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Difference between revisions of "Property and Debt in Family Law Matters"

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Property and Debt in Family Law Matters (view source)

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<blockquote><blockquote><tt>(ii) an <span class="noglossary">action</span>, taken by a spouse, that demonstrates the spouse's intention to separate permanently.</tt></blockquote></blockquote>
<blockquote><blockquote><tt>(ii) an <span class="noglossary">action</span>, taken by a spouse, that demonstrates the spouse's intention to separate permanently.</tt></blockquote></blockquote>


In other words, to separate, one spouse should announce the end of the relationship and then take steps that would demonstrate an intention to end the relationship. Separation is discussed in more detail in the chapter [[Separating and Getting Divorced]].
In other words, to separate, one spouse should announce the end of the relationship and then take steps that would demonstrate an intention to end the relationship. Separation is discussed in more detail in the chapter [[Separation & Divorce]], in the section [[Separation]].


===Property brought into the relationship===
===Property brought into the relationship===
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Under section 81, family property is presumed to be shared between the spouses equally, regardless of their use or contribution to that property.
Under section 81, family property is presumed to be shared between the spouses equally, regardless of their use or contribution to that property.


For information on how to share CPP credits see [[How Do I Divide Our CPP Pensions after We're Divorced?]]. It's located in the Helpful Guides and Common Questions part of this resource.
For information on how to share CPP credits see [[How Do I Divide Our CPP Pensions after We're Divorced?]]. It's located in the ''How Do I?'' part of this resource in the ''Miscellaneous'' section.


====Excluded property====
====Excluded property====
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Let's look at an example to make things a bit easier to understand.
Let's look at an example to make things a bit easier to understand.


<blockquote>Harkamal moved in to live with Baljinder in his home in 2018, when Baljinder's home was worth $800,000; Baljinder has no mortgage.</blockquote>
<blockquote>Harkamal moved in to live with Baljinder in his home in 2009, when Baljinder's home was worth $300,000; Baljinder has no mortgage.</blockquote>
<blockquote>Harkamal starts going to college in 2019 and because she's not working, she takes a personal loan to help pay for her tuition fees, lab fees, and textbook costs. Baljinder keeps working while Harkamal is at school, and with his income, he pays for the property taxes, car insurance, utilities and groceries, and so forth. He's also able to put some money away into RRSPs.</blockquote>
<blockquote>Harkamal starts going to college in 2010 and because she's not working, she takes a personal loan to help pay for her tuition fees, lab fees, and textbook costs. Baljinder keeps working while Harkamal is at school, and with his income, he pays for the property taxes, car insurance, utilities and groceries, and so forth. He's also able to put some money away into RRSPs.</blockquote>
<blockquote>Harkamal and Baljinder separate in 2022. When they separate, Harkamal owes $18,000 for her personal loan, Baljinder's house is worth $1,000,000 and Baljinder has saved $30,000 in RRSPs.</blockquote>
<blockquote>Harkamal and Baljinder separate in 2013. When they separate, Harkamal owes $12,000 for her personal loan, Baljinder's house is worth $400,000 and Baljinder has saved $30,000 in RRSPs.</blockquote>


In this example, Baljinder's house is his ''excluded property''. It was worth $800,000 when Harkamal began living with him, and it has increased in value by $200,000. The ''family property'' is the RRSPs that Baljinder saved, plus the increase in value of Baljinder's house during the relationship. The ''family debt'' is Harkamal's loan which was incurred entirely during the parties' relationship and is now up to $18,000.
In this example, Baljinder's house is his ''excluded property''. It was worth $300,000 when Harkamal began living with him, and it has increased in value by $100,000. The ''family property'' is the RRSPs that Baljinder saved, plus the increase in value of Baljinder's house during the relationship. The ''family debt'' is Harkamal's loan which was incurred entirely during the parties' relationship and is now up to $12,000.


Boiling this all down, subject to a claim for reapportionment, Baljinder would get:
Boiling this all down, subject to a claim for reapportionment, Baljinder would get:


*$800,000 as the value of the home he brought into the relationship,
*$300,000 as the value of the home he brought into the relationship,
*$100,000 for one-half of the growth in the value of his house to the date of separation,
*$50,000 for one-half of the growth in the value of his house to the date of separation,
*RRSPs worth $15,000, and
*RRSPs worth $15,000, and
*responsibility for $9,000 of Harkamal's loan.
*responsibility for $6,000 of Harkamal's loan.


