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Difference between revisions of "Basic Principles of Property and Debt in Family Law"
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Basic Principles of Property and Debt in Family Law (view source)
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==Introduction== | ==Introduction== | ||
The basic plan for the division of property and debt under the provincial ''[[Family Law Act]]'' is pretty straightforward. ''You 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 that's the basic concept the | The basic plan for the division of property and debt under the provincial ''[[Family Law Act]]'' is pretty straightforward. ''You 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 that's the basic concept 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 of the ''Family Law Act'' talks about the division of pensions between spouses and says which portion of a pension is supposed to be shared and which parts remain the property of the pension member. | 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 of the ''Family Law Act'' talks about the division of pensions between spouses and says which portion of a pension is supposed to be shared and which parts remain the property of the pension member. | ||
This section looks into the nooks and crannies of Part 5 of the | This section looks into the nooks and crannies of Part 5 of the act 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. A pension can be a very valuable asset. It is important to include it when dividing property. | ||
===Standing=== | ===Standing=== | ||
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<blockquote><tt>(2) A spouse includes a former spouse.</tt></blockquote> | <blockquote><tt>(2) A spouse includes a former spouse.</tt></blockquote> | ||
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 | 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 section in this chapter, under the heading "[[Property_%26_Debt_in_Family_Law_Matters#Property_claims_and_people_who_aren.27t_spouses|property claims and people who aren't spouses]]," and in the chapter [[Family Relationships]] in the section [[Other Unmarried Relationships.]] | ||
===Period of entitlement=== | ===Period of entitlement=== | ||
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<blockquote><blockquote><tt>(a) during the period beginning when the relationship between the spouses begins and ending when the spouses separate</tt></blockquote></blockquote> | <blockquote><blockquote><tt>(a) during the period beginning when the relationship between the spouses begins and ending when the spouses separate</tt></blockquote></blockquote> | ||
As you can see, the date when the relationship between the spouses began and the date the spouses separate are very important. These 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. | As you can see, the date when "the relationship between the spouses began" and the date "the spouses separate" are very important. These 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. | ||
====Date of cohabitation and the date of marriage==== | ====Date of cohabitation and the date of marriage==== | ||
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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. | 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, ''[http://canlii.ca/t/5bpc Yakiwchuk v. Oaks]'', 2003 SKQB 124, expressed the problem this way: | 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, ''[http://canlii.ca/t/5bpc Yakiwchuk v. Oaks]'', 2003 SKQB 124, expressed the problem this way: | ||
<blockquote>"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."</blockquote> | <blockquote>"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."</blockquote> | ||
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===A partnership of acquests=== | ===A partnership of acquests=== | ||
The scheme for the division of property under the ''Family Law Act'' is technically described as 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. | The scheme for the division of property under the ''Family Law Act'' is technically described as 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. | ||
====The ''Family Relations Act'' and the ''Family Law Act''==== | ====The ''Family Relations Act'' and the ''Family Law Act''==== | ||
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====Transition provisions==== | ====Transition provisions==== | ||
The ''Family Law Act'' became law in British Columbia on 18 March 2013. All of the parts of the | The ''Family Law Act'' became law in British Columbia on 18 March 2013. All of the parts of the act about children and support applied to everyone right away, including people who were in the middle of a court proceeding. However, under s. 252(2) married spouses who had started a court proceeding about the division of property or had an agreement about the division of property must continue under the old ''Family Relations Act'' as if it hadn't been cancelled, unless the spouses agree otherwise: | ||
<blockquote><tt>(2) Unless the spouses agree otherwise, </tt></blockquote> | <blockquote><tt>(2) Unless the spouses agree otherwise, </tt></blockquote> | ||
<blockquote><blockquote><tt>(a) a proceeding to enforce, set aside or replace an agreement respecting property division made before the coming into force of this section, or</tt></blockquote></blockquote> | <blockquote><blockquote><tt>(a) a proceeding to enforce, set aside or replace an agreement respecting property division made before the coming into force of this section, or</tt></blockquote></blockquote> | ||
<blockquote><blockquote><tt>(b) a proceeding respecting property division started under the former Act</tt></blockquote></blockquote> | <blockquote><blockquote><tt>(b) a proceeding respecting property division started under the former Act</tt></blockquote></blockquote> | ||
<blockquote><tt>must be started or continued, as applicable, under the former | <blockquote><tt>must be started or continued, as applicable, under the former Act as if the former Act had not been repealed.</tt></blockquote> | ||
