How is Family Property/Matrimonial Property Divided?
In Alberta, the default rule is that when spouses separate all of the family property is divided equally (50:50). Family property includes everything owned by both spouses, including their assets and their debts. The division of family/matrimonial property is codified in Alberta’s Family Property Act.
In the past, this division of property was only available to married spouses. Unmarried couples had to apply for a share of the property under the common law doctrine of unjust enrichment. Often, this resulted in property payouts that were less than equal. Because of this, the Alberta government changed the legislation.
Now, if you and your common law spouse separated after January 1, 2020, then you may quality for an equal division of family property under the revised Family Property Act.
What is Family Property / Matrimonial Property?
When dividing family property, the first question to ask is “what is family property?”
In short, family property is all property owned by either spouse. This includes property owned in either spouses’ sole name, or property owned jointly. It also includes properties which the other spouse may not have known about prior to the separation.
Family property includes both assets and liabilities.
- An asset is a property which has a positive financial value. For example, if you have $1,000 in your bank account this would be considered an asset worth $1,000.
- A liability, on the other hand, is a property which has a negative financial value. For example, if you owe $1,000 on your credit card, this would constitute a liability worth $1,000.
Sometimes a family property may be tied to both an asset and a liability. Take, for example, a house:
A house is an asset because you can sell it to someone else for a price. However, most houses have mortgages which accompany them. In this case, the mortgage would be considered a liability.
The overall value of the house is determined by its value as an asset, less its associated liabilities. In our example, the “value” of the house is its sale price, minus the mortgage and other costs to sell the house.
When dividing family property, spouses or their lawyers must catalogue the net value of all family properties, and then divide the remaining amount in half. Often times, this will result in one spouse paying the other an amount to “equalize” the family property.
Common examples of family property that need to be divided include:
- The family home and the mortgage associated with the home;
- Vehicles, including trucks, cars, skidoos, crop-dusting aircraft; as well as any debts associated with the vehicles;
- Bank accounts and credit card debts;
- Investment portfolios, including money held in your individual TFSAs;
- Student loans;
- RRSPs, pensions, and any other retirement savings, including each spouses’ the Canada Pension Plan contributions;
- Businesses, including non-incorporated businesses, partnerships, corporations, professional corporations, and the value of shares or bonds in any corporations;
- Personal property like jewelry, collectibles, pots and pans, furniture, precious metals;
Exemptions to the Division of Family Property
Some property may be exempt from equal division if the property falls into one of these categories:
1. Gifts – Gifts from third parties to one spouse individually may be exempt from division. However, if the gift was given to both spouses, or was deposited into a joint account or asset, then this exemption may no longer exist. For example:
John’s parents give John $10,000 towards the down payment on his new home. They also give him a classic car worth $10,000. John and Jane use the $10,000 to buy a home together. They separate. Because the $10,000 down payment went towards a joint asset (the family home), this is typically considered a “gift to the marriage”. Therefore, John may no longer have an exemption in this down payment.
As for the classic car, if this property was always kept in John’s name, he would likely have an exemption worth whatever the car is worth at the time of separation. If the car went down in value, then his exemption may be lower. If the car went up in value, then his exemption may max out at $10,000. It will depend upon the circumstances.
2. Inheritance – The value of an inheritance received by a spouse is usually exempt from division. However, if the inheritance was spent on a jointly-owned asset, it may be deemed a “gift to the marriage” and no longer exist. For example:
Jane receives an inheritance of $100,000 from her father. She spends $25,000 on a family trip to Italy. She uses another $25,000 to pay-down the mortgage on the family home (both Jane and John are on title). She puts the final $50,000 into her RRSP (which is in her name only, and remained stable in value). Jane then separates from her husband, John. How much is Jane’s exemption in her inheritance worth?
