Division of Property
When a marriage or relationship breaks down, the parties’ assets have to be divided somehow. If you are legally married (including legally married same sex couples), the method for dividing assets between the spouses in Ontario is governed by the Family Law Act, unless you and your spouse have signed a valid agreement outlining a different process for division. If you are a common law spouse (i.e. not legally married), the method for dividing assets under the Family Law Act does not apply to you. However, you may have rights to receive a division of assets in Ontario under the principles of law known as constructive trust, resulting trust, and/or quantum meruit. The systems for how a couple’s assets and debts are divided in Ontario in these difference situations are summarized below. The underlying law can be very complicated or detailed depending on your situation. A Zeidman family lawyer can help walk you through the process and ensure that your rights and assets are protected.
The laws related to division of assets for lawfully married couples (including same sex marriages) are outlined in the Family Law Act (FLA). The principle underlying these laws is that a marriage is an equal economic partnership. Thus, the partners/spouses should share equally in the assets and property accumulated during the marriage if the marriage breaks down. In general, the value of the increase in your net assets during the marriage must be shared between spouses regardless of which spouse is the legal owner of assets. However, section 4(2) of the Family Law Act outlines exceptions to the general rule, including gifts or inheritances from third parties during the marriage, assets specifically excluded by the spouses in a domestic contract, damages received for personal injury claims, etc. The important terms and mechanics used in dividing assets under the FLA are summarized below. The summary is a simplification of what can be a very involved process. A Zeidman family lawyer can help ensure that you understand the process and that your rights and assets are protected.
What is Property?
The FLA has a broad definition of what constitutes property. Property is defined in section 4(1) as including any interest, present or future, vested or contingent, in real or personal property. This can include, without limitation, the following items:
- real estate owned anywhere in the world
- jewelery and furniture
- bank accounts and investment accounts
- money that is owed to you (e.g. income tax refund)
- stock options and profit sharing plans
- RRSP or employee pension plans
- the right to receive benefits under a trust
What is the Value?
Generally, the value of an asset or debt is the fair market value of the item at the relevant time. Fair market value of an asset means the price that an unrelated party would pay for the asset on the open market on the given date. If the asset is in your name, you are required to prove its value.
For assets like bank accounts, this is as simple as providing a bank statement showing the value on a given day. For ownership in real estate, it may be necessary to hire a property appraiser to conduct an appraisal of the property as of the given date. For ownership in a business, it may be required to hire a business valuator to produce a valuation report on the value of the business. Similarly, for an employee pension, a valuation of the pension is typically needed.
As of When is Property Valued?
Upon separation, the process for dividing property begins. The first step is to calculate the net value of each spouses property as of the date of marriage and the valuation date. Section 4(1) of the FLA defines valuation date as the earliest of:
- the date the spouses separate and there is no reasonable prospect that they will resume cohabitation;
- the date a divorce is granted;
- the date the marriage is declared a nullity;
- the date one of the spouses commences an application based on section 5(3) of the FLA (improvident depletion) that is subsequently granted; or
- the date before the date on which one of the spouses dies leaving the other spouse surviving.
In most divorce cases, as we will assume here, the valuation date is the date of separation. However, the date of separation itself may be open to debate, especially if the spouses continued to live separate and apart in the same home. Because assets can fluctuate drastically from week to week (just look at the stock market), ultimate determination of the separation date could have a very severe impact on your property division obligations under the FLA. A Zeidman family lawyer can review your situation and help ensure that the appropriate separation date is used so your interests are sheltered.
Calculating the Division of Property Value
There is a family law Financial Statement that each spouse completes at the beginning of the process. The Financial Statement contains sections that allow you to put down the value of your assets and debts as of the date of marriage and the date of separation. When completed, you take your net date of separation assets value and subtract your net date of separation debts value to obtain your net worth on separation. The same process is following for date of marriage assets 1. There may be special treatment for the matrimonial home which allows its value to be excluded from date of marriage assets in certain instances. Contact a Zeidman family lawyer to find out if this applies to your situation and debts to determine your net worth on the date of marriage. You then subtract your date of marriage net worth from your separation date net worth to calculate your net worth increase during the marriage.The Financial Statement also contains a section for values that can be excluded from the division of property calculation. Section 4(2) of the FLA states the value of the following items can be excluded from valuation date values:
- property, other than a matrimonial home, that was acquired by gift or inheritance from a third person after the date of the marriage;
- income from property referred to in paragraph (a), if the donor or testator has expressly stated that it is to be excluded from the spouse’s net family property;
- damages or a right to damages for personal injuries, nervous shock, mental distress or loss of guidance, care and companionship, or the part of a settlement that represents those damages;
- proceeds or a right to proceeds of a policy of life insurance, as defined under the Insurance Act, that are payable on the death of the life insured;
- property, other than a matrimonial home, into which property referred to in paragraphs (a) to (d) can be traced;
- property that the spouses have agreed by a domestic contract is not to be included in the spouse’s net family property; and
- Unadjusted pensionable earnings under the Canada Pension Plan.
Your net worth increase during marriage less any proper exclusion is called your Net Family Property (NFP). Section 5 of the FLA entitles the spouse with the lower NFP to receive one-half of the difference between the two spouses NFPs as an Equalization Payment of their Net Family Properties.
