Property Division

Property Division

In British Columbia, the Family Law Act governs the division of family property on the breakdown of a relationship.

Family property is all real property or personal property owned by one spouse (or both) at the time of separation. It includes land, money, vehicles, shares in a company, RRSPs, business interests, jewelry, art, clothes, furniture and personal items. In short, unless it is “excluded property,” everything that either spouse owns is family property and subject to division.

There are a number of presumptions in the Family Law Act aimed at making things clear on how property is to be divided.

The most important is that family property is presumed to be shared equally between the spouses, regardless of their use of or contribution to that property. This means that each spouse ostensibly owns 1/2 of any given asset, whether or not they were the person who paid for it, ever used it, or even wanted it in the first place. Despite this, a court always has the discretion to divide family property unequally in certain circumstances.

Another presumption is that excluded property – meaning property that is not family property – is presumed to remain the property of the spouse who brought it into the relationship or received it. (However, any increase in value of excluded property during the relationship becomes family property and is shared). Determining what is and what isn’t excluded property is not always straightforward, and has been the subject of numerous cases decided by the court. As with the other presumptions, it is always subject to the discretion of the court, and Family Law Act allows a court to divide excluded property in certain circumstances.

It is essential to get good and honest advice about (1) what the law says about family property, (2) how those laws apply to your family’s property, and (3) what a judge would be likely to do. This will give you the information you need to reach a fair agreement on property division and a positive outcome in your case.

Property division can be both straightforward and complicated at the same time. While courts generally seek to ensure that each spouse leaves the relationship with roughly same amount of family property (and debt), there is still wide ranging discretion to deviate from that in appropriate cases. The lawyers at Cote & Evans Trial Lawyers have extensive experience conducting trials where property division is at issue. The stakes are often very high, and the devil is in the details. Knowing those details is our business.

Excluded Property – What Property Can You Keep During a Separation?

Under the Family Law Act, property is put into one of two categories – “family property” or “excluded property.”  Family property is all property owned by either spouse (or both spouses) when they separate.  This property can include real estate, vehicles, bank accounts, stocks, jewelry, and anything else is owned by one of the spouses.  The Family Law Act presumes that each spouse has the right to keep half of all family property.

Unlike family property, “excluded property” remains the property of the spouse that owns that property and, subject to certain exceptions, is not divided between the spouses. Under section 85 of the Family Law Act, excluded property generally falls into two broad categories:

  1. Property owned by one spouse before the spouses either
    started living together or were married and;
  2. Other kinds of property acquired after the spouses started living together or were married; a few examples of such properties include inheritances, gifts from a third party, and personal injury awards.

The spouse who is claiming that a certain property should is excluded property bears the onus of proving that this property falls under one of the two categories mentioned above.

There are certain situations where excluded property can form a part of family property. For example, if you receive an inheritance of $50,000 and you decide to put that $50,000 towards a down payment of a home that you buy with your spouse, upon separation, you would presumably get to keep that $50,000.  However, in certain cases, it is possible for the court to divide excluded property between spouses and it can become difficult to prove that a particular type of property is excluded property.

If you are in a relationship or are thinking about getting married, you may wish to get some advice on how to protect your excluded property. The lawyers at Cote & Evans Trial Lawyers can give you advice on and help you draft a Marriage or Cohabitation Agreement. If you are separating from your spouse, we can assist you in protecting your excluded property or assist you in drafting a Separation Agreement.

Foreign Assets

Generally speaking, the BC courts can make orders over property in other jurisdictions.  This means property located in other provinces and other countries.  Whether it is beneficial to do so depends on a number of legal and practical considerations, including:

  1. how the property would likely be divided in that jurisdiction,
  2. whether an order that the BC courts make would be enforced in that jurisdiction,
  3. the cost of having proceedings in more than one jurisdiction, and
  4. other case specific considerations.

It is important to get timely legal advice if you or your spouse have assets in a foreign jurisdiction.  Determinations about jurisdiction often occur early in the case, and can have potentially enormous consequences down the road.