Harkamal would, subject to a claim for reapportionment, get:
Harkamal would, subject to a claim for reapportionment, get:


*$100,000 for one-half of the growth in the value of Baljinder's house,
*$50,000 for one-half of the growth in the value of Baljinder's house,
*RRSPs worth $15,000, and
*RRSPs worth $15,000, and
*responsibility for the remaining $9,000 of her loan.
*responsibility for the remaining $6,000 of her loan.


==Property claims and people who aren't spouses==
==Property claims and people who aren't spouses==
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(There are two other cases from the Supreme Court of Canada that are critical in understanding constructive trusts, a 1993 case called ''[http://canlii.ca/t/1fs3f Peter v. Beblow]'', [1993] 1 S.C.R. 980, and a 2011 case called ''[http://canlii.ca/t/2fs3h Kerr v. Baranow]'', [2011] 1 S.C.R. 269. To get a proper understanding of the law relating to constructive trusts, you should read all of ''Pettkus v. Becker'', ''Peter v. Beblow'', and ''Kerr v. Baranow''.)
(There are two other cases from the Supreme Court of Canada that are critical in understanding constructive trusts, a 1993 case called ''[http://canlii.ca/t/1fs3f Peter v. Beblow]'', [1993] 1 S.C.R. 980, and a 2011 case called ''[http://canlii.ca/t/2fs3h Kerr v. Baranow]'', [2011] 1 S.C.R. 269. To get a proper understanding of the law relating to constructive trusts, you should read all of ''Pettkus v. Becker'', ''Peter v. Beblow'', and ''Kerr v. Baranow''.)


Here's an example where a couple doesn't live together long enough for the ''Family Law Act'' to apply, and so (because they are not yet legally spouses) an ''unjust enrichment'' and ''resulting trust'' claim might be the only option:
Here's an example:


<blockquote>Frank moves into a home owned by Lois. Frank's role in the relationship is that of a homemaker while Lois works outside the home and brings home the bacon. Frank also, out of the kindness of his heart, helps Lois with her web design company, doing her books because he used to be a bookkeeper.</blockquote>
<blockquote>Frank moves into a home owned by Lois. Frank's role in the relationship is that of a homemaker while Lois works outside the home and brings home the bacon. Frank also, out of the kindness of his heart, helps Lois with her web design company, doing her books because he used to be a bookkeeper.</blockquote>
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In the example above, a concrete value can be attached to Frank's contributions to the company and to his labour in the home: what would it have cost to hire a housekeeper and a bookkeeper during that period? Or, how much did Lois' company grow in value as a result of Frank's efforts? This is the beginning of fixing a dollar value on Frank's interest in the company and in Lois's house.
In the example above, a concrete value can be attached to Frank's contributions to the company and to his labour in the home: what would it have cost to hire a housekeeper and a bookkeeper during that period? Or, how much did Lois' company grow in value as a result of Frank's efforts? This is the beginning of fixing a dollar value on Frank's interest in the company and in Lois's house.


Again, trust claims are complex and the case law supporting and opposing such claims is massive. If you are not married to the person, and if you have not lived with them long enough to qualify as an ''unmarried spouse'' under the ''Family Law Act'', but you still wish to make claim against property owned only by your partner, I recommend that you hire a lawyer to help.
Again, trust claims are complex and the case law supporting and opposing such claims is massive. If you are not a spouse and wish to make claim against property owned only by your partner, I recommend that you hire a lawyer to help.


==Tax issues==
==Tax issues==
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The tax consequences of a particular arrangement in a court order or separation agreement can be taken into account when property is being divided, since the payment of tax by one party may fundamentally change the fairness of the agreement or order. Consider this example:
The tax consequences of a particular arrangement in a court order or separation agreement can be taken into account when property is being divided, since the payment of tax by one party may fundamentally change the fairness of the agreement or order. Consider this example:


<blockquote>Say Eli receives $100,000,000 in cash and George receives a rental house worth $100,000,000, and the cash and the rental house are all part of the family property. At first glance, this seems like a fair, equal split of the family property, which together comes to a total of $200,000,000. In fact, it isn't.</blockquote>
<blockquote>Say Eli receives $100,000 in cash and George receives a rental house worth $100,000, and the cash and the rental house are all part of the family property. At first glance, this seems like a fair, equal split of the family property, which together comes to a total of $200,000. In fact, it isn't.</blockquote>
<blockquote>No tax will be payable by Eli as a result of receiving the cash. Tax will be payable by George if the rental house has to be sold, since it wasn't the family's primary residence. If the tax payable on the income George earns from the sale is $200,000, really, Eli has received $1,000,000 and George has only received $800,000. If you count the tax that George has to pay, the division of the family property wasn't equal at all.</blockquote>
<blockquote>No tax will be payable by Eli as a result of receiving the cash. Tax will be payable by George if the rental house has to be sold, since it wasn't the family's primary residence. If the tax payable on the income George earns from the sale is $20,000, really, Eli has received $100,000 and George has received $80,000. If you count the tax that George has to pay, the division of the family property wasn't equal at all.</blockquote>
<blockquote>To make the split equal, Eli should pay George an extra $100,000 so that each spouse will have $900,000 once the rental house is sold.</blockquote>
<blockquote>To make the split equal, Eli should pay George an extra $10,000 so that each spouse will have $90,000 once the rental house is sold.</blockquote>


