell within 6 months, those funds would be released to the Respondent.
If Jane and Joe separate on December 1, 2023 and Joe withdraws all of his RRSPs on January 1, 2024 to pay his family lawyer’s retainer, he has disposed of this family asset. His wife should argue that she should receive half of the value of his RRSPs before he disposed of these funds.
Let’s say that Sally and Bob often fought during the relationship about Bob’s shopping addiction. He could never get enough new clothes and shoes, and these purchases have always gone on his credit card because he can’t afford them. If Bob racked up $30,000 in credit card debt by the Date of Separation, all of that debt is presumptively Family Debt.
Sally may want to argue that she shouldn’t be responsible for 50% of Bob’s shopping debts because it would be significantly unfair. One of the considerations in Section 95 of the FLA is that debt may be unequally divided if it was not incurred in the “normal course of the relationship.” This argument will be even more persuasive if the relationship was very short, and/or if Sally doesn’t have the financial means to take on half of Bob’s shopping debt. Arguments for significant unfairness are far more likely to succeed if you can make arguments based on more than one of the grounds listed in Section 95 of the FLA.
Not only is Sally presumptively responsible for half ($15,000) of Bob’s credit card debt incurred during the relationship; she’s presumptively responsible for half of the interest that accrues on that debt between the Date of Separation and the Date of the Decision. Any increase in Family Debt between the Date of Separation and the Date of the Decision due to interest or market forces is Family Debt. Most people would agree that it would be unfair for Sally to be responsible for half of Bob’s shopping debts, let alone half of the post-separation interest, but a judge will want to hear persuasive arguments that specifically relate to the grounds for significant unfairness listed in Section 95 of the FLA.
Unfortunately for Sally, she can’t make an argument that she should get to keep an asset worth $30,000 in exchange for Bob getting to keep $30,000 worth of clothes and shoes. When dividing Family Property, we don’t use the amount that was paid for the property – we use the amount that it could sell for now. Used clothing and shoes tend to have a very low resale value. However, if Bob’s used clothing and shoes are high-end and in excellent resale condition, Sally could get these items appraised and seek 50% of the resale value.
The only good news for Sally is that if Bob continues his shopping sprees after the Date of Separation and incurs another $20,000 in credit card debt before the Date of the Decision, that $20,000 (including interest that accrues on these post-separation charges) is solely Bob’s responsibility.
TIP: You’re entitled to fulsome disclosure of your spouse’s finances. Be sure to check his or her bank statements in the months leading up to separation – especially if he or she is the one who ended the relationship, and you suspect that it was planned in advance. If your spouse became educated about the law before separation, he or she might have incurred major expenses before the Date of Separation so that you’d have to split the bill. For example, Sally may have booked a $20,000 trip to Europe for herself and her new boyfriend right before leaving Bob. Bob could argue that this expense wasn’t incurred “in the normal course of the relationship.” If he doesn’t, that $20,000 expense will result in him getting $10,000 less in the division of Family Property or being responsible for $10,000 more in Family Debts.
Example 1: Let’s say Jerry had $20,000 in RRSPs as of the Date of Cohabitation and his RRSPs increased in value to $30,000 as of the Date of Separation. He did not make any post-separation contributions towards his RRSPs, but they increased in value by $2,000 between the Date of Separation and the date of mediation (the Date of the Decision).
A lot of spouses keep it simple in mediation and agree to divide the value of financial assets (and debts) as of the Date of Separation, rather than as of the Date of the Decision. In that case, $10,000 of Jerry’s RRSPs would be Family Property and his spouse would receive a (tax-free) spousal rollover of $5,000.00. If they use the Date of the Decision to divide financial assets and debts, his spouse would receive a spousal roll-over of $6,000.00 for her share of Jerry’s RRSPs.
TIP: If your spouse claims that a portion of his or her financial assets are Excluded Property on the grounds that he or she had it before the relationship, make sure the funds that exist now are the SAME funds that existed as of the Date of Cohabitation.
Example 2: Let’s use the same scenario – Jerry had $20,000 in RRSPs as of the Date of Cohabitation and $30,000 as of the Date of Separation. It might seem straightforward that $10,000 of his RRSPs is Family Property. However, after we check all of his RRSP statements, we might see that he withdrew all of his RRSPs in the beginning of the relationship to pay for living expenses after he was laid off. He was eventually able to start contributing again, and he accumulated $30,000 in RRSPs by the Date of Separation. In this case, Jerry does not have a valid excluded property claim. The entire $30,000 was acquired during the relationship, so it is all Family Property, and his spouse is entitled to a spousal rollover of $15,000. If pre-marital assets are spent or disposed of during the relationship, the Excluded Property claim is lost.
Excluded Debts are dealt with similarly.