This rule only applies to married spouses because only married spouses could make property claims under the ''Family Relations Act''; it is not possible for unmarried spouses to "start or continue" a claim under that | This rule only applies to married spouses because only married spouses could make property claims under the ''Family Relations Act''; it is not possible for unmarried spouses to "start or continue" a claim under that act. | ||
The division of family property under the ''Family Relations Act'' is discussed later on in this section. | The division of family property under the ''Family Relations Act'' is discussed later on in this section. | ||
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<blockquote><tt>(3) Despite subsection (1) of this section and subject to section 85 (1) (e), family property includes that part of trust property contributed by a spouse to a trust in which</tt></blockquote> | <blockquote><tt>(3) Despite subsection (1) of this section and subject to section 85 (1) (e), family property includes that part of trust property contributed by a spouse to a trust in which</tt></blockquote> | ||
<blockquote><blockquote><tt>(a) the spouse is a beneficiary, and has a vested interest in that part of the trust property that is not subject to divestment, </tt></blockquote></blockquote> | <blockquote><blockquote><tt>(a) the spouse is a beneficiary, and has a vested interest in that part of the trust property that is not subject to divestment, </tt></blockquote></blockquote> | ||
<blockquote><blockquote><tt>(b) the spouse has a power to transfer to | <blockquote><blockquote><tt>(b) the spouse has a power to transfer to himself or herself that part of the trust property, or</tt></blockquote></blockquote> | ||
<blockquote><blockquote><tt>(c) the spouse has a power to terminate the trust and, on termination, that part of the trust property reverts to the spouse. </tt></blockquote></blockquote> | <blockquote><blockquote><tt>(c) the spouse has a power to terminate the trust and, on termination, that part of the trust property reverts to the spouse. </tt></blockquote></blockquote> | ||
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=====How property is owned===== | =====How property is owned===== | ||
There are two ways that more than one person can own the same property in British Columbia: they can own the property as | There are two ways that more than one person can own the same property in British Columbia: they can own the property as "joint tenants" or as "tenants in common." | ||
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 because they each 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. | 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 because they each 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. | ||
When a joint tenant dies, | When a joint tenant dies, his or her interest in the asset disappears, and the surviving joint tenants continue to own the whole asset as they always had. As a result, joint tenancies are extremely handy estate planning tools. | ||
When people own a thing as tenants in common, 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. | When people own a thing as ''tenants in common'', 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 | 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. 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 his or her will. | ||
=====The effect of the Separation===== | =====The effect of the Separation===== | ||
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From a family law perspective, the most important thing about owning an asset as tenants in common, which is how assets are owned after the spouses separate, is this idea of two separate interests in an asset. Say the family home is registered in only one spouse's name and that spouse goes bankrupt. If there has been a separation and each spouse takes a one-half interest as a tenant in common, 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. | From a family law perspective, the most important thing about owning an asset as tenants in common, which is how assets are owned after the spouses separate, is this idea of two separate interests in an asset. Say the family home is registered in only one spouse's name and that spouse goes bankrupt. If there has been a separation and each spouse takes a one-half interest as a tenant in common, 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. | ||
Family law lawyers describe the effect of a separation as | Family law lawyers describe the effect of a separation as "crystallizing" the spouses' interests in the family property because the separation makes each spouse the legal owner of one-half of the family assets in a way that is also binding on people outside the relationship, like creditors, trustees in bankruptcy, potential purchasers and so forth. After a separation happens, all a creditor can lien or seize to secure or pay a debt 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 separation. | ||
Under the ''Family Law Act'' there is no requirement that the parties start a court proceeding or sign an agreement in order to be separated. | Under the ''Family Law Act'' there is no requirement that the parties start a court proceeding or sign an agreement in order to be separated. | ||
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As a resut, it's going to be important to know how family property is divided under the ''Family Relations Act'' for a while longer. | As a resut, it's going to be important to know how family property is divided under the ''Family Relations Act'' for a while longer. | ||
The division and distribution of property between married spouses was governed by Parts 5 and 6 of the ''Family Relations Act''. Part 5 of the | The division and distribution of property between married spouses was governed by Parts 5 and 6 of the ''Family Relations Act''. Part 5 of the act dealt with the division of property, including personal property, financial assets, and real estate. Part 6 dealt with the division of pensions. Unmarried couples, including couples who qualify as unmarried spouses, were expressly excluded from the parts of the act that deal with property. | ||
