Dividing Property and Debts

This script discusses dividing property and debt between married spouses and unmarried spouses when their relationship breaks down.

Who is a “spouse”?

Property and debt are divided between spouses under the Family Law Act. Under this act, the “spouses” who are entitled to apply for an order dividing property and debt under the act are:

• people who are married; and
• people who have lived together in a “marriage-like relationship” for at least two years.

Claims for the division of property and debt must be made within two years of the date married spouses are divorced or their marriage is annulled or, for unmarried spouses, the date of their separation.

If you don’t qualify as a “spouse”, the laws that apply to your situation are different, and this script does not apply to you. You should refer to script 148 on “Other Relationships: Your Income, Support and Property Rights”.

The basic principles of the Family Law Act

The law about dividing property and debt is contained in the Family Law Act. In general:

• Each spouse is entitled to keep the property they brought into the relationship, plus certain kinds of property received during the relationship, like inheritances and court awards, as his or her “excluded property.”
• Each spouse is entitled to one-half of the property bought during their relationship, plus one-half of the increase in value of each other’s excluded property. The property spouses are entitled to share is called “family property.”
• Each spouse is liable for one-half of the debt run up during the relationship, including any debt incurred after separation to maintain family property. The debt spouses are obliged to share is called “family debt”.

What is “family property”?

Family property is all of the property owned by either or both spouses on the date of separation, minus any excluded property. Family property includes: interests in companies, partnerships and businesses; money owed to a spouse; bank accounts, RRSPs and pensions; and, interests in certain kinds of trusts. Family property includes the amount of the increase in value of any excluded property.

Each spouses is presumed to have a one-half interest in all family property, regardless of their use of or contribution to that property.

What is “excluded property”?

Excluded property is the property a spouse brings into a relationship, including some kinds of property received during the relationship. Excluded property received after a relationship starts includes, inheritances and gifts from people other than the other spouse; court awards; insurance money; and, interests in certain kinds of trusts. Excluded property includes property bought with excluded property.

Excluded property is presumed to remain the property of the spouse that owns it.

What is “family debt”?

Family debt is all debt run up by either or both spouses during their relationship. Family debt includes debt run up after separation if the debt was incurred to pay for or maintain family property.

Spouses are presumed to have a one-half responsibility for family debt, regardless of their contribution to the debt or the use that was made of it.

Are RRSPs and pensions family property?

Yes. The amount of any RRSPs or pensions that accumulated during the relationship is family property. There are special rules in the Family Law Act for dividing most kinds of pension. There are separate rules for dividing of other pensions and Canada Pension Plan credits that aren’t found in the Family Law Act. A lawyer can help with this.

Are shares in a company family property?

Yes. A spouse’s shares in a company are family property. This can be a complicated issue and you should speak to a lawyer if you or your spouse has an interest in a company.

Is an inheritance family property?

No. An inheritance that a spouse receives before, during or after a relationship is part of that spouse’s excluded property. However, for inheritances received before separation the amount the inheritance increased in value during the relationship is family property.

What happens if a spouse tries to hide or sell property?

The court can prevent the transfer of property to a third person if the court believes that the transfer is being made to avoid the other spouse’s interest in that property. The court can also reverse a transfer that’s already occurred, whether before or after separation, and make a “compensation order” to repay a spouse for property that was transferred to frustrate the spouse’s interest in that property.

Are there any exceptions to the equal division rule?

Yes. If an equal division of family property or family debt would be significantly unfair, the court can order a division that is unequal. Although the presumption of an equal division of family property and family debt is very strong, the court’s main duty is to ensure that property is divided fairly.

What does the court look at when dividing family property or family debt unequally?

The factors the court will take into account in determining whether an equal division would be significantly unfair include: the length of the spouses’ relationship; whether debt was incurred in the normal course of the spouses’ relationship and whether the amount of debt exceeds the amount of property; whether a spouse caused a significant increase or decrease in the value of debt or property after separation; and whether taxes must be paid to divide family property between the spouses.

Can spouses agree to an unequal division of family property and family debt?

Yes. Spouses can agree to an unequal division of property and debt in a separation agreement or by an order that they both agree the court should make, called a “consent order,” or they might have made a marriage agreement or cohabitation sorting out their interests in excluded property or family property when they got married or began to live together.

The court cannot order a division of property and debt different than a valid marriage agreement or cohabitation agreement requires unless the agreement is overruled. For more information on marriage agreements and cohabitation agreements, refer to script 162 on “Marriage Agreements and Cohabitation Agreements”.

Can the court divide excluded property?

Yes. Although the presumption that a spouse should be entitled to keep his or her excluded property is very strong, the court can divide excluded property if: family property or family debt outside British Columbia cannot be divided; or if it would be significantly unfair not to divide excluded property considering the length of the spouses’ relationship and the non-owning spouse’s direct contribution to the excluded property.

Can spouses agree to divide excluded property?

Yes. Spouses can make an agreement at the start or end of their relationship that excluded property will be treated like family property and be divided between them.

When does each spouse get their share of the family property and become responsible for the family debt?

On the date the spouses separate, each spouse becomes a one-half owner of all family property as a tenant in common, and each becomes responsible for one-half of the family debt.

When do you have to apply for a division of property and debt?

It isn’t necessary to start a court case to divide property or debt, and you don’t need to get a divorce order first if you’re married. However, if an agreement about dividing property and debt can’t be reached:

• married spouses must apply to court for a division of property and debt under the Family Law Act within two years of the date the that court made a divorce order or a declaration that their marriage is a nullity; and
• unmarried spouses must apply to court for a division of property and debt under the act within two years of the date they separated.