Example 1: If Samantha has $50,000 in student loans at the Date of Cohabitation and the balance goes down to $40,000 by the Date of Decision. She will be solely responsible for that $40,000 debt.
Example 2: Let’s say that Samantha has $50,000 in student loans at the Date of Cohabitation and she isn’t able to make any payments during the relationship, so her student loans increase to $55,000 by the Date of Separation. That $5,000 increase is presumptively a Family Debt.
Example 2: Let’s say that Samantha has $10,000 in student loans at the Date of Cohabitation and she pays that off during the relationship. Then she decides to return to school and she gets another student loan for $20,000.00 shortly before separation. Samantha’s spouse might say that she came into the relationship with $10,000 in student loans, so she should be fully responsible for $10,000 of her new student loans. However, her new student loans were incurred during the relationship, so he is presumptively responsible for 50%.
If your spouse is asking for you to pay for half of his or her student debt owing at the end of your relationship, you should consider seeking an unequal division in consideration of your “contribution to the career or career potential” of your spouse (pursuant to Section 95(c) of the FLA), especially if you had a short relationship (pursuant to Section 95(a) of the FLA).
Gifts between spouses are Family Property, as are gifts from third parties that are made to both of the parties jointly. However, a gift to one spouse from a third party is that party’s Excluded Property.
For example, when Barbara and Scott got married, Barbara’s parents gave them a wedding gift of $80,000 to put towards the mortgage on their Family Residence. A gift to Barbara alone would have been Barbara’s Excluded Property, but a wedding gift is generally provided to a couple jointly. Therefore, this $80,000 gift is likely Family Property, even if Barbara’s parents claim after the Date of Separation that they intended for it to be a gift to Barbara alone.
TIP: If any of your family members want to give you a significant sum of money while you’re married or in a common law relationship, make sure that your family member’s intentions are clear, and preferably in writing at the time the gift is made. You don’t need to incur thousands of dollars to have a formal agreement drafted by a lawyer. Evidence of emails or text messages about the intended recipient(s) of the gift can be very helpful. An informal document that expresses the giver’s intentions is likely to suffice, especially if it is dated and signed in front of witnesses. It is preferable to include your spouse’s signature on the document to avoid the potential for misunderstandings and disputes.
Likewise, if your spouse’s parents tell you that they want to give both you and your spouse a significant gift, it would be wise to confirm in writing that this is a gift to you both, rather than to your spouse alone.
If Bob purchases a boat just one day after moving in with his future wife, Barbara. That boat is presumptively Family Property because it was acquired during the relationship. If he still has the boat after he and Barbara separate, Barbara may seek 50% of the (likely very depreciated) resale value of the boat as of the Date of the Decision.
However, if Bob can prove that he used $10,000 in savings that he had before the relationship to purchase that boat, the boat is Bob’s Excluded Property because it can be traced to his Excluded Property. He would be able to keep that boat after separation without compensating Barbara.
Tracing property can require several steps and a lot of document disclosure, so you need to weigh the costs and benefits. For example, if Bob sold that boat to buy a car, and then sold that car to buy TV, and then sold that TV to buy a used couch, he could argue that the couch is his Excluded Property if he can trace the couch all the way back to the $10,000 in savings he had before the relationship. If he pays his lawyer to wade through years of bank statements and receipts to fight about this in court, Bob will likely incur far more in legal fees than the couch is even worth. It’s always a shame when people spend more in legal fees than they would have had to pay if they’d just taken the high road and let something go.
TIP: If you want to protect your Excluded Property, keep receipts and invoices to ensure that you can trace new property to your Excluded Property. If nothing else, make detailed notes about the transactions and save the bank statements to substantiate them.
If Bob purchases a cabin for $100,000 just one month after the Date of Separation, that cabin is presumptively Bob’s Excluded Property. However, just as Bob can trace Family Property to his Excluded Property, Barbara can potentially trace his cabin to Family Property. For example, if Bob used funds that existed in his bank account as of the Date of Separation to purchase the cabin, the cabin can be traced to Family Property. Barbara would have a “beneficial interest” in the cabin, even though her name isn’t on title and it was purchased after the Date of Separation. Barbara is entitled to 50% of the funds that existed in Bob’s bank accounts as of the Date of Separation, so she may want to register a Certificate of Pending Litigation (“CPL”) against the cabin to prevent Bob from selling or re-mortgaging the cabin until an agreement or court order is made regarding the division of Family Property and Family Debt.
SUMMARY:
As you can see, the laws about dividing Family Property and Family Debt after separation can be complicated. Although blogs and websites can provide helpful information, they should never be relied upon when making important decisions that will affect your rights. The law varies from province to province, and it evolves over time as new cases are decided. Meeting with an experienced family lawyer who understands the facts in your own unique situation is the best way to ensure that your rights are protected.
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