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Dividing Property and Debts
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 Dividing Property and Debts

Script 124 gives information only, not legal advice. If you have a legal problem or need legal advice, you should speak to a lawyer. For the name of a lawyer to consult, call Lawyer Referral Service at 604.687.3221 in the lower mainland or 1.800.663.1919 elsewhere in British Columbia.

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 are:

  • married spouses; 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 an order for the divorce or nullity of a marriage for married spouses, or within two years of the date of separation for unmarried spouses.

If you don’t qualify as a “spouse”, the laws that apply to your situation are different. 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 acquired during the relationship, including any increase in value the spouses’ excluded property. The property the spouses are entitled to share in is called “family property.”
  • Each spouse is liable for one-half of the debt incurred during the relationship, including any debt incurred after separation to maintain family property. The debt the 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, except for any excluded property. Family Property includes: interests in companies, partnerships, businesses and ventures; money owed to a spouse; bank accounts, RRSPs and pensions; and interests in certain kinds of trusts. Family property includes the amount by which any excluded property increased in value during the relationship.

Spouses are presumed to have a one-half interest in the family property, regardless of their use of or contribution to the property.

What is “excluded property”?
Excluded property is the property brought by a spouse into a relationship. It includes some kinds of property received afterward, including: inheritances and gifts; 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 incurred by either or both spouses during the relationship. Family debt includes debt incurred 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 use of or contribution to the debt.

Are RRSPs and pensions family property?
Yes. The amount of RRSPs and pensions that accumulated during the spouses’ relationship is family property by definition. There are special provisions in the Family Law Act for dividing most pensions. There are also special rules for the division of some pensions and Canada Pension Plan credits when a spousal relationship ends, which aren’t found in the Family Law Act. Your lawyer can help with this.

Are shares in a company family property?
Yes. A spouse’s shares in a company are family property by definition. This can be a complicated issue and you should speak to a lawyer if you or your spouse owns or 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, the amount by which an inheritance increases in value after it is received is family property, as long as the inheritance was received before separation.

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 defeat a spouse’s claim. The court can also reverse a transfer that’s already occurred, whether before or after the separation, and make a “compensation order” to compensate a spouse for property that was transferred to defeat a claim to that property.

Are there any exceptions to the equal division rule?
Yes. In some circumstances it may be significantly unfair to divide family property or family debt equally. Although there is a strong presumption in favor of an equal division of family property and family debt, the court’s main duty is to ensure that property is divided fairly and equitably.

What does the court look at when dividing family property or family debt unequally?
The factors the court will take into account in determining significant unfairness 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 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 first set aside. 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 who owns excluded property will 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 consider the length of the spouses’ relationship and the 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 at the end of their relationship that excluded property will be treated like family property and be divided between spouses.

When does each spouse get their interest in the family property and become responsible for the family debt?
On the date the spouses separated, 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 family property and family debt?
It isn’t necessary to start a court case to divide property or debt, and you don’t need to have 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 within two years of the date the court has granted a divorce order or made a declaration that the marriage is a nullity; and
  • unmarried spouses must apply to court for a division of property and debt 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 liable for all family debt. Normally the interest in family property is a one-half interest and the liability is for one-half of the family debt, except where that would be significantly unfair. 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, it’s often possible to settle the division of property and debt without having to go to court. 

[updated March 2013]


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