===The presumption of equal sharing=== | ===The presumption of equal sharing=== | ||
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<blockquote><tt>(2) ... as a tenant in common.</tt></blockquote> | <blockquote><tt>(2) ... as a tenant in common.</tt></blockquote> | ||
As long as an asset qualified under the | As long as an asset qualified under the act as a ''family asset'', each spouse was presumed to have a one-half interest in that asset. Family assets were defined in s. 58(2) of the act, and the focus under the act was on how an asset was ''used during the relationship'' rather than on who bought it, when it was bought, or how it was bought: | ||
<blockquote><tt>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.</tt></blockquote> | <blockquote><tt>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.</tt></blockquote> | ||
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When a ''triggering event'' happened, all of the property owned by either or both spouses became equally owned by both spouses as tenants in common. If only one spouse owned an asset, both of the spouses became equal owners of that asset as tenants in common. If both spouses owned an asset as joint tenants, the joint tenancy was severed and both of the spouses became equal owners of the asset as tenants in common. | When a ''triggering event'' happened, all of the property owned by either or both spouses became equally owned by both spouses as tenants in common. If only one spouse owned an asset, both of the spouses became equal owners of that asset as tenants in common. If both spouses owned an asset as joint tenants, the joint tenancy was severed and both of the spouses became equal owners of the asset as tenants in common. | ||
Family law lawyers described the effect of a triggering event as crystallizing the interests of the spouses in the family assets because the triggering event made each spouse a legal owner of one-half of the family assets in a way that was also binding on people outside the marriage, like creditors, trustees in bankruptcy, potential purchasers and so forth. After a triggering event happened, all a creditor could lien or seize was 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. | Family law lawyers described the effect of a triggering event as "crystallizing" the interests of the spouses in the family assets because the triggering event made each spouse a legal owner of one-half of the family assets in a way that was also binding on people outside the marriage, like creditors, trustees in bankruptcy, potential purchasers and so forth. After a triggering event happened, all a creditor could lien or seize was 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'' described four triggering events: | Section 56(1) of the ''Family Relations Act'' described four triggering events: | ||
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*some of the assets had been bought with a spouse's inheritance. | *some of the assets had been bought with a spouse's inheritance. | ||
===Defining family assets=== | ===Defining "family assets"=== | ||
Not all assets were shareable family assets. The sections of the ''Family Relations Act'' quoted above only provided for the division of assets that qualified as ''family assets''; other sorts of assets might have been exempt from division, so that the spouse who owned the asset would be allowed to keep that asset, without necessarily having to compensate the other spouse for its value. | Not all assets were shareable family assets. The sections of the ''Family Relations Act'' quoted above only provided for the division of assets that qualified as ''family assets''; other sorts of assets might have been exempt from division, so that the spouse who owned the asset would be allowed to keep that asset, without necessarily having to compensate the other spouse for its value. | ||
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These agreements are often used to say how property and debt will be handled during a relationship and how it will be allocated if the couple separates. Under s. 93(1) of the ''Family Law Act'', they must be in writing and be signed by each spouse in the presence of at least one other person as witness. | These agreements are often used to say how property and debt will be handled during a relationship and how it will be allocated if the couple separates. Under s. 93(1) of the ''Family Law Act'', they must be in writing and be signed by each spouse in the presence of at least one other person as witness. | ||
However, since many people are content with the basic plan for the division of property set out in the ''Family Law Act'', the question is often about what a cohabitation agreement or a marriage agreement can do that would be better than the division the | However, since many people are content with the basic plan for the division of property set out in the ''Family Law Act'', the question is often about what a cohabitation agreement or a marriage agreement can do that would be better than the division the act expects. Here are some ideas. An agreement could: | ||
*clarify which property is excluded property and what its value was when the relationship begain, | *clarify which property is excluded property and what its value was when the relationship begain, | ||
*allow a spouse to keep not just | *allow a spouse to keep not just his or her excluded property but the growth in value of his or her excluded property, | ||
*say that there will be no shared family property, except for property that is registered in both spouses' names or that the parties agree in writing will be shared family property, | *say that there will be no shared family property, except for property that is registered in both spouses' names or that the parties agree in writing will be shared family property, | ||
*give a share of a spouse's excluded property to the other spouse, including a share which increases over time, | *give a share of a spouse's excluded property to the other spouse, including a share which increases over time, | ||
