Asset planning under BC’s Family Law Act

Understanding property rules during a separation or divorce

If you're in a significant relationship, you need to know the basics of family law in BC. Whether you’re getting married, going through a separation or divorce, living in a common-law relationship, or have children who are in relationships, the rules can and will affect your rights and your assets.

BC’s Family Law Act covers many details governing family matters; one of the most significant involves the rules for division of property when relationships break down. The Act provides definitions on classifying property, explicitly addresses the treatment of debt, and includes common-law relationships in property division considerations.

Here are some of the key facts to be aware of that affect the handling of property and money matters in the event a relationship ends.

1. "Family" versus "Excluded" property

All property, real and personal, owned by either or both partners at the time of separation is considered “Family” property and eligible for division. Family assets can represent a variety of property ranging from shares, bank accounts and investments, to RRSPs, pensions, or interest in a business. Unless set out differently in an agreement, partners are entitled to equal shares of Family property.

The following types of assets are considered “Excluded” property and therefore not subject to division:

• Property brought to the relationship (from date of marriage or when cohabitation began)
• Gifts or inheritances
• Damage awards
• Life insurance proceeds
• Certain trust property
• Assets funded through the ownership or disposition of Excluded property (e.g. spouse sells a home and puts those funds into a new home occupied by the family).

An important qualifier affecting Excluded property is that any increase in its value during the relationship is considered Family property and therefore subject to division. Here's an example:

Six years ago Jessica married Paul and moved into his $1 million house. With the property now valued at $1.5 million, only the increase in the residence's value, or $500,000, would be considered Family property and subject to division should the couple's relationship dissolve. Paul would be eligible to retain the $1 million value the home had when Jessica moved in.

This example highlights the need under the Family Law Act for reliable record keeping.

Establishing property values at the start of cohabitation and at the time of separation takes on more urgency, as does tracing the value of Excluded property when that property is used later on. For example, if you use an inheritance to pay down a mortgage or make family purchases, it's wise to document those activities.

2. Treatment of debt

The Family Law Act takes the position that people should share the debt as well as the assets they build together in their relationship. As with Family property, the Act specifies that debt taken on during the relationship, or afterwards in maintaining family property, is also subject to equal division.

3. Common-law relationships

Statistics Canada reports that the formation of common-law relationships now outpaces traditional marriages by a substantial margin, so the property division sections of the Act extend to common-law spouses living together for a minimum of two years. This aligns family law with BC estate and income tax law which already treat common-law relationships the same as married couples.

However, the Act still gives courts the option to reapportion Family property in cases where it would be "significantly unfair" to equally divide. Influencing factors might include the length of the relationship, if one partner made a meaningful contribution to the other's career, or the reasons why debt was incurred. Courts may also order a division of Excluded property in some limited circumstances, including when Family property is located outside BC, or a partner maintains or improves Excluded property.

Reaching a property relationship agreement

Creating an agreement with your partner can be a smart decision. You don't necessarily have to live with how the Family Law Act divides property if your relationship breaks down. A marriage or cohabitation agreement gives couples the chance to "opt out" and make their own rules regarding property division to suit their needs.

What's more, an agreement defends your assets from claims against your estate, helping ensure those assets will be directed to the beneficiaries of your choice (e.g. your children). An agreement can document each partner’s property and obligations prior to cohabitation. This makes it much easier to prove ownership and calculate any change in the value of assets (or debts) should the relationship end. At a minimum, an agreement should:

• Identify property you and your partner brought into the relationship when cohabitation began;
• Declare what property will remain yours during the relationship and afterwards, even if any of it has been used for family purposes;
• Note the value of each asset you plan to keep;
• Deal with the provision in the Act specifying any increase in the value of Excluded assets is Family property and subject to division.

In creating your own formula for property division you and your partner can choose to split Family property and debt equally or unequally, or exclude it from division altogether. Or, you can identify which Excluded property is eligible to share.

While the Family Law Act provides opportunities for couples to better govern their own dealings, a court can still intercede and may not recognize an agreement it feels is significantly unfair. It can also act if there are concerns with procedural fairness in drafting the agreement. This might occur where a party failed to properly disclose assets, took advantage of the other partner’s ignorance or vulnerability, failed to obtain legal advice, or other circumstances under the law that would cause all or part of a contract to be voidable.

The full scope of the Family Law Act goes beyond property division, featuring directives that affect a variety of family issues including child support, guardianship and family dispute mechanisms.  To learn more, check out Legal Aid BC’s online guide to family law in BC.

Your BlueShore Financial financial advisor, in partnership with legal experts, can put together the tools you'll need to manage your assets and your estate plan with peace of mind.