Division of Property


In this section, we will review the basics with regard to:

  • The Fundamentals of the Division of Assets
  • A More Detailed Breakdown of the principles involved in the Division of Assets
  • The Term "Net Family Property"
  • The Concept of an "Equalization Payment"
  • Property Excluded from the Division of Assets
  • Variations to the Standard 50/50 Division
  • The Matrimonial Home
  • Protecting Your Assets
  • Common Law Property Right

The Fundamentals of the Division of Assets

Upon the breakdown of a marriage, the value of all the assets amassed and debts incurred by the spouses between the date of marriage and the date of separation is split 50/50 between them.  The division is financial one, not based on possession or ownership.  The other spouse is not entiteld to take the asset (for example 1/2 a business interest), only half the value of the asset.  If you can prove you came into the marriage with an asset, you can exclude its date of marriage value on separation.  Any increase of the value in that asset during the course of the marriage will be split.  If you acquire the asset or incur the debt after separation, it’s yours alone.  There are certain types of property acquired during the marriage that are excluded from division, including inheritances, but you lose the exclusion if you commingled the excluded asset with assets from the marriage.  The matrimonial home is an exception and is always split 50/50, even if you owned it outright on date of marriage.  It is possible to vary the 50/50 division for shorter marriages or where there is decit, but generally not beyond five years of marriage.  

These are the basics and there are always exceptions and variations, for more details, read on or give us a call.



The More Detailed Breakdown

When a marriage breaks down*, and there is no prospect of reconciliation, steps must be taken to divide the assets and liabilities of the two parties to allow them to move on with their financial lives.  By the time a couple has moved in, married and lived together for a length of time, their financial dealings are often so intertwined that this is no easy task. 

(*Note: the following applies only to married couples, for an explanation of how common law property is divided, see that section below)

In order to facilitate the financial aspects of a divorce, legislation has been created setting out a process by which the property from the marriage is divided as fairly as possible.  

The first question an individual seeking a division of property will usually ask is, “do I have to give him/her half?”  The answer to that is generally “yes,” however there is a formula for determining exactly what “half” is and how it is to be calculated.  There are also limitations as to what is and is not included in the calculation of “half.”  

The basic legislation dealing with the division of property from a marriage reads as follows:

“When a divorce is granted…or the spouses are separated and there is no reasonable prospect that they will resume cohabitation, the spouse whose net family property is the lesser of the two net family properties is entitled to one half the difference.”

That may not be perfectly clear, so let’s simplify it.  In order to do so, an understanding of the phrase “net family property” is required.

Net Family Property – is the value of all the property that a spouse owned at the date of separation (the day it became clear that the relationship was over, either by conversation between the parties or by one party moving out).  It is all the property listed in that spouse’s name (for which they have ownership) or that they will be taking away from the marriage.  It includes bank accounts, pensions, investements, business interests, vehicles, household items, and any other assets under the spouse’s ownership.  

The calculation of a spouses net family property sums up the value of all their assets at the date of marriage, subtracts all their debts or other liabilities at the same date and arrives at a personal net worth. For the purposes of the legislation, a spouses net worth cannot go below zero. Joint assets and debts are divided equally between the net family property of both spouses.  The individuals personal net worth is then set off against others spouse’s net family property, which is determined by the same calculation, and an “equalization payment” is arrived at that will allow both.  

The equalization payment is a payment from the spouse with the higher net family property to the spouse with the lower net family property, “equalizing” the value of property they will have post separation and allowing each to walk away from the marriage with the same net worth.  The parties are then free to deal with the assets and debts included in their net family property equation as they see fit.

The system does not divide the assets themselves, only the value of the assets.  Your spouse is not entitled to take your business, car or pension, only half the value of that asset.  You are entitled to take away from the relationship what you own, as long as its value is equalized.

For example:  If after summing up all of the Husband’s assets and liabilities, he has a Net Family Property(NFP) of $200,000 and the Wife, after the same calculation, has a Net Family Property(NFP) of $50,000.00, the Husband owes to the wife an equalization payment of $75,000, calculated as follows;

Husbands NFP       $200,000
Wife’s NFP            $  50,000
Difference in NFP   $150,000
½ Differenece       $  75,000 equalization payment from husband to wife

Therefore the Husband owes the wife an equalization payment of $75,000, which will allow each party to leave the marriage with a net worth, after all debts an liabilities of $125,000 (H = 200,000 – 75,000 = $125,000, W= 50,000 + 75,000 = $125,000).  Once that payment is made, the husband is entitled to keep all the assets considered in the calculation of his net worth, free and clear from any claim by the wife.  The result is that the husband may walk away with more items, but the wife will have the equivalent in cash value.

Excluded Property

There are various exceptions to the division of net family property; specific assets or liabilities that are excluded from the calculation of the individual net family property.  It is important to know these, both going into a marriage and on the breakdown.  

Some of the excluded areas of property are as follows:
1.    The property that a spouse owned on the date of marriage.  If you had the asset on the date of marriage, you can subtract its date of marriage value from your net family property (except the matrimonial home).  You have to be able to prove you owned the asset at the date of marriage and it’s value, which can be as easy as showing a bank statement as of the date of marriage for RRSP’s, Bank accounts or other investments.  It can be more difficult for less liquid assets or where the length of the marriage has deteriorated evidence.
The bad news is that the same way that you can deduct assets from date of marriage, you will have to add back in debts from date of marriage.  If the debt was paid down during the marriage, half of it will come back to you because that half is deemed to have been paid down by your spouse.  Note that these same rules apply to your spouse as well.


