DISTRIBUTION OF PROPERTY WHEN A RELATIONSHIP ENDS
The Province of Alberta has the constitutional jurisdiction to make laws respecting property and civil rights pursuant to section 92 of the 1867 British North America Act. The Alberta statute enacted to set out the rules for dividing property when a marriage or adult interdependent relationship (AIR) ends is the Family Property Act. (FPA)
Is there an Agreement in place?
Before you get into the issue of whether the FPA applies to you, the lawyer should ask whether you have a pre-existing written agreement, such as a valid Cohabitation Agreement, Prenuptial Agreement, Marriage or Post-Nuptial Property Agreement, Separation Agreement, or an Adult Interdependent Relationship Agreement. In such a case, reference should be made to the agreement and your dispute may be resolved pursuant to that Agreement so long as the Agreement has met legal formalities.
Family Property Act
Does the FPA apply to my situation?
The FPA applies to married spouses and Adult Interdependent Partners (AIPs) living in Alberta or who have lived in Alberta as a couple and who separated on or after January 1, 2020. For those married people who separated before January 1, 2020, the earlier Matrimonial Property Act applies to your situation. If you were in an adult interdependent relationship (AIR) and separated before January 1, 2020, then the case law or Judge made law on unjust enrichment applies to your situation. If you have not lived with your spouse or adult interdependent partner since your marriage or since starting an AIR, but you both lived in Alberta at the date of your marriage or the start of your AIR then the FPA applies to you.
Limitation Periods for Dividing Family Property
If you are legally married, have separated, and have ordinarily resided in Alberta for at least one year then you have 2 years from the date of separation to commence a Family property action, or you must commence a divorce action, and a family property action to claim a family property remedy. If you are divorced already but haven’t dealt with your family property, then you must commence a Family Property Action within 2 years from the date of the divorce judgment. If you have separated from your AIP, you have 2 years to sue from the date you became a former AIP’s. If your spouse or AIP is giving away or selling family property you must commence an action within one year from the date that the property was sold or given away. If your spouse or AIP dies, you must commence an action within 6 months from the date the court issues a Grant of Probate (or Letters of Administration), and only if you could have started a Family Property Action right before your spouse or AIP died.
What do I need to know to divide property?
Family property includes all assets and debts accumulated during the marriage or relationship. For couples that lived together before getting married the property they acquired while living together before marriage is also considered family property and may be divided under the FPA.
What if I am not married, not in an Adult Interdependent Relationship, or am in an Adult Interdependent Relationship but separated before January 1, 2020, or not on title?
No statute law applies in the above-noted situations. There is no legal presumption that property is to be shared at the end of a relationship. One must always ask, is there a pre-existing written agreement between the parties relating to property division? If so, then the Court will usually respect these agreements so long as there has been independent legal advice and legal formalities have been followed.
If the property is owned by both people, then the property can be divided based on their financial contribution solely or financial contribution and non-financial contributions. Where property is jointly owned, the equity will usually be divided equally. If the property is real estate, i.e. raw land or farmland or a home, the Alberta Law of Property Act may be used to address a division or sale. If property is held in one person’s name only and this includes real estate, the case law does provide an avenue of recourse if one person has contributed to the property in a financial or non-financial way and it is not fair that the property is retained by the titled party that has benefited from those financial or non-financial contributions. This is a claim for unjust enrichment where the non-title holder asks the Judge to divide the title holder’s property or provide compensation because it would be unfair otherwise. The Plaintiff must prove that the title holder was enriched by the contributions of the Plaintiff, that the contributor suffered a corresponding deprivation, and that there was no legal reason for the gain or the loss. (Known as the absence of juristic reason) If the Plaintiff proves unjust enrichment of the Defendant on a balance of probabilities the Court will try to place a value on the contributions and compensate the Plaintiff accordingly.
