Property Division Upon Separation

Oct 6

Whether you are considering separation, working towards a mutual agreement with your former spouse, or preparing for an upcoming hearing, it is important to understand the basics of property division. The British Columbia Family Law Act sets out a number of rules that specify how family property and debt are to be divided upon separation. The following article sets out the basics of this framework.

Keep in mind that the property division rules under the Family Law Act is a “default” regime, meaning that a valid contract between you and your spouse can vary the following default rules to property division upon separation. Nonetheless, these default rules can act as helpful guidelines in working towards a fair agreement that is reflective of what a court might determine.

Couples can generally expect to share equally, upon separation, any property that was acquired during the course of their relationship. Keep in mind that the rules of property division upon separation apply not only to married couples but also to unmarried couples who have lived together in a marriage-like relationship for at least two years.

Absent an agreement to the contrary, a court will follow the following process in determining the division of property: categorization, valuation, and division.

Categorization

The first step is to determine what assets held by the spouses are subject to division. All property owned by the spouses, individually or collectively, will fall into one of two categories: family property and excluded property.

Family Property

Family property is generally that which has been acquired during the relationship between the spouses. This includes both real and personal property. Section 84(2) of the Family Law Act sets out several examples of what will be categorized as family property.

84 (2) Without limiting subsection (1), family property includes the following:

(a) share or an interest in a corporation;

(b) an interest in a partnership, an association, an organization, a business or a venture;

(i) as a refund, including an income tax refund, or

(ii) in return for the provision of a good or service;

(d) money of a spouse in an account with a financial institution;

(e) a spouse's entitlement under an annuity, a pension plan, a retirement savings plan or an income plan

(f) property, other than property to which subsection (3) applies, that a spouse disposes of after the relationship between the spouses began, but over which the spouse retains authority, to be exercised alone or with another person, to require its return or to direct its use or further disposition in any way;

(g) the amount by which the value of excluded property has increased since the later of the date

(i) the relationship between the spouses began, or

(ii) the excluded property was acquired.

Excluded Property

Excluded property typically includes that which one of the spouses had prior to the relationship or had gifted to them during the relationship. Common examples would include property acquired by one spouse before the relationship began, inheritance or other gifts, or funds held in a trust for one of the spouses to which that spouse did not contribute.

However, any increases on excluded property that occurred during the course of the relationship will be considered family property. For example, if Spouse A owned a home prior to entering a relationship with Spouse B, any increase in the value of that home that occurred during the relationship would be considered family property, while the value of the home prior to the relationship would be considered excluded property.

The spouse claiming any property to be excluded property has the onus to demonstrate to the court that such property ought to be excluded.

Excluded property is very rarely divided between the spouses, but rather retained solely by the spouse who owned it before the relationship, was gifted it, or otherwise acquired it. However, division of excluded property may be justified in certain circumstances where to not divide the excluded property would produce an unjust or unfair result, given the duration of the relationship and the other spouse’s direct contribution to the excluded property.

Family Debt

Keep in mind that not only family property, but also family debt, is to be divided between the spouses. Family debt includes all financial obligations incurred by a spouse during the relationship. It also includes those financial obligations incurred after separation, if they were incurred for the purpose of maintaining family property.

Valuation

Property that falls into the categories of “family property” and “family debt” must then be valued. This is important, and sometimes complicated, because many assets, such as real property or investments, may vary significantly in value between the date of separation and the date on which the spouses come together to negotiate an agreement or have the property division determined by a court. Family property and debt will be valued on a fair market basis as of the date an agreement dividing the property is made or of a hearing before the court.

The net valuation of family property to be divided is therefore the value of the family property less the value of any family debt.

Division

Finally, once the property has been categorized and properly valued, it will be divided. There is a presumption of equal entitlement, meaning that the spouses are entitled to an equal division of family property and debt, regardless of their respective use or contribution.

However, a court may decide to divide the family property or debt on an unequal basis if it would be significantly unfair to divide it equally. Section 95 of the Family Law Act sets out the relevant considerations in this analysis.

(1) The Supreme Court may order an unequal division of family property or family debt, or both, if it would be significantly unfair to

(a) equally divide family property or family debt, or both, or

(b) divide family property as required under Part 6 [Pension Division].

(2) For the purposes of subsection (1), the Supreme Court may consider one or more of the following:

(a) the duration of the relationship between the spouses;

(b) the terms of any agreement between the spouses, other than an agreement described in section 93 (1) [setting aside agreements respecting property division];

(d) whether family debt was incurred in the normal course of the relationship between the spouses;

(e) if the amount of family debt exceeds the value of family property, the ability of each spouse to pay a share of the family debt;

(f) whether a spouse, after the date of separation, caused a significant decrease or increase in the value of family property or family debt beyond market trends;

(g) the fact that a spouse, other than a spouse acting in good faith,

(i) substantially reduced the value of family property, or

(ii) disposed of, transferred or converted property that is or would have been family property, or exchanged property that is or would have been family property into another form, causing the other spouse's interest in the property or family property to be defeated or adversely affected;

(h) a tax liability that may be incurred by a spouse as a result of a transfer or sale of property or as a result of an order;

(i) any other factor, other than the consideration referred to in subsection (3), that may lead to significant unfairness.

(3) The Supreme Court may consider also the extent to which the financial means and earning capacity of a spouse have been affected by the responsibilities and other circumstances of the relationship between the spouses if, on making a determination respecting spousal support, the objectives of spousal support under section 161 [objectives of spousal support] have not been met.

While the foregoing provides a summary of the general rules applicable to property division upon separation, it is always best to get legal advice before you make any final decisions. To learn more, please contact us for a consultation.

Want to learn more? Please contact our team of Vancouver family lawyers for a consultation.

The material provided in this blog is for general information and education purposes only and does not contain, and should not be construed as containing, legal advice applicable to a particular set of facts. If you require legal advice, please contact us for a consultation.

Amy Kaustinen

Amy is a law student in her third year of the JD program at the University of British Columbia Peter A. Allard School of Law. After graduating in May 2024, she looks forward to completing a judicial clerkship at the British Columbia Supreme Court.

Prior to law school, Amy obtained her Bachelor of Commerce (Honours) from Queen’s University, where she studied and gained work experience in corporate social responsibility, non-profit management, finance, and accounting.

She was drawn to law school for the intellectual challenge along with her deeply held desire to help others and make a difference in the world around her. As a former student clinician and Director of Technology and Publications at the Law Students’ Legal Advice Program, Amy learned to deliver empathetic and efficient client service to low-income folks unable to afford legal assistance. In addition to writing for Illuma Law, helping to provide accessible legal information to the public, Amy is currently volunteering at Battered Women’s Support Services, where she helps with client intake, referral services, and preliminary legal research and writing for women in Vancouver facing gendered violence.