The same problem can arise if one spouse has to sell an asset in order to satisfy an order or agreement for the division of property and debt, such as making a lump-sum payment to equalize the value of the assets held by each party. This may result in the CRA assessing an extra amount of taxable income to the party who had to sell the asset, with the consequence of an additional tax debt owed by that party to the CRA.
The same problem can arise if one spouse has to sell an asset in order to satisfy an order or agreement for the division of property and debt, such as making a lump-sum payment to equalize the value of the assets held by each party. This may result in the CRA assessing an extra amount of taxable income to the party who had to sell the asset, with the consequence of an additional tax debt owed by that party to the CRA.
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===Real property===
===Real property===


When a piece of property is to be transferred between spouses according to a separation agreement or court order, the parties should consult the [https://www2.gov.bc.ca/assets/gov/taxes/property-taxes/property-transfer-tax/forms-publications/ptt-003-property-transfer-tax-exemptions.pdf Ministry of Finance's ''Tax Bulletin PTT 003'']. Spouses can take advantage of the tax-free status of transfer of real property if the transfer is required by a family agreement or court order. The form is normally completed during the process of transferring title to the property at the Land Title and Survey Authority, and no tax will be payable on the transfer. The Land Title and Survey Authority form needed to do this is now completed and submitted online, and a copy of the signed separation agreement or court order or divorce decree needs to be submitted with the return.
When a piece of property is to be transferred between spouses according to a separation agreement or court order, the parties should consult the [https://www2.gov.bc.ca/assets/gov/taxes/property-taxes/property-transfer-tax/forms-publications/ptt-003-property-transfer-tax-exemptions.pdf Ministry of Finance's ''Tax Bulletin PTT 003''] and use the province's [https://www2.gov.bc.ca/assets/gov/taxes/property-taxes/property-transfer-tax/forms-publications/fin-579-manual-property-transfer-tax-return.pdf Manual Property Transfer Tax Form] to seek a tax exemption. Enter code 15 to take advantage of the tax-free status of transfers between spouses made pursuant to family agreements and court orders. This form is normally completed during the process of transferring title to the property at the Land Title and Survey Authority, and no tax will be payable on the transfer. Attach a copy of the signed separation agreement or court order or divorce decree to the return.


==Resources and links==
==Resources and links==
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*[http://www.clicklaw.bc.ca/resource/1240 Dial-A-Law Script "Dividing Property and Debts"]
*[http://www.clicklaw.bc.ca/resource/1240 Dial-A-Law Script "Dividing Property and Debts"]
*[http://www.clicklaw.bc.ca/resource/1529 Justice Education Society's handbook ''Parenting After Separation: Finances'']
*[http://www.clicklaw.bc.ca/resource/1529 Justice Education Society's handbook ''Parenting After Separation: Finances'']
*[http://www.clicklaw.bc.ca/resource/4656 Legal Aid BC's Family Law in BC website's information page "Property & debt"]
*[http://www.clicklaw.bc.ca/resource/4656 Legal Services Society’s Family Law website's information page "Property & debt"]
** See "Dividing property and debts"
** See "Dividing property and debts"
*[https://www2.gov.bc.ca/assets/gov/taxes/property-taxes/property-transfer-tax/forms-publications/ptt-003-property-transfer-tax-exemptions.pdf Ministry of Finance's ''Tax Bulletin PTT 003'']
*[https://www2.gov.bc.ca/assets/gov/taxes/property-taxes/property-transfer-tax/forms-publications/ptt-003-property-transfer-tax-exemptions.pdf Ministry of Finance's ''Tax Bulletin PTT 003'']
*[https://www2.gov.bc.ca/assets/gov/taxes/property-taxes/property-transfer-tax/forms-publications/fin-579-manual-property-transfer-tax-return.pdf Manual Property Transfer Tax Form]


{{REVIEWED | reviewer = [[JP Boyd]], April 22, 2022}}
{{REVIEWED | reviewer = [[Helen Chiu]], May 14, 2019}}


{{JP Boyd on Family Law Navbox|type=chapters}}
{{JP Boyd on Family Law Navbox|type=chapters}}
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