How to Divide Family Property
Start by preparing a list of all the property acquired before the relationship began, property acquired during the relationship, property acquired after the separation, and any property located outside of Alberta. As part of this list, note the date the property was purchased or acquired, the amount paid or value, and how it was paid for or acquired, with documents if you still have them.
Next, place a current value on the items of property using outside reliable sources. For instance, on bank accounts, investments, mortgages, credit cards, and loans, use statements sent by the institutions. For real estate, start with the municipal property tax assessment but know that this value only represents the value as assessed by your taxing authority on June 30th of last year. As you get closer to negotiating a resolution or trial you will require an expert appraisal by an accredited real estate appraiser unless the parties agree to a value or agree to use a realtor-issued market value evaluation to save money on expert fees. For various types of personal property such as furniture, vehicles, and recreational toys, use sources such as Kijiji or used property websites such as Auto Trader and keep the source documents as evidence. For vehicles try to use comparable vehicle mileages and conditions. You should know that if you are negotiating an agreement, the parties can use any value that they can agree upon and any valuation date, such as the date of separation or a more current date. However, if the parties are unable to agree on values or a valuation date the trial justice will use the values as at the date of the trial, and expert appraisals will be necessary to establish values unless the parties agree on values.
You must provide your spouse or partner with disclosure of all the property that you own, including property held by someone else for you, property sold or given away and property located outside of Alberta. Refusal to exchange financial and property disclosure can be compelled using a Notice to Disclose and Request for Financial Information Applications, Notices to Produce documents, and Questioning for Discovery orally, or in writing and under oath. There may be severe cost consequences to a party for the failure to fully and properly disclose all assets and liabilities.
The property will be sorted into three different categories:
Exempt Property (Section 7 (2))
Property that was owned before entering the relationship of interdependence or marriage, whichever comes first, may be exempt i.e. retained by the party and not shared with the other party. Other types of exempt property are gifts from a third party, inherited property, and any award or settlement for damages from a tort (civil wrong) or proceeds from a non-property insurance policy unless it is an award to both spouses/partners. There are important rules that apply to exempt property. You must be able to prove that you acquired the property pre-relationship and prove the value with evidence. You must then trace the property into a current asset. Income or property generated from an exempt asset may also be exempt if still owned and tracing is established on a balance of probabilities which is the civil standard of proof.
- Section 7(3) Property
The second type of property is what is referred to as “Section 7(3) property” i.e. not necessarily divisible or subject to 50/50 sharing. This property is the difference between the exempt property and the value of such property at the date of settlement or trial. It is also property acquired from the proceeds of the original (exempt) property or property exchanged for the original property and any income derived therefrom. Property acquired after divorce, nullity, judicial separation, declaration of irreconcilability, and separation for AIPs is section 7(3) property. Property received as a gift from the other spouse or partner maybe 7(3) if received after the relationship of interdependence began.
In all circumstances of distributable Section 7(3) property, the Court will decide what is the fair sharing of this property (i.e. 0-100%) by taking into account the factors in Section 8 of the FPA.
- Divisible Property or 50/50 property (Section 7(4))
Property that is not exempt from Section 7(2) or Section 7(3) property will be divided equally unless the Court believes it would not be just and equitable to divide such property equally. Once again, the Court shall have regard to the section 8 factors to determine whether it is fair to divide such property equally or not.
- There is a lot of caselaw or judge-made law which has considered these sections of the Family Property Act and the former Matrimonial Property Act. Legal assistance is strongly recommended to navigate this complex area of law. The heavy lifting in the gathering of evidence should be done as early as possible.
Strategies for Property Division
Deciding who gets what property is often difficult and can be the source of great conflict. Even if a house, vehicle, investments, or pension are to be equally shared the parties may not agree on how equal sharing is to be accomplished. There are several ways that such an obstacle can be overcome. One spouse or partner may buy out the other’s interest in a home or vehicle, but this usually involves a refinancing of a loan/mortgage and title transfer. In this event, the bank will usually require a Matrimonial Property Agreement to be signed by the parties or at least a Standard Real Estate Purchase Contract for land. The approval of the bank or finance company is usually required. One party will then retain the property and the other will get paid the cash out of the refinancing. An alternative is to sell the property to a third party and the net sale proceeds are split on closing of the real estate deal or sale of personal property or pursuant to the Matrimonial Property or Separation Agreement.
