Family Property
In Canada, family property is everything either you or your spouse own together or separately on the date you separate. This includes the family home, RRSPs, investments, bank accounts, insurance policies, pensions, and an interest in a business. It doesn’t matter whose name the property is in.
There may be time limits to settle family property or debt. For example, in B.C., if you were married, you must divide family property or debt no later than two years after you get an order for divorce. For common-law couples, you must settle these issues within two years of the date of your separation.
The provinces and territories are responsible for laws that set out the rules for dividing property when couples divorce or separate. These laws may vary in different parts of Canada.
Property Division
When a marriage ends, the partnership is over and property has to be divided. The general rule for this division is: “The value of any property that you acquired during your marriage and that you still have when you separate, must be divided equally between spouses.”
The term “property” may include a variety of things, such as:
- your home;
- furniture and other contents of your home;
- other real estate;
- pensions from employment;
- Canada or Quebec Pension Plan credits;
- RRSPs;
- Investments;
- bank accounts;
- cash;
- pets.
You may wish to seek legal advice to ensure that you receive the share of the property to which you are entitled to according to the law. Information on property law is available from your provincial or territorial Minister of Justice or Attorney General.
In addition, family justice services such as mediation may be available in your province or territory to help you agree about how to divide your property.
Excluded Property
Property one of you owned before you got together isn’t included in family property. That means you don’t split the value of it equally if you separate or divorce. However, if the property increases in value while you live together, the increase is considered family property. You must divide the increased value.
So, for example, if you owned a house worth $1 million when you started living with your spouse, and then five years later you separated, by which time the house is valued at $1.2 million, you would be entitled to $1.1 million of the house’s value, and your spouse would get $100,000.
Excluded property also includes property bought with excluded property. Say you sold that house you owned before you got married and used the money to buy the family home. That money is excluded property and you don’t have to share it if you separate or divorce.
So, for example, if you owned a house worth $1 million when you started living with your spouse, and then five years later you separated, by which time the house is valued at $1.2 million, you would be entitled to $1.1 million of the house’s value, and your spouse would get $100,000.
Excluded property also includes property bought with excluded property. Say you sold that house you owned before you got married and used the money to buy the family home. That money is excluded property and you don’t have to share it if you separate or divorce.
The Family Home
For most families, the matrimonial home is the biggest asset that comes into contention in a divorce. As with all family property, the home is governed under provincial legislation and there are variations. In Ontario, for example, the full value of the family home must be divided equally even if one of the spouses owned the home before the marriage, received it as a gift, or inherited it. In most other provinces including B.C., a spouse has the right to deduct the value of assets owned on the date of marriage and exclude from division any property received as gifts or inheritances.
Actions regarding the family home must have the consent of both spouses. It is not uncommon for either side to apply for a Certificate of Pending Litigation (CPL), which is then registered with the Land Titles office. While this does not prevent the sale of the property, it acts as a deterrent by alerting anyone who might purchase the property that an action involving the land is pending. I recommend you take this step.
Possession of the matrimonial home is another issue that may arise in divorce. Most provinces (B.C. and Quebec are notable exceptions) provide for the automatic equal right of possession of the matrimonial home should the marriage break down, regardless of who owns the home. This means that either or both spouses could apply for a court order giving them exclusive possession.
What’s excluded From Family Property In B.C.?
- Property acquired by a spouse before the relationship began
- Inheritances to a spouse
- A settlement or an award of damages to a spouse as compensation for injury or loss, unless the settlement or award represents compensation for loss to both spouses, or lost income of a spouse
- Money paid or payable under an insurance policy, other than a policy respecting property, except any portion that represents compensation for loss to both spouses, or lost income of a spouse
- Property held in trust for the benefit of a spouse
- A spouse’s interest in property held in a discretionary trust
- Property derived from property or the disposition of property
Source: B.C. Family Law Act
Double Dipping
In divorce cases, double dipping usually involves an asset that is awarded to a spouse in the division of property, which is also treated as a source of income for the purposes of calculating spousal support. The spouse is effectively benefitting twice from the asset.
Dividing ‘the Chattels’
Dividing the chattels – the furniture, paintings, TVs, and other items that a family has accumulated over the years – can be a contentious process, especially if the spouses are locked in a bitter battle. A typical approach to manage this is for each side to submit lists and try to come to an accommodation. You have to be willing to negotiate. If you cannot agree on certain items, they will end up being sold or auctioned and the proceeds of the sale divided, and you can expect to get garage-sale prices. It is not worth the time and energy fighting over chattels. It makes no sense paying your lawyer $500 an hour to bicker over furniture and silverware that will fetch 10 cents on the dollar. You can replace most of it – aside from family photos and items of a similar personal nature.