Summary

When married or unmarried spouses separate, each spouse is entitled to an interest in all family property and becomes responsible for all family debt. Normally the interest in family property is a half interest and the liability for family debt is for one-half of that debt; the spouses’ interests might be unequal if an equal share would be significantly unfair. Each spouse will usually keep his or her excluded property, but will have to share half of the amount that the excluded property increased in value during the spouses’ relationship.

Because the division of family property and family debt raises some very complex legal issues, it’s important to get legal advice immediately. With proper advice and help, it’s often possible to settle the division of property and debt without having to go to court.

More information

For more information about family property, excluded property and family debt, see the property and debt section of the wikibook JP Boyd on Family Law provided by Courthouse Libraries BC.

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The testing of the claims in a court proceeding at a formal hearing before a judge with the jurisdiction to hear the proceeding. The parties present their evidence and arguments to the judge, who then makes a decision resolving the parties' claims against one another that is final and binding on the parties unless successfully appealed. See "action," "appeal," "argument," "claim," "evidence" and "jurisdiction."

In law, the re-examination of a term of an order or agreement, usually to determine whether the term remains fair and appropriate in light of the circumstances prevailing at the time of the review. In family law, particularly the review of an order or agreement provided for the payment of spousal support. See "de novo," "family law agreements," "order" and "spousal support."

Something which can be owned. See "chattels" and "real property."

A sum of money or an obligation owed by one person to another. A "debtor" is a person responsible for paying a debt; a "creditor" is the person to whom the debt is owed.

Under the Divorce Act, either of two people who are married to one another, whether of the same or opposite genders. Under the Family Law Act, spouse includes married spouses, unmarried parties who have lived together in a marriage-like relationship for at least two years, and, for all purposes of the act other than the division of property or debt, unmarried parties who have lived together for less than two years and have had a child together. See "marriage" and "marriage-like relationship."

(1) Intentionally doing a thing, or (2) a law passed by a government, also called "legislation" or a "statute." See "regulations."

A mandatory direction of the court that is binding and enforceable upon the parties to a court proceeding. An "interim order" is a temporary order made following the hearing of an interim application. A "final order" is a permanent order, made following the trial of the court proceeding or the parties' settlement, following which the only recourse open to a dissatisfied party is to appeal. Failing to abide by the terms of an order may constitute contempt of court. See "appeal," "consent order," "contempt of court," "decision" and "declaration."

In family law, the quality of an unmarried couple's relationship that demonstrates their commitment to each other, their perception of themselves as a couple, and their willingness to sacrifice individual advantages for the advantage of themselves as a couple; a legal requirement for a couple to be considered spouses under the Family Law Act without marrying. See "cohabitation," "marriage," and "spouse."

In family law, the decision of one or both parties to terminate a married or unmarried relationship; the act of one person leaving the family home to live somewhere else with the intention of terminating the relationship. There is no such thing as a "legal separation." In general, one separates by simply moving out, however, it is possible to be separated but still live under the same roof. See "divorce, grounds of."

A term under the Family Law Act referring to property acquired by a spouse prior to the commencement of the spouses' relationship and certain property acquired by a spouse during the relationship, including gifts, inheritances, court awards, and insurance payments. A spouse is presumed to be entitled to keep their excluded property without having to share it with the other spouse. See "family property," "gift" and "inheritance."

A term under the Family Law Act referring to property acquired by either or both spouses during their relationship, as well as after separation if bought with family property. Both spouses are presumed to be entitled to share equally in any family property. See "excluded property."

A term under the Family Law Act referring to debt owed by either or both spouses that accumulated during the spouses' relationship, as well as after separation if used to maintain family property. Both spouses are presumed to be equally liable for family debt.

A person licensed to practice law in a particular jurisdiction by that jurisdiction's law society. See "barrister and solicitor."

Real property or personal property received as a result of the provisions of a will or under the Wills, Estates and Succession Act. Inheritances do not usually qualify as family property subject to division between spouses. See "family property," "real property" and "will."

In property law, the act of an owner of a thing giving ownership of that thing to another person, usually in exchange for money or other property in the case of a sale, or in exchange for other rights in the case of a family law agreement. See "family law agreements," "ownership" and "sale."

In law, (1) a lawyer's bill to their client or a statement, or (2) a person's recollection of events.

A contract intended to resolve all or some of the legal issues arising from the breakdown of a relationship and intended to guide the parties in their dealings with one another into the future. A typical separation agreement is signed following a settlement reached through negotiation and deals with issues including guardianship, parenting arrangements, contact, support, the division of property, and the division of debt. See "family law agreements."

An order resolving all or part of a court proceeding, on an interim or final basis, that the parties agree the court should make.

An agreement signed by people who are planning on marrying or who have married that is intended to govern their rights and obligations in the event of the breakdown of their marriage and, sometimes, their rights and obligations during their marriage. See "family law agreement."

An agreement signed by people who are or have begun to live together in a marriage-like relationship that is intended to govern their rights and obligations in the event of the breakdown of their relationship and, sometimes, their rights and obligations during their relationship. See "family law agreement."

In law, a pronouncement of the court about a fact or a state of affairs, such as a declaration that a marriage is void or that a person is the guardian of a child. Not to be confused with an order, which is a mandatory direction of the court requiring a party to do or not do something. See "order."