This is especially true if you suspect that your spouse may be transferring assets to a foreign jurisdiction, such as India or China, where it may be difficult to enforce any order that the BC courts may make.  The lawyers at Cote & Evans Trial Lawyers have experience in quickly obtaining financial restraining orders (freezing orders) to prevent one spouse from moving money overseas.  This can sometimes mean the difference between a fair division of assets and financial devastation.

RRSPs

Like other financial assets, Registered Retirement Savings Plans (RRSPs) are generally considered family property if they were acquired during the course of the marriage.  If some or all of the RRSP was acquired prior to the marriage, then it may be excluded property that is not subject to division.

RRSPs are often divided as of the date that an agreement is signed or when a trial occurs.  That means it could be several months or even years after separation before a RRSP is actually divided.  For this reason, it is important to get legal advice regarding contributions or withdrawals from RRSPs after separation.

Likewise, there are important income tax considerations when dealing with RRSPs.  The Income Tax Act has special provisions to allow spouses to transfer RRSPs without tax penalties in the case of a separation.  The team at Cote & Evans Trial Lawyers has extensive experience assisting clients in dividing RRSPs and ensuring that tax consequences are minimized.

Investments

Stocks, bonds, GICs, futures and other financial investments are also considered family property.  It is important to have them accurately valued with professional assistance because the book value may not represent the true value of the asset.  As well, there are tax considerations to account for when dividing shares, which may be subject to capital gains taxes or fees in certain situations.

For risky investments that lose money, courts often apportion that loss between spouses even though one spouse may have made the decision to invest.  Courts recognize that even after separation, couples must share in the ups or downs of market forces until assets are divided.  If you are concerned about risky investments that your spouse may have made, you should seek legal advice to help you explore your options and what you can do to protect assets that may be at risk.

Equal and Unequal Division

All property owned by either or both spouses at the date of separation is family property unless it is excluded property. Family property is presumed to be shared equally between the spouses, regardless of their use of or contribution to that property.

Under BC law, if it would be significantly unfair to equally divide family property or family debt, a court may order an unequal division. The presumption of an equal division of family property and family debt is very strong. The unfairness must be “weighty, meaningful or compelling”.

In considering whether an equal division would be significantly unfair, a court will look at factors such as:

  • a.  the length of the spouses’ relationship
  • b. whether the debt was incurred in the normal course of the spouses’ relationship
  • c. if the amount of family debt exceeds the value of family property, the ability of each spouse to pay a share of the family debt
  • d. whether a spouse, after separation, caused a significant increase or decrease in the value of debt or property
  • e. whether a spouse may have to pay taxes as a result of a transfer of property

Tax Considerations

A separation inevitably involves the disposition or transfer of assets that would normally trigger tax liabilities.  Fortunately, the Income Tax Act contains several provisions to protect spouses from having to pay taxes when transferring an asset to other spouse as part of an agreement or court order.  It is essential, however, that any agreement or order is drafted so that it ensures that those provisions are invoked and that taxes can be avoided.  Or, if taxes can’t be avoided, they should be shared fairly between the spouses.

When a court is dividing assets, it does have discretion to consider any tax consequences that might arise in deciding whether property should be divided evenly or not.  When one spouse can point to a tax liability that will be incurred on the disposition or transfer of an asset, the court can order that the division account for that tax liability.  For instance, if a spouse had $100,000 of stocks to divide, normally they would be required to pay their spouse $50,000.  However, if those stocks had a capital gains tax of $20,000 if they were sold, a court would likely adjust the division of the stocks so that the spouse keeping the stocks did not actually have to pay $50,000, since that is not what the other spouse would get if the stocks were sold and evenly divided.  This same logic applies to the drafting of agreements, which is why it is important to get legal advice regarding any tax implications before assets are divided.

At Cote & Evans Trial Lawyers, we’ve seen many situations where parties have signed an agreement without considering the tax consequences or getting legal advice before signing.  While the couples thought it would save them money not to get lawyers involved in their separation, it ended up costing them much more in time and money to resolve the disputes that arose with the CRA and each other.

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