Sample Property Division Calculation
Here is a very simple example of a division of assets calculation to help you understand the process of determining spouses Net Family Property and the proper Equalization Payment.
|Wife’s Net Family Property Calculation|
|Date of Separation Net Worth|
|Date of separation assets||$500000|
|Less: Date of separation debts||$200000|
|Date of separation net worth:||$300000|
|Less Date of Marriage Net Worth|
|Date of marriage assets||$100,000|
|Less: Date of marriage debts||$50,000|
|Date of marriage net worth||$50000|
|Less Exclusions Allowed (inheritance)||$30000|
|WIFE’S NET FAMILY PROPERTY||$220000|
|Husband’s Net Family Property Calculation|
|Date of Separation Net Worth|
|Date of separation assets||$400,000|
|Less: Date of separation debts||$250,000|
|Date of separation net worth:||$150000|
|Less Date of Marriage Net Worth|
|Date of marriage assets||$30000|
|Less: Date of marriage debts||$10000|
|Date of marriage net worth||$20000|
|Less Exclusions Allowed (inheritance)||$10000|
|HUSBAND’S NET FAMILY PROPERTY||$120000|
In our very simple example, the Wife’s NFP is $100,000 higher than the Husband’s NFP, so the Wife would be required to pay the Husband an equalization payment of $50,000 under the Family Law Act. After that payment, each spouse would have a Net Family Property of $170,000. If we assume the division of property and equalization payment actually occurred the day after the date of separation (albeit as impractical as this is), the Wife’s Net Worth then would be $250,000 while the Husband’s would be only $200,000. Thus, the Family Law Act is meant only to equalize the spouses’ increases in net worth during marriage, not to equalize the spouses’ net worth on separation. Contrary to a common misconception and as shown in our example, the Family Law Act does not split date of separation assets 50/50.
Time Limits for Dividing Property
If you want a division of property under the FLA, a Zeidman family lawyer can assist you in negotiating an agreement to divide property. If an agreement is not possible, you can apply to the court under section 5(1) or 5(2) of the FLA for your fair share of the combined Net Family Properties. However, unless you apply for and get an extension of time from the court, your court application to divide property must be initiated before the earlier of:
- two years after the day the marriage is terminated by divorce or judgment of nullity;
- six years after the day the spouses separate and there is no reasonable prospect that they will resume cohabitation; or
- six months after the first spouse’s death.
Numerous common law couples believe that the laws related to division of assets in the Family Law Act (FLA) apply to them. However, the FLA specifically excludes common law spouses from its division of assets provisions. There was a constitutional challenge to this FLA exclusion, but the Supreme Court of Canada upheld the provisions of the FLA that restrict the division of property rights to legally married couples.There currently is no legislation that codifies the division of property rights of common law spouses other than by legal ownership on title. However, common law spouses can make claims to a division of property upon separation based other legal doctrines summarized below. The underlying law can be very complicated or detailed depending on your situation. A Zeidman family lawyer can help walk you through the process and ensure that your rights and assets are protected.
Definition of Common Law Spouse
The term common law spouse is referred to in various legislation and has different meanings for different purposes. For example, under the Income Tax Act (Canada), you may qualify as a common law spouse if you have been living together with your partner as husband and wife for at least one continuous year. However, in family law, the definition of common law spouse is different.
According to the Family Law Act (FLA), you are considered to be a common law spouse if you are not lawfully married but you and your partner:
- have cohabited continuously for a period of not less than three years; or
- have cohabited in a relationship of some permanence, if you both are the natural or adoptive parents of a child.
Constructive Trust Claims
Regardless of legal title to assets, if you are a common law spouse going through a separation, you may be able to claim against the property of your spouse based on the principles of constructive trust. The court will not equalize property between spouses as in the Family Law Act, but it will determine the value of your contributions to your spouse’s property and the value of benefits received by your spouse.
Constructive trust claims are based on fairness. To be successful, you must be able to prove that:
- you contributed benefits to your spouse during the course of your relationship;
- your spouse received those benefits;
- you suffered a loss as a result of contributing those benefits; and
- there is no legal reason why your spouse should benefit at your expense.
Your contributions need not be financial. For example, contributions could include you maintaining a property in your spouse’s name during the course of your relationship or helping with your spouse’s business. There does not have to be an agreement that your spouse is holding property in trust for you, but you must have had a reasonable belief that you would get an interest in the property.
A constructive trust claim can be very complicated and more costly than a claim under the FLA. Normally these claims entail a detailed study of the parties’ relationship over several or many years. A Zeidman family lawyer can help you determine your entitlement as a common law spouse.
Resulting Trust Claims
Common law spouses may also be able to claim against the property of their spouses based on the principles of resulting trust. A resulting trust can occur when both common law spouses had a common intention that one of them would be the legal title holder to property in trust for the other. The intention can be express or implied.
In family law, there is a rebuttable presumption of a resulting trust if one spouse buys property in the other’s name. This presumption can be disproved if the spouse holding legal title can show that the property was a gift (i.e. there was no intention of the trust).
Resulting trust claims are complicated. You should consult a Zeidman family lawyer for assistance if you believe you may have such a claim against your spouse.