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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 act is built on. | 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 and accumulated 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. | ||
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===Family property and family debt=== | ===Family property and family debt=== | ||
Family property is defined at s. 84(1) as all of the property owned by either or both spouses ''on the date of their separation''. Family property includes property that is bought ''after separation'' with family property, for example if a spouse uses money from a joint bank account to buy a new car, after separation, the new car will be family property. | Family property is defined at s. 84(1) as all of the property owned by either or both spouses ''on the date of their separation''. Family property includes property that is bought ''after separation'' with family property, for example if a spouse uses money from a joint bank account to buy a new car, after separation, the new car will be family property. Simply stated, if the original source of the funds used to purchase a new asset after separation is from family property (i.e. use tracing provisions), the new asset will also be found to be family property even though the new asset was purchased after separation. As well, if a spouse owns real property with a third party(i.e. with a parent) that portion of the real property that is registered in the spouse's name may be found to be family property, subject always to trust claims made by the third party. | ||
Section 84(2) gets into the specifics of the sorts of things that might be family property: | Section 84(2) gets into the specifics of the sorts of things that might be family property: | ||
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====The valuation of property and valuation date==== | ====The valuation of property and valuation date==== | ||
Although the pool of family property to be shared between spouses is crystallized when the separation happens, under s. 87(b), the ''value'' of the family property is not fixed until the date of the trial or agreement that divides the property. This makes sense, because it can take two or three years for the division of property to wrap up at a trial, and it can take four of five months to finish an agreement for the division of property. | Although the pool of family property to be shared between spouses is crystallized when the separation happens, under s. 87(b), the ''value'' of the family property is not fixed until the date of the trial or agreement that divides the property. This makes sense, because it can take two or three years for the division of property to wrap up at a trial, and it can take four of five months to finish an agreement for the division of property. With respect to daily use bank accounts (i.e. bank account where your pay is deposited and you pay your monthly bills), it has become more common for the court to value such bank accounts based on its value as at the date of separation instead of the date of the trial or agreement. | ||
Under s. 87(a), the value of property is its ''fair market value'', the amount a reasonable buyer would pay for the property ''in its current condition'', not the purchase price of the property, the insured value of the property, or the replacement cost of the property. In other words, value of the reconstituted leather living room suite you got from the Brick for $999 five years ago isn't what ''you'' paid for it, it's the $100 that someone would likely give you for it at the date of the trial or agreement. | Under s. 87(a), the value of property is its ''fair market value'', the amount a reasonable buyer would pay for the property ''in its current condition'', not the purchase price of the property, the insured value of the property, or the replacement cost of the property. In other words, value of the reconstituted leather living room suite you got from the Brick for $999 five years ago isn't what ''you'' paid for it, it's the $100 that someone would likely give you for it at the date of the trial or agreement. | ||
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To boil all this down, a spouse's excluded property is all the property that the spouse owns on the date of cohabitation or the date of marriage, whichever is earlier. Other property acquired during the relationship can also be a spouse's excluded property, including: | To boil all this down, a spouse's excluded property is all the property that the spouse owns on the date of cohabitation or the date of marriage, whichever is earlier. Other property acquired during the relationship can also be a spouse's excluded property, including: | ||
*gifts, | *gifts (provided that the gift is to the spouse alone and not a gift to the couple), | ||
*inheritances, | *inheritances, | ||
*court awards, | *court awards, | ||
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Perhaps most importantly, under s. 85(1)(g), excluded property includes property bought during the relationship with excluded property. Say, for example, that a spouse receives an inheritance of $10,000 and buys a collection of vintage Pyrex. The Pyrex collection would be that spouse's excluded property because it was bought with excluded property, even if the Pyrex collection was used in the day-to-day course of the couple's life together. Remember, whether something was "ordinarily used for a family purpose" is not a consideration under the ''Family Law Act''. | Perhaps most importantly, under s. 85(1)(g), excluded property includes property bought during the relationship with excluded property. Say, for example, that a spouse receives an inheritance of $10,000 and buys a collection of vintage Pyrex. The Pyrex collection would be that spouse's excluded property because it was bought with excluded property, even if the Pyrex collection was used in the day-to-day course of the couple's life together. Remember, whether something was "ordinarily used for a family purpose" is not a consideration under the ''Family Law Act''. | ||
However, where a married person puts what would be excluded property in the name of the other spouse, it may be that the excluded property becomes family property. Similarly, where a parent gives money or property during the relationship it is open to the son-in-law or daughter-in-law, or the common law spouse, to argue that it was a gift to the couple and is not excluded property. | However, where a married person puts what would be excluded property in the name of the other spouse, it may be that the excluded property becomes family property. Similarly, where a parent gives money or property during the relationship it is open to the son-in-law or daughter-in-law, or the common law spouse, to argue that it was a gift to the couple and is not excluded property. The law in this area is in flux (as there are currently two lines of authority)so it is difficult to give a definitive answer to what law applies. Even lawyers find this area of law difficult so do not be upset if you are confused about this area of law. | ||
====Taking stock at the beginning of a relationship==== | ====Taking stock at the beginning of a relationship==== | ||
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*shows the dates and amounts of any inheritances, gifts, court awards and insurance proceeds received during the relationship, | *shows the dates and amounts of any inheritances, gifts, court awards and insurance proceeds received during the relationship, | ||
*tracks money received from the sale of excluded property, and what you did with the money, particularly if the money was pooled with your spouse's money to buy something, | *tracks money received from the sale of excluded property, and what you did with the money, particularly if the money was pooled with your spouse's money to buy something, | ||
*with respect to gifts, keep documents evidencing the intention of the donor (i.e. a letter or card from the donor parent confirming that the gift of $100,000 was to you and not to you and your spouse), | |||
*tracks property bought in exchange for excluded property, | *tracks property bought in exchange for excluded property, | ||
*shows the intent of any gift or transfer of property, and | *shows the intent of any gift or transfer of property, and | ||
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[[Cohabitation Agreements|Cohabitation agreements]] are agreements signed by people who will be or are living together, who may or may not wind up getting married later on down the road. [[Marriage Agreements|Marriage agreements]] are signed by people who will be getting or are married. Although there's no reason why these agreements can't be signed well into a relationship, they're usually signed at or shortly after the date the parties begin to live together or marry. | [[Cohabitation Agreements|Cohabitation agreements]] are agreements signed by people who will be or are living together, who may or may not wind up getting married later on down the road. [[Marriage Agreements|Marriage agreements]] are signed by people who will be getting or are married. Although there's no reason why these agreements can't be signed well into a relationship, they're usually signed at or shortly after the date the parties begin to live together or marry. | ||
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. It is highly recommended that you both obtain independent legal advice from a lawyer (do not use the same lawyer, each must have a separate lawyer) before signing such an agreement to ensure that each party fully understands the nature and circumstances of the agreement and what is being given up. | ||
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: | 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: | ||