2.    Property that was acquired by gift or inheritance from a third party after the date of marriage.  You have to be able to prove the gift was in fact a gift.  The intention of the donor will serve as evidence to this.  You must also be careful, specifically in the case of cash gifts or inheritance, not to commingle the asset with other assets of the marriage, or the exclusion will likely be lost.  


3.    Income from the gift or inheritance, if the donor or testator has expressly stated that it is to be excluded from the spouse’s net family property.  You will want to discuss this before the fact with parents, since it is usually they who provide gifts of investments or inheritances.  If you have already received an inheritance, it is common practice to have a provision contemplating this exception included in wills.  The will itself will be required as evidence.


4.    Damages or rights to damages from personal injury law suits.


5.    Proceeds or the rights to proceeds from a life insurance policy.


6.    Property that the spouses have agreed by domestic contract is not to be included in the spouse’s net family property.  See the section on “Domestic Contracts.”

Variations to the 50/50 Rule


A party may apply for a variation in the 50/50 rule, requesting a share that is greater than half the difference between the parties’ net family property, where to do a straight equalization would create a result that was unreasonably unfair.  In doing so, the following must be considered:


1.    The fact that the equalization a spouse is to receive is disproportionately large in relation to a period of cohabitation that is less than 5 years.  
2.    One spouse has incurred debts or liabilities on during the marriage that were reckless or in bad faith.
3.    On party has intentionally or recklessly depleted his or her net family property.
4.    The fact that one spouse has incurred a disproportionately larger amount of debts or other liabilities than the other spouse for the support of the family.
5.    One spouse’s failure to disclose debts or other liabilities existing on the date of marriage.
6.    A written agreement between the spouses that is not a domestic contract.
7.    Finally, the court may consider any other circumstances relating to the acquisition, disposition, preservation, maintenance or improvement of property.  

The onus of proof to show that the exclusion is a valid exclusion or that something other than a 50/50 split is in order is on the party claiming it.

 

For example:  By adding some excluded property to the above example, and assuming no marriage contract and that all exclusions are provable, it now looks like this:

Husband @ separation     $200,000 (all assets and debts at date of separation)
Date of Marriage assets   $  25,000  (excluded)
Date of Marriage debt      $ (40,000)  (added back)
Inheritance                     $  10,000  (excluded)
Husband’s NFP                $205,000


Wife @ separation           $  50,000 (all assets and debts at date of separation)
Date of Marriage assets   $    5,000 (excluded)
Inheritance                    $  35,000 (excluded)
Wife’s NFP                      $  10,000


Difference in NFP        $195,000
½ Differenece            $  97,500 equalization payment from husband to wife.

The Matrimonial Home


The matrimonial home is every property that a spouse has an interest in and that is, or was at the time of separation, ordinarily occupied by that spouse and their husband/wife as their family residence.  There can be more than one matrimonial home in a marriage and the ownership in the property need not be full ownership, it can be partial.  


Both spouses have equal rights to possession of the matrimonial home (we will assume that there is only one here) and neither can force the other one out without a an agreement or court order.  NEVER CHANGE THE LOCKS WITHOUT FIRST CONSULTING WITH A LAWYER.

 

Neither spouse may sell or encumber the matrimonial home without the agreement of the other spouse or a court order permitting it.  This is true whether the parties are together or separated.

 

There is no date of marriage exclusion from net family property for the matrimonial home.  If you owned a home prior to marriage, and it later became the matrimonial home, the whole value of the home is thrown into the equalization equation.  There may be some variation for marriages of a duration of less than 5 years, but you should not rely on this.

 

Protecting Your Assets

 

In order to ensure that your assets are protected, the best approach is to enter into a Domestic Contract that excludes the assets from the equalization process.  This small investment up front can save you tens of thousands of dollars later on.

 

If you have not entered into a Domestic Contract, and are faced with the breakdown of a marriage, give us a call. We know the equalization process, know how to ensure that you get the fairest settlement and can work with you to enforce your rights. 

 

Common Law Property Rights

 

A common law relationship is a relationship that meets the following criteria:

 

Any two persons who are not married to one another and have cohabited:

  1. continuously for a period of not less than three years; or
  2. in a relationship of some permanence, if they are the natural or adoptive parents of a child.

The quick answer to the question of what are the property rights of common law spouses is that there are none.  If you own the asset, or the liabiity is yours, and the relationship ends, you take it with you.  There is no claim by your spouse to 1/2 that item. 

 

Joint assets or liabilities are divided in accordance with each spouse's proportionate ownership or responsibility, so you get back what you put in, plus your proportional share of any increase in the asset or liability, not half as with marriages.

 

The exception to this is if you have contributed directly to the acquisition or improvement of an asset, however you are not on title.  In those instances you may be entitled to an equitable claim for an interest in the property.

 

There is no matrimonial home in a common law relationship, since there is no marriage.

 

 

 


The financial implications from the breakdown of a relationship can be extremely complex and often involves a detailed analysis of the individual financial positions of both parties.  If not properly advised on the process, there is the possibility that you could find yourself handing over far more than you are required, leaving yourself in a precarious financial state.  This does not need to be the case.  Contact Fitzgerald Family Law to assit you in negotiating a division of assets that is fair and allows you to move on with your life as much financial certainty as possible.  613-233-1785.

 

 


Note: The information provided in this website is only intended as a guideline for understanding the basic principles of family law matters generally.  It is not to be taken as legal advice, nor relied upon in advancing or defending a specific family law claim.  Every case is different and in no way is the information provided to be taken as advice specific to your particular circumstance.  If you have questions relating to your matter specifically, please contact Paul Fitzgerald of Fitzgerald Family Law to discuss.