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 (ie. split 50:50). This rule is codified in Alberta’s Family Property Act.
In the past, this division of property was only available to married spouses (unmarried spouses had to apply for property under the common law doctrine of unjust enrichment). However, 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 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 the spouses—whether they own the property jointly or separately. This applies to all property, be it the family home, pets, or bank accounts. Family property includes properties that the other spouse may not have even known existed.
For example, John and Jane are married. John opens up a secret RRSP, worth $10,000. He never tells Jane about the RRSP. When John and Jane separate, Jane has a claim to half of the value of the RRSP—even though she only learned about its existence because of the financial disclosure process.
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.
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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