Married Spouses
In British Columbia, there is not as big a distinction in the law as it applies to married and unmarried couples and same sex partners. Subject to a written agreement to the contrary in the proper form known as a Family Law Agreement, married couples, including those of the same sex and hetro-sexual spouses, are entitled to share in 50% of the value of all family assets as determined by the Family Law Act.
For those who are co-habitating and not married or are co-habitating in a same sex relationship they have the same rights as if they were married spouses if they have been living together for at least two years before they separate. For others not within these definitions there is no Statute, which guarantees any entitlement to them. Instead, they must rely on the concept of common law gift and trust claims to assert and prove an entitlement. There is no guarantee they can do this easily.
Unlike other provinces in Canada, British Columbia has what is known as an in rem property system or one that gives each spouse being married people or people living in a marriage like relationship of at least 2 years in duration, an entitlement to a ½ interest in every property they own or in which they have a beneficial interest (someone else is the registered owner but is holding the equity for the spouse) in their name or their spouses name or to which their spouse is beneficially entitled on the date the parties separate which asset is not defined to be an excluded asset by the act. This is known as family property.
With regard to excluded property spouses will share equally any increase in value of the excluded property. If there is no increase in the value of excluded property there is nothing to share. The onus of proving an asset is excluded is on the spouses stating this. Also if equity is received by a spouse from something which would have been a family asset is placed in another asset which would be excluded that asset becomes a family asset upon separation.
When parties separate is generally the date that one of them have the intention to live separate and apart. Whether or not they live together or when they have had sexual relations last is a factor to consider but is not always determinative. The court will look at all evidence and factors and discern whether or not the parties are living in a way which is different and uncharacteristic from a time when they were together with the intention of being spouses. You should consult a family law lawyer to determine your separation date given its importance to asset division.
Certain types of property are defined to be included in the definition of family property under the Family Law Act. These specifically defined assets include a share or an interest in a corporation, partnership association, organization or business venture, income tax refund, GST refund, money on deposit in a financial institution, RRSP, annuity, pension, income plan, any property deposed of during a relationship of the spouses but over which the disposing spouse retains authority alone or with others to require its return or to direct its use or further disposition in any way, and as mentioned, the amount by which any excluded property has increased during the relationship of the spouses.
Excluded property is that property of one of the spouses acquired before they commenced living together in a marriage-like relationship, any gift or inheritance received by only one spouse, court settlements or damage awards except which compensate both spouses or replace wages, non-property insurance proceeds unless to compensate both spouses or to replace wages. Any property held in trust for a spouse described in this paragraph is also excluded and any property placed in a discretionary trust to which a spouse did not contribute, by which the spouse may benefit, placed in the trust by a non-spouse.
A series of examples below may make the distinction between family property and excluded property clear.
In the examples the same principals apply equally to each person in the relationship regardless of gender. Assume you own a house worth $50,000.00 when you commence living together which grows in value to $100,000.00 when you separate.
The examples below are in the most simplistic form and a variety of facts can change the outcome and legally advice should be obtained by qualified lawyers like those at our office prior to taking any steps to divide assets or determine rights between you and your former partner or spouse.
Example 1 – If you own the house in your own name prior to commencing a marriage like relationship and did not get married and you separated after one year your former partner would get nothing because they do not qualify as a spouse because you haven’t lived together for two years.
Example 2 – If you lived with that same person for two years or more or were married to them you would keep the equity value in the house at the beginning of the relationship as your separate property but they would be entitled to 50% of the $50,000.00 increase or $25,000.00. So you would get 75% of the house and they would be entitled to 25% of the house. If the house did not go up in value and was still worth $50,000.00 at separation then you would own 100% of the property.