Family Debt
In provinces like B.C., all debt incurred by either spouse during the relationship is considered family debt and is a responsibility shared equally. Family debt also includes debts taken on after separation if the money was spent to take care of family property. More information on dividing family debt is available on the Government of Canada’s Website.
Family Business
A family business is considered a marital asset and therefore subject to division between the spouses. There can be challenges in dividing a fully operating business or business assets – not the least of which is assessing how much it is worth. Valuing the business is critical, and I recommend you consider having it appraised by an independent business appraiser. See our Business Valuation tab for more information.
There are basically three options for dividing the business:
- one spouse keeps the business and buys out the other or gives them assets of equal value;
- both spouses keep the business and find ways to work together;
- or they sell or liquidate the business and split the proceeds.
In many cases, it will make sense for one spouse to keep the business. If it is a professional business such as medicine, law, or architecture, only the spouse who is the licensed professional can own the business. Often, one spouse runs the business while the other has more of a support role. If the spouse who will own the business agrees to buy out the other’s stock, take care to ensure the stock purchase is made directly as a transfer of property resulting from the divorce; otherwise, if the stock has appreciated, the spouse who is selling could be liable for capital-gains tax.
When the two spouses have been intimately involved in running a family-owned business for many years, it is harder to divide. Both may have strong emotional ties to the business; splitting it might even harm or kill the business. While it won’t work for everyone, finding a way to remain as business partners may be the best solution.
Pensions
Pensions accumulated during the marriage are considered family property. For many people with pensions and retirement plans, valuing pensions and then dividing them between the spouses can be challenging. How they are valued varies from pension to pension and, to complicate matters, only that portion of the pension that accumulated during the marriage is subject to division. It is best to hire a pension valuator to help tackle this problem.
In B.C., the 2013 Family Law Act extended the rules on dividing pensions to cover unmarried spouses who fall under the definition of spouse in the Act.
Canada Pension Plan (CPP) contributions you and your spouse made during the time you lived together can be equally divided. More information on credit splitting, as it is called, is available here.
Powers of Attorney
A Power of Attorney is a legal document that allows you to appoint a trusted person or organization to handle your affairs when you are unavailable or unable to do so. When couples prepare their wills, they often assign Power of Attorney to their spouse. Upon separation and divorce, these powers need to be revoked. The question is: when? Most experts suggest it should happen as soon as a couple separates. Until Power of Attorney is revoked, one spouse can legally do anything the other can do – including emptying all the bank accounts.
In my case, I elected not to revoke my spouse’s Power of Attorney until we were actually divorced, which meant that all through the process she had equal access to all our accounts. That way, I could show I was not hiding anything. Our financial life was an open book.
Beneficiaries
Changing your beneficiaries on insurance policies, in group benefits packages, RRSPs and similar financial vehicles is an important step upon separation. Take a close look at these things. If you work for a large corporation like I do, sometimes the amendments you make are not correctly registered. For example, I altered the beneficiaries on my pension, which is handled by my employer, but the policy itself is issued by an insurance company. When I received an annual report, my marital status and the beneficiaries were all wrong, even though I’d diligently put through the changes.
RRSPs
Splitting RRSPs is straightforward. You just total up your combined RRSP assets and divide them equally. This usually requires an equalization payment from one spouse’s RRSP to the other. To avoid any taxes, remember to notify Revenue Canada using a T2220 form, which specifically covers transfers between RRSPs, RRIFs, and similar tax-sheltered funds.
Don’t forget to change the beneficiary on your RRSP if it is currently your spouse.
Wills
Reviewing your will is an important step if you’re divorcing or separating. If you do not have a will, I strongly recommend you create one without delay. If you were to die intestate during the divorce process, your ex-spouse would likely inherit most or all the estate, including non-marital property.
If you get a divorce, your will is not automatically cancelled. Instead, only the provisions in your will that refer to your spouse are revoked. This means that your former spouse will no longer be your executor, trustee or guardian, and any gifts you left to your former spouse will go to someone else. Who the gifts will now go to depends on the structure of your will. It is important to understand that separation from a spouse where the couple was legally married, generally has no impact on the will. However, in some provinces, such as Alberta, separation from a common-law spouse (usually requires a one-year separation) will have the same affect as in the case of a divorce of a legally married couple.
In B.C., the new Wills Estates and Succession Act (WESA) has changed the law on what happens to wills for couples (married or common-law) when they separate or divorce. Under the old law, your spouse was automatically disinherited from your will if you divorced. Under WESA, the provisions in your will that refer to your spouse are revoked. This means they cannot act as your executor, trustee or guardian, and any gifts you left to your former spouse will go to someone else.
Because it can get confusing, you should consider making a new will once you get divorced, or become separated from a common-law partner.