Because the $25,000 was not spent on an asset, this portion of her inheritance no longer exists. As for the $25,000, it is likely that this portion is deemed a “gift to the marriage”, which means that Jane loses half of the value of this exemption. This part of her exemption is likely worth $12,500. As for the RRSP, Jane’s exemption likely survives in its entirety. As a result, Jane’s exemption—originally worth $100,000, is probably worth $62,500 for the purposes of dividing the family property.
3. Property Owned Before Cohabitation – Property which was owned before the spouses started living together (or were married, depending upon the circumstances) is generally exempt from division. The increase in value of this property, however, is typically divided equally. For example:
John and Jane get married and start living together. John owned $50,000 in stocks before this occurred. When they separate, John’s stocks are worth $100,000. John managed these stocks himself during the marriage, and never put them into Jane’s name.
In this case, John’s exemption is worth $50,000 (the value of the stocks on the date of the marriage). As for the $50,000 worth of increase in value, this is typically family property, and Jane would probably be entitled to half of the value of the increase in value ($25,000). This is not always the case, but it is the legal presumption.
4. Certain Judicial Awards – Certain court awards or settlements for damages in tort law in favor of one spouse—which are not supposed to compensate both spouses—may be exempt from division. For example:
Before John and Jane separate, John slips and falls and hurts his back. He can no longer work. John sues and receives $50,000 for his injuries and lost income. In this case, that $50,000 would likely be exempt from division.
5. Certain Insurance Proceeds – Insurance proceeds which are not related to property are typically exempt, unless the proceeds are to compensate the loss of both spouses. For example:
John and Jane own a house which burns down in a fire. John gets burned badly. Luckily, John had an insurance policy on the house, and also one on his hands (he is a violinist, and his hands are his livelihood). The home insurance policy pays John $500,000. The hand insurance policy pays John $50,000. The insurance is paid-out to John. They separate.
In this case, the home insurance payout—even though it was John’s policy and was paid-out to John—would be considered family property. The hand insurance policy, however, would likely be exempt.
The court will also consider any contracts (Prenuptial Agreements or Separation Agreements) between the spouses, who may have decided to divide the property differently.
The burden rests with the spouse claiming the exemption to prove the value of the exemption. Typically, the exemption is the property’s value at the date it is acquired, however, the increase in value of the property may still be equally divisible.
For example, if you brought $100,000 worth of investments into the marriage, and they were worth $200,000 at the time of separation, your exemption may only be worth $100,000; the remaining $100,000 would be divided equally. In the end, you would receive $150,000 of the investments while your spouse may be entitled to $50,000.
How to Divide Family Property in Alberta
There are a few basic steps to the division of family property.
1 – Exchange financial disclosure – The first step is for the spouses to exchange all of their relevant financial documentation, especially as it relates to any assets that they might own. For example, the spouses will need to provide one another with bank and credit card statements, statements respecting any investment accounts, RRSPs, or pensions, and property appraisals or loan documents.
2 – Swear Schedule ‘A’ – The regulations to the Family Property Act provide that separating spouses provide each other with a sworn statement of their respective income, assets, and liabilities. Your lawyer will help you prepare this form.
3 – Prepare Family Property Statement – Once the spouses have exchanged the required information, the next step it to catalogue all of the property in a comprehensive list. Then the spouses divide up the property amongst themselves, as equally as possible. If the division is not equal, then one party will need to pay the other an equalization payment.
4 – Prepare & Sign Minutes of Settlement – Usually the spouses will hire lawyers at this point to draft the Minutes of Settlement (contract) respecting the division of family property. They will also need to meet with a lawyer for independent legal advice respecting the deal.
5 – Comply with the Minutes – The spouses will then need to follow-through on the terms of the Agreement. For example, they may need to sign documents transferring the house from one spouse to the other, or pay the other the equalization payment. Failure to comply with the agreement could result in expensive litigation.