Example 3 – If you did not own the house but your family member did and placed it in a trust whereby they had sole authority pursuant to a trust agreement to determine who lived in the home, the fact that you and your spouse lived there for longer than two years or became married during the relationship is irrelevant and your spouse would be entitled to nothing because the property was not earned by either of you and is part of a discretionary trust which is an excluded asset. However if it can be quantified any increase in the value in the trust by which you could benefit could be shareable. This last point is often unclear however because as the trustee your father controls the property and could throw you and your partner out of the house at any time the entitlement to stay in the house has no value and is not an enforceable obligation for which the court could grant an entitlement.
Example 4 – On the other hand if you purchased the home, and placed it within a trust where you could decide who obtained benefit from the property during the relationship, the house would be shareable equally as you control the trust and also because you placed property earned during the relationship that would otherwise be shareable into the trust.
Example 5 – If you solely received the house as a gift or inheritance from your father during the relationship of 2 years or more or during the period of your pre-separation marriage to your partner, at separation you would only be responsible to give them 50% of the increase or $25,000.00 because your inheritance and gift belong to you and are excluded but the increase in value of the excluded asset is shareable.
Example 6 – On the other hand if the value did not increase during the marriage you would owe your partner nothing. If the gift or inheritance of the house were made to both you and your partner during the two year marriage like relationship or pre-separation marriage period by your father, upon separation you and your spouse would each be entitled to ½ the house or $50,000.00 each, flowing from the intention of your father to benefit both of you equally recognized by the Family Law Act.
Example 7 – As well if you gifted 50% of the house you had before the relationship or acquired by gift or inheritance to your partner during the relationship then upon separation they would be entitled to retain 50% of this house even if it didn’t go up in value because you gave it to them.
As stated damage awards and insurance proceeds are only shareable if they were intended to compensate both parties or represented lost wages to either spouse. So if you used such excluded insurance or damage proceeds to purchase the house, and it went up in value over the period of marital cohabitation or cohabitation of two years or more then you would have to pay your partner 50% of the increase in value or $25,000.00.
What should be noted from the above examples is that clarity of what each party should be entitled to upon a separation in various scenarios should not be left to chance. Nor should the initial values for assets at the beginning of the relationship remain a point of contention. If you use a properly drafted Family Law Agreements to set valuations of assets and debts at the beginning of a relationship, and to describe each party’s entitlements to property upon separation, then each party can protect themselves from possible financially ruinous results upon separation and divorce. For example parties in an agreement can make gifts conditional on the marriage lasting for a certain length of time thus ensuring a spouse not obtain a windfall in a short marriage. Almost any issue on asset division can be resolved by negotiating and signing a proper Family Law Agreement prior to cohabitation or any separation occurring. Proper legal advice by qualified lawyer like those at Dubas & Company is a suggested step prior to finalizing or starting any domestic relationship.
A further cautionary note at this stage is important. In large debt situations and business situations, the Court will sometimes understand the requirement to dispose of an asset that would be a family asset prior to a triggering event. This is provided that the asset itself has to be disposed of for the overall benefit of the financial situation of the family. The Court however has little or no respect for someone who disposes of an asset just prior to a separation to defeat the other party’s claim in the asset. In this context, the Court often draws negative inferences in other parts of a person’s case, especially financial matters, if it believes this occurs. As such, if you are contemplating reorganizing your affairs prior to a separation, even for legitimate reasons, you should consult with a family law lawyer and with their assistance consider talking to your partner in the relationship to ensure there are no misunderstandings.
In fact, if you do dispose of what would be a family asset shortly before separation, the Court can Order that other assets you have be used to compensate for the interest belonging to the other party that you disposed of. The Court also has power to take other punitive measures against a person who engages in such conduct and has power under the Family Law Act and other statutes to set aside transactions to third parties, which are calculated to defeat a spouse’s claim for property division.
In fact even if the disposition is innocent and money received from the disposition of family property is placed in another asset that second asset is shareable as though it were family property. For example if you had sold the house held in your name during the marriage or two year relationship and placed this money into another asset like a share in a blue chip company, the share would be divisible in the same manner as the home.
WHAT IS A FAMILY DEBT?
