BC’s Family Law Act provides a set of rules for dividing property of separating couples who are married or who have lived with each other in a marriage-like relationship for a continuous period of at least 2 years. *
When couples make marriage and cohabitation agreements, they are contracting out of this default scheme for dividing property – a lot, or a little, depending on the individual couple – and the fairness of their agreement will be measured against this background law.
The starting point in the Act (Part 5, for anyone who wants to look it up) is that on separation each spouse is entitled to equally share the family property and is equally responsible for family debt.
The Act distinguishes between two different kinds of property: family property and excluded property. Family property is basically anything owned by either spouse on the date of separation which is not excluded property. So, let’s start with excluded property…
Excluded property includes (not a complete list):
- Property acquired before the relationship began.
- Gifts or inheritances to a spouse (watch out: an argument can still be made that a gift made by parents of one spouse during the relationship was a gift to both spouses).
- Property in a discretionary trust that the spouse is a beneficiary of, but where the trust was settled by someone else and the spouse didn’t contribute to it (for example, the spouse is beneficiary of a trust set up by her parents using the parents’ property). A revision to this section will specify that it’s the spouse’s interest in the trust, not the whole trust property, that we are talking about.
- Certain kinds of personal injury damages and insurance proceeds.
- The above kids of property if held in trust, as well as new property derived from the above kinds of property (for example, John uses a $50,000 inheritance to buy a $50,000 boat).
Family property includes (again, not a complete list):
- The increase in value of excluded property during the relationship (a simple example is: if Jane brought a home into the relationship worth $700,000 at the start of the relationship, and worth $1,000,000 at the end of the relationship, the $700,000 is excluded property but the $300,000 increase is shared property). Many people making marriage and cohabitation agreements want the increase in value of pre-relationship property, inheritances and gifts to also remain separate, even if they are happy to share other property they acquired during the relationship.
- Anything that is not excluded property. This includes all non-excluded property a spouse owns or that a spouse has a beneficial interest in at separation.
- Some specific examples listed in the Act are shares in a corporation, interests in a partnership or business, tax returns owed to a spouse, money in an account with a financial institution, pension RRSP and other plan. The assets aren’t shielded by putting them in a trust.
- Anything acquired after separation that is derived from family property.
Note that there is a whole separate part of the Act dealing with pensions, but the underlying ideas are similar (sharing what is accumulated during the relationship).
Family debt, which is shared, includes all financial obligations incurred from the beginning of the relationship to separation, as well as obligations after separation if they were for the purpose of maintaining family property.
Personally, I think debt is as important a reason as property to make a marriage or cohabitation agreement. A person who has always been careful with money and saving may fall in love with and want to marry a person who likes to spend and who racks up debt for that spending, but the saver might not be so happy to be on the hook for half of that debt when they break up.
Not always equal
Despite the starting point of equal division of family property and debt, the court can order unequal division of family property or debt if it would be significantly unfair to divide it equally.
Some of the considerations a court can consider are the length of the relationship, agreements the couple made, contribution to the other spouse’s career, whether debt was incurred in the normal course of the relationship, the ability to pay a share of family debt, and the like.
Couples can make agreements about division of property and debt. They can agree on how property will be divided. They can agree to exclude property that would otherwise be included and to include property that would otherwise be excluded. They can also decide to value property differently than the default in the Act.
If a couple makes an agreement (in writing, with both signatures properly witnessed), then a court can only set aside or replace an agreement with its own order if:
- At the time the agreement was made, a spouse failed to disclose significant property or assets, took improper advantage of the other’s vulnerability, didn’t understand the nature or consequences of the agreement, or if there is another reason the contract could be attacked under the common law.
- If the agreement is significantly unfair taking into account the length of time since the agreement was made, the intention to achieve certainty, and the degree to which the couple relied on the terms of the agreement.
A few other notes
Beginning of the relationship – The beginning of the relationship is the earlier of the day they began to live together in a marriage-like relationship or the date of marriage.
Separation – Evidence of separation can include one spouse communicating or taking an action that demonstrates an intention to separate permanently. A couple can be separated even if they continue to live in the same residence. Also, a couple is not considered to be separated if within one year of separation they begin to live together again for the purpose of reconciling and do so for a total of 90 days (not necessarily continuous).
* Quick reminder: This is a blog post and intended to summarize the main points of the law in a readable way to give readers a starting point for understanding the law. I’m not trying to capture all of the nuances of the law, and you need to speak to a lawyer about your own situation.