If the parties cannot agree the Court can order a sale to one party or the other or a sale to a third party using a joint realtor. A further alternative is to “horse trade” where one party keeps the house equity and the other party keeps a different asset with a similar value. The tax considerations must be addressed for efficient ways to roll over RRSPs from spouse to spouse without triggering tax consequences. CRA forms need to be signed by the parties and signed by the institutions holding and receiving the RRSP.
Property Outside the Jurisdiction of Alberta
An Alberta King’s Bench Justice cannot make an order that can be extra territorially enforced. However, the FLA does permit a Justice to take extra-territorial property into account in making an FLA decision on family property. Similarly, parties negotiating their own written agreement should ensure that all property outside of Alberta is included along with any tax consequences on disposal.
Protecting Your Property Before and After Separation
If a spouse or AIP is selling or transferring property to avoid distribution under the FPA the Plaintiff can start a court action and apply for an injunction restraining the sale or transfer of the property. This Court action must be commenced within one year after the property was transferred or sold and the Court application should be brought as soon as the spouse learns of the selling or transferring. Other ways to protect your property may include but are not limited to the following:
- Start an FPA Court action and file a Certificate of Lis Pendens at the Courthouse and register it at the Land Titles office against all real estate in the spouse’s name or in which you believe the spouse may have an interest, including the corporate property where the spouse has a controlling shareholder interest;
- Update the designated beneficiaries and attorneys on all insurance policies, RRSPs, investments, pensions, Wills, Enduring Power of Attorney, and Personal Directives;
- Change all lines of credit or bank overdrafts or other credits to require two signatures or take your spouse off;
- Cancel all credit cards on which your spouse or partner can rack up credit debt or cancel their ability to spend on the card. This includes where you or your spouse/partner are secondary obligates on a credit card which is often the case;
- Change your passwords and PINs on all cards;
- Cancel or suspend any joint bank credit lines to avoid further debt being incurred;
- Open a new sole bank account unless you already have one and move funds from a joint account to your sole account if you need to protect yourself financially;
- Check to ensure your utility companies notify you in the event of non-payment. You must call them to put this in place;
- Check all payments made on a joint credit card and transfer to a secure payment location if necessary;
- Change your address with Canada Post for all incoming mail to a safe secure location.
Dealing with the Family Home and Household Contents
You are permitted to live separately and apart in the same home, and in many families their economics demand it. To establish separation as a ground for divorce, the following factors indicate that the parties are living separately and apart under the same roof; They have separate bedrooms, do not have sex, do not do activities together, do not share meals, do not cook for each other, do not help each other with household tasks and do not or rarely communicate.
If spouses are on talking terms, they may negotiate one party moving out of the home and one party remaining. If there are children involved, any decisions should be based on causing the least amount of trauma/disruption to the children and be in their best interest. If there has been a primary stay-at-home caregiver to the children, it is often best that this spouse/partner continues to remain in the home with the children but at the same time recognizes that the parent leaving the home should have as much parenting time with the children as possible. An alternative to this is a nesting arrangement where each spouse lives in the house with the children for alternating periods.
If the parties cannot reach an agreement on who will stay and who will leave the home the Court can decide, on application, to grant exclusive possession of the home and contents to one party or the other. The leaving spouse would have to move out of the home during the duration of the Order. When considering such an application the Court will consider whether there are any other places for one of the spouses or partners to reside within the family budget, what the family economics can afford, what the needs of the children are, and whether there are any Court Orders for financial support or property division. The Order for exclusive possession may be granted to a spouse or partner regardless of whether they are on title or a lease.