A family debt is any debt incurred by a spouse during their relationship up to the date of separation and also any debt undertaken by a spouse after separation for the purpose of maintaining family property. Under the Family Law Act on the date of separation each spouse is responsible for 50% of all family debts whether or not they are in their name.
SECTION 91 RESTRAINING ORDERS
In British Columbia historically there were difficulties with people disposing of Family Assets prior to trial and thus defeating the claims of other parties. As a result Section 91 of the Family Law Act was enacted. It provides that upon application the Supreme Court is obligated to grant an Order prohibiting the parties (or a party) to the action from disposing of, encumbering or otherwise dealing with any family asset or asset at issue between the parties (i.e., an asset which someone alleges is a family asset). Once the application is made the Order is mandatory and the only way for a party opposing the Order to succeed in having it not apply to an asset is for that party to establish that the claim of the other party will not be in any way prejudiced by the disposition of a particular asset or group of assets. These Orders are made on an interim basis before trial to preserve the parties’ rights at trial. As such, in practice excluding assets from the operation of the Order is often quite difficult. The reason for this is that prior to trial, it is often difficult to establish what the values of various assets are and various debts.
It is important to consider applying for a Section 91 Restraining Order on assets carefully. The reason is that quite often, once the Order is received, one party can send the Order to a bank and the result of the Order is often that the bank account of the parties is frozen. This can lead to hardship, as parties then find themselves unable to pay for their expenses and debts and in the case of people running a business, can severely hamper ongoing business operations. On the other hand, if you do not obtain the Order and the other party sells the family asset, you may not be able to recover the value of this asset from the other party because they may not have assets of sufficient value by the time of trial. You should consult with lawyer like the family law lawyers at Dubas & Company prior to determining if you should seek such an Order.
SOLE OCCUPATION AND SALE OF THE MATRIMONIAL HOME
When parties separate or are thinking about separating, the first thing to be considered is whether or not to stay in the matrimonial home or to leave. Contrary to popular belief, people can remain living in the same matrimonial home and be separated, so long as they are living separate lives in this environment. It is often important to remain in the matrimonial home for a variety of reasons. These include but are not limited to maintaining a relationship with your children, maintaining the residence, and maintaining your financial stability and minimizing expenditures. On the other hand, it may be worthwhile to leave the matrimonial home if you can afford it, as it often relieves tension between the parties. If you leave the matrimonial home, this will not impact on your rights and entitlements to share in the assets. This decision can affect your relationship with your children and what the results may be for custody.
Provided that you are a joint owner of a property or are defined as a spouse under the Family Law Act, you can apply for exclusive occupation of the matrimonial residence and use of the contents. A spouse is somebody who is married or has been living with the other party for a period of at least 2 years in a continuous relationship who is not married.
The residence at issue can be owned or leased by one of the parties or both parties. It is not guaranteed that a person will receive exclusive occupancy. The person applying for exclusive occupancy will have to establish that shared use of the home is a practical impossibility and that the applicant is on balance the preferred occupant.
The Court can consider a variety of factors in establishing objectively, whether or not it is impossible for the parties to continue living together. The factors considered vary in each case but often include the following:
a) The need for the children to be in a stable home;
b) The fact that the parties living together would be emotional or physically damaging to the children;
c) The emotional or physical conduct of each party to the children or each other;
d) The availability of alternative accommodation for either party;
e) The effect on either party of continued cohabitation;
f) The fact that despite many problems, the parties have continued living together for an extended period of time.
In considering the application, if the finances warrant it, Courts often take a practical approach and will require one party to leave the home, especially where there has been a great deal of matrimonial strife. As well, often during times of matrimonial breakdown, temperatures run high and people behave in ways in which are unusual for them, given the tension.
If you are in a situation where domestic violence is possible, it is often better to leave the home and avoid an altercation than to stay in the home and assert your rights. Once a person is accused of domestic violence, charges are usually laid and a no contact Order with the other party and the children are a quite common place, even if nothing or little has occurred. These orders supersede any civil court Orders respecting children and can dramatically affect your ability to have a relationship with your children while you would be awaiting trial on the criminal proceeding.