Unequal Division of Family Property
In some cases it is not fair to divide the family property equally. Accordingly, the Family Property Act allows the Court to divide property taking into account a variety of factors, which include:
8 The matters to be taken into consideration in making a distribution under section 7 are the following:
(a) in the case of spouses, the contribution made by each spouse to the marriage, to any relationship of interdependence with the other spouse immediately before the marriage and to the welfare of the family, including any contribution made as a homemaker or parent;
(a.1) in the case of adult interdependent partners, the contribution made by each adult interdependent partner to the relationship of interdependence and to the welfare of the family, including any contribution made as a homemaker or parent;
(b) the contribution, whether financial or in some other form, made by a spouse or adult interdependent partner directly or indirectly to the acquisition, conservation, improvement, operation or management of a business, farm, enterprise or undertaking owned or operated by one or both spouses or adult interdependent partners or by one or both spouses or adult interdependent partners and any other person;
(c) the contribution, whether financial or in some other form, made directly or indirectly by or on behalf of a spouse or adult interdependent partner to the acquisition, conservation or improvement of the property;
(c.1) in the case of spouses who were in a relationship of interdependence with each other immediately before the marriage, any contribution referred to in clause (b) or (c) that was made during the relationship of interdependence;
(c.2) in the case of adult interdependent partners, any contribution referred to in clause (b) or (c) that was made during the relationship of interdependence;
(d) in the case of spouses, the income, earning capacity, liabilities, obligations, property and other financial resources
(i) that each spouse had at the time of marriage, or if the spouses were in a relationship of interdependence with each other immediately before the marriage, that each spouse had on the date the relationship of interdependence began, and
(ii) that each spouse has at the time of the trial;
(d.1) in the case of adult interdependent partners, the income, earning capacity, liabilities, obligations, property and other financial resources
(i) that each adult interdependent partner had on the date the relationship of interdependence began, and
(ii) that each adult interdependent partner has at the time of the trial;
(e) in the case of spouses,
(i) if the spouses were in a relationship of interdependence with each other immediately before the marriage, the combined duration of the marriage and the relationship of interdependence, or
(ii) if subclause (i) does not apply, the duration of the marriage;
(e.1) in the case of adult interdependent partners, the duration of the relationship of interdependence;
(f) whether the property was acquired when the spouses or adult interdependent partners were living separate and apart;
(g) the terms of an oral or written agreement between the spouses or adult interdependent partners;
(h) that a spouse or adult interdependent partner has made
(i) a substantial gift of property to a third party, or
(ii) a transfer of property to a third party other than a bona fide purchaser for value;
(i) a previous distribution of property between the spouses or adult interdependent partners by gift, agreement or family property order;
(j) a prior order made by a court;
(k) a tax liability that may be incurred by a spouse or adult interdependent partner as a result of the transfer or sale of property;
(l) that a spouse or adult interdependent partner has dissipated property to the detriment of the other spouse or adult interdependent partner;
(m) any fact or circumstance that is relevant.
If you are looking for an unequal division of family property, it is important that you speak with a lawyer regarding the application of the above factors to your particular case. Important factors to consider regarding unequal divisions of property include the date of separation, whether one spouse has been making payments towards maintaining the family property, and whether one spouse has “dissipated” property to the detriment of the other spouse.
Prenuptial Agreements & Separation Agreements
Family property contracts (Prenuptial Agreements or Separation Agreements)—whether they are between individuals who have not yet married, or spouses who are currently separating—are subject to the same rules as are other contracts. For example, for a contract to be enforceable the parties must have had the legal capacity to enter into an agreement, and they must have done so voluntarily (not under duress or but for the other party’s undue influence or unconscionable conduct).
Family property contracts must also meet extra criteria. For example, a contract dealing with the division of family or matrimonial property is not enforceable unless both of the parties have had independent legal advice. The contract must also follow the rules outlined in Alberta’s Family Property Act.
Ask a Lawyer about the Division of Family Property
We hope you found this legal information helpful. Feel free to call us at Morrison LLP at 587-758-1099 if you have any questions about your divorce and division of family property—the first 30 minutes are free.
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