The Court can order sale of the home on a final basis at trial. Pursuant to the family law court rules and the Family Law Act, the Court can order sale of the matrimonial home before trial no matter who owns the matrimonial home or who is occupying it. In coming to this determination, the Court will consider whether or not the sale of the home is necessary or advantageous to both parties.
The Court will often order sale of the home when spouse will be able to retain the home or where due to impending debts that cannot be paid, even with proper support being paid the occupying spouse cannot maintain the payments and the sale of the house is inevitable.
The Court will also consider whether or not the sale of the home will promote an early settlement of the case, which is usually considered to be to the benefit of both parties. The Court usually is not inclined to sell the home where the sale is likely to defeat a reapportionment claim or where there is a reasonable prospect that the occupier of the home and the children will effectively be put out on the street with no alternative accommodations being available to them.
Recently, we have been in a real estate market which is very robust. In these circumstances, it is often quite difficult for either party to buy out the other party’s interest in the home, as the value of the property continues to rise even before trial. Where parties have considerable debt, it is often worthwhile to apply to have the home sold so that debts can be discharged and the parties can maximize their equity, even if they are awaiting trial. Whether or not such an application should be brought will depend upon the facts of each case and should be part of your consultation with Dubas & Company.
VALUING FAMILY PROPERTY AND FAMILY DEBT
Family property and family debt are generally going to be valued at the date of the trial or the date of a final agreement between the parties subject to an agreement between the parties or order to the contrary. If parties are enforcing a prior written agreement, the date of valuation is the date stipulated in that agreement. The court can select a different date for valuation. However these orders are rare and involve complex factors that are beyond the scope of this summary.
PENSION DIVISION
The exact manner in which specific pensions are divided and are defined is beyond the scope of this summary. How pensions are divided and dealt with is complicated and varies from plan to plan and is determined by the legislation which governs each type of plan. This section will outline only some general aspects of common plans.
If a person is in a provincially regulated industry and has a provincial plan, as a general proposition, they will be governed by the provisions of Part 6 of the Family Law Act and the regulations passed under the act. In this context, married spouses and spouses in marriage like relationships are entitled to share equally in the pension credits that were earned from the date of the relationship began to the date of the separation, unless the parties agree otherwise or the Court orders otherwise. This entitlement is not only the actual contributions of the member, but the contributions of his employer and the interest on those contributions until the member of the plan is entitled to retire. Parties can agree to buy out the entitlement of one of the parties in a property settlement or pursuant to Court Order and when this occurs, parties either obtain an actuarial value of the other spouse’s pension entitlement, or agree on a value.
Where a party has already retired, the entitlement is generally 50% of the amount that they are actually receiving.
Pursuant to the Family Law Act, if you file the prescribed Form 1, making a claim over a provincially regulated pension, pursuant to the Act, this stops any divesting of the pension without 30 days notice to the person making the claim and will entitle the claiming spouse to receive certain information about the pension from the pension administrator if you the claiming spouse is not a plan member.
If you are working in a federally regulated environment, there are a variety of statutes that apply to the division of pension. A variety of government departments and agencies have their own pension statutes, which apply to their employees. Agreements and statutes related to pension plans must be reviewed carefully and counsel should be contacted for advice.
The Pensions Benefits Division Act, a regime is the regime applicable to most federal government employees when parties divorce. The Act essentially provides a transfer of up to 50% of the value of the member’s benefits in a plan to a locked in RRSP or a registered pension plan. The plan administrator calculates the amount to be transferred to the vehicle, based on the regulations. The Court may order or the parties may agree to a different division that is outlined in the statute. The Court can also order that a portion of the pension obtained prior to marriage, but during cohabitation, be shared and a Court can also order that post separation accruals be shared as well.
The Pension Benefits Standards Act applies to private industries regulated by the federal government. Generally what occurs is that a spouse entitled to division requests a transfer of the value of the pension to a locked in RRSP if the plan member has not already retired. The Act permits division of the pension at source, which can result in an annuity payment being made to a non-member spouse when the member spouse is eligible for retirement. Careful attention should be paid to the plan at issue, as some of the plans authorize a division in accordance with the Family Law Act and others have their own rules. The pension benefits applicable will generally be from the date of marriage to the date of separation.
The Canada Pension Plan provides that the parties’ credits under the plan that are accumulated from the date of marriage to the date of separation will be equalized between them. Either party can apply for this, upon the parties being divorced or if they have been separated for a year.
As already stated, how pension is to be divided is complex and will depend upon the plan at issue. It is important that you consult with counsel before making this determination.
REAPPORTIONMENT OF FAMILY PROPERTY
Under the prior Family Relations Act, the court generally did not want to part with an equal division of family assets. Under this Act, family assets were defined in a different way and specific intervention by way of a separation agreement, a judicial declaration or a divorce was required for a person to obtain the in rem interest in another’s property who was defined to be their spouse. The court could depart from this equal division on the basis of finding an equal division unfair. Departing from a 50/50 sharing of assets was and is known as reapportionment of assets.
Under the new Family Law Act, reapportionment has been made substantially more difficult in that the grounds for reapportionment have been narrowed and the test for reapportionment has been raised to a determination of “significant unfairness” and not just “unfairness”. As can be appreciated, it is a lot harder to establish significant unfairness then unfairness. This change reflects a desire to have more certainty in the law and also, a desire to recognize that the new regime of family property and excluded property (eg., inheritances and property existing prior to the relationship, etc. are excluded) and increased availability for unmarried spouses to use the Family Law Act to get a share of assets which would have been denied to them previously. Essentially the Family Law Act already establishes a situation where many spouses will not obtain 50% of assets used in their relationship with their partner thus making reapportionment less necessary.
It must always be remembered that even under the previous act, 50% was the rule and not generally the exception in terms of how the law was applied and so although reapportionment will be possible, it should be considered that it may be a less frequent occurrence and it is vitally important that you obtain legal advice from a lawyer on this issue, like family law lawyers at Dubas & Company to address this issue.
In determining whether or not the 50/50 division of family property and family debts is significantly unfair a judge will look at one or more of the following factors:
a) The duration of the relationship between the spouses;
b) The terms of any agreement between the spouses about property and debt other than a written agreement which divides property;
c) A spouse’s contribution to the career or a career potential of the other spouse;
d) Whether family debt was incurred in the normal course of the relationship of the spouses;
e) If the family property do not in value exceed the family debt, the ability of each spouse to pay their share of family debt;
f) Whether a spouse after a separation date caused an increase or decrease in the value of family property or family debt beyond market trends;
g) The fact that a spouse, other than a spouse acting in good faith reduced the value of family property or disposed of transferred or converted property that would have been family property or exchange property that is or would have been family property in another form causing the other spouses’ interest in the property or family property to be defeated or adversely affected;
h) The effect of a tax liability that may be incurred by a spouse as a result of a transfer or sale of a property or as a result of an order made by the court;
i) The extent to which financial means and earning capacity of a spouse had been affected by the responsibilities and other circumstances of the relationship between the spouses if a spousal support order would not alleviate these concerns; and
j) Any other factor that may lead to significant unfairness except for those factors outlined in item (i).
What should be noted is that the list is not exhaustive but in practice, courts will deal mainly with the factors listed in the statute above. It is noteworthy that even if property is disposed of and value reduced, it is only if this causes substantial unfairness that this will be an issue and furthermore, if the actions which caused the decrease in value of the asset were done in good faith (eg., someone made a legitimate business decision but was wrong and the asset is lost, etc.) then, the spouse who made the mistake would not have to account for this mistake. Also, the nature of the relationship of the parties, post-separation is important so as a result, if parties agree on the course of action by implication or direct agreement after separation, it would be expected that these decisions which raised debt or reduced asset value should be non-factors. The importance therefore is that after separation, spouses should continue to discuss financial matters and if they have not in the past, they should begin to do so.
APPLICABILITY OF COMMON LAW AND EQUITABLE PRINCIPALS TO SPOUSES AND THOSE NOT DEFINED AS SPOUSES
In addition to all of the statutory principles under the Family Law Act, married spouses and spouses in marriage like relationships of two years or more can also have resort to any of the same principles that apply to co-habitating partners of less than two years in making their claim for asset division.
When unmarried former partners are in a relationship of less than 2 years and are separated, they can make a claim over property in the name of another party pursuant to an express trust, a resulting trust or a constructive trust. In the express trust, either in writing or by a combination of conduct and commentary, the facts establishes that the parties agreed and intended that property owned by one party be shared by both of them. Based on this judge made law, the Court can then declare that the party that owns the asset holds the asset beneficially for the other party and can make Orders requiring compensation to be paid or in some cases, vesting part of the property in the other party.
Pursuant to the law of gift and resulting trust, the Court will generally infer that if a party gives property to another party with the intention that they are disposing of an interest in it, the second party will take title to the property. In this context, when parties are not married, generally the law infers a presumption, which can be displaced by oral evidence or the actions of the parties and the circumstances, that the person providing the property did not intend to give and the property reverts back to them. The common example would be a person who owns a house and is living with another party. During this time when they are sick and they transferred half of the house to their partner. In these circumstances, the Court could determine that the property was a gift and the presumption was rebutted, given the fact that the parties were in a long-term relationship, a gift was made in anticipation of the other party would look after them, and the intention of the party making the gift was significant, as they went to the trouble to actually transfer the property to their common law spouse.
The final way in which a trust claim can be founded is pursuant to a claim of unjust enrichment. Pursuant to this claim, the party that does not have title to the property essentially obtains an interest in the property because they have provided services, expended time or effort, or provided financing to the party who owns the property, which has resulted in them receiving an excessive benefit for which there is no legal justification. In this context, the Court infers that the person providing the labour or benefit to the person who has the property, did so pursuant to the expectation that they would receive something for their efforts. The classic example is the woman who assists her common law husband in raising the children, maintaining a home, and providing him with emotional support over a period of time. She only does so with the expectation that she would be compensated and looked after for this effort. Her efforts in fact likely will have allowed the husband the time to amass the property he has accumulated. Upon separation, it is likely the Court will determine that it would be unjust for the husband to retain all the property at the expense of the wife without compensation. As with express trust, they can make an Order for financial compensation or declare that the wife has a beneficial entitlement in the property at issue and vest an amount equivalent to that entitlement in the common law spouse.
Parties who are married can apply the above trust principles in addition to any claim they can make under the Family Law Act. However, unmarried couples have no claim to asset division under the Family Law Act.
What is noteworthy is that unlike in a marriage or 2 year cohabitation situation, the parties do not start with a 50% entitlement with the party who wants to share less or more establishing otherwise. It is always for the person who does not own the property in this situation to establish what they are entitled to if anything from the property.
The Restraint of Property for Couples not covered by the Family Law Act
For unmarried couples who have not co-habitated with their partner for at least 2 years, a restraint on disposition of property pending trial is not automatically granted. In applying for such an injunction, an unmarried spouse must prove that the injunction is necessary to preserve the assets and the balance of convenience favours the granting of the order. In this respect, there usually must be some immediate concern that the assets will be disposed of and that tying the assets up, pending trial, will not negatively affect the preservation of the asset, the other party or third parties involved. These sorts of applications are quite complicated and quite often are rejected if damages (economic compensation) are considered to be an appropriate remedy because the party applying for the injunction is not necessarily entitled to an interest in the asset to be restrained. Also, the person applying for the injunction quite often has to provide an undertaking as to damages for the receipt of the injunction. This means that if the other party, or a third party, suffers an economic loss because of the injunction, the applicant would be held responsible to compensate the injured person for this loss. It is important that you have proper advice before contemplating such an application.
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Dubas and Company
email: jdubas@divorcebc.net
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