Division of Family Property 101: Assets, Debt, Exemptions, and the 50/50 Rule – Divorce Lawyer in Edmonton
Introduction to Division of Family Property
Hi everybody, it’s me Janan. I’ve got another video for you. Today we’re going to cover the topic of division of family property. Now I get questions about this area all the time. It comes up often in the areas that I practice, which include divorce and family law. I’m not providing legal advice in this video. I’m providing legal information. The difference between legal advice and legal information is legal advice would be me telling you specifically what you should do versus legal information where I’m just informing you of information, general principles, and not telling you what you should specifically do. If you are interested in being told what you should do, being provided legal advice, then feel free to contact my office. I do offer free consultations. So, don’t hesitate if you do need someone to provide you with legal advice.
All right, so let’s move on to the legal information video I have for you today covering the topic of division of family property. It is something that comes up often. So, let me start off by saying who does it apply to? Division of family property would apply to people that are either married or people that have been living in a relationship of interdependence for at least three years. People who are living in a relationship of interdependence for at least three years are known in Alberta as adult interdependent partners, similar to the phrase common law. And then obviously you know what marriage is, that is when two people marry and do that officially. This division of family property applies to those two groups: married people and unmarried people who live together in a relationship of interdependence of at least three years.
What Is Family Property?
So what is family property specifically? Family property includes really many things and the list I’m going to provide you is not exhaustive. I’m just going to give you some examples of what property is when we’re talking about division of family property. It is things like homes, real property, pensions, RRSPs, investments, savings as an example, jewelry, debt. Yep, it even includes debt. So, when I’m talking about property in this video, I’m talking about those sorts of things when they were accumulated or accrued during the time you lived together. So if any one of those things occurred during the time that you live together, likely those things are going to be the subject of division of family property if you and your spouse were to separate or end the relationship. It also includes things like business assets. So really and truly, it’s not an exhaustive list. There are many more things that could be included on that list that I haven’t listed in this video.
The 50/50 Presumption and Exemptions
So, moving on to the general principle in law, which is property such as the ones that I’ve just listed that occurred during the time that you live together is generally speaking subject to a 50/50 split when the parties decide to end their relationship and want to separate.
The 50/50 presumption is just that, a presumption. It used to only apply in contexts where people were married, but in 2020, the law changed rather significantly in this area, and it now applies to people that aren’t married. So that presumption of a 50/50 split doesn’t just apply to married people. It also applies to people that are living in a relationship of interdependence. I often will have people during my lives tell me, “Hey, avoid all of the information that Janan’s giving you by just simply never getting married. Problem solved.” Technically, no. It doesn’t apply only to married people. It applies to any person that you’re living in a relationship of interdependence with for at least three years. You may be subject to these rules that I’m talking about in this video.
So I just told you about the presumption, which is that property is split 50/50. Now there are exemptions or exceptions. These are things that don’t get divided even though they may have accrued in part during the time that you lived together or existed, was accumulated during the time that you lived together. Those things are generally speaking gifts, inheritances, and settlement monies. Those can be exemptions if you don’t intermingle it in the relationship.
I’ll give you an example. Let’s say partner A and partner B are together and they’ve lived in a relationship of interdependence for 10 years. So, they’re not married, but they’ve been living common law for 10 years. Let’s say partner A in year five of their relationship of their cohabitation inherits $50,000 cash from a relative that passed away. Partner B wouldn’t be automatically entitled to split that inheritance 50/50 upon the dissolution of their relationship. It would depend on what partner A did with that $50,000 cash. If they took that $50,000 cash and let’s just say saved it in a separate account under their own name and they sort of just left it there and didn’t share it with partner B, then in that type of example, generally partner A is going to be able to claim it as an exception, meaning partner B is not going to be permitted to seek a 50/50 division of it.
Let’s say in that same example we change things up a little bit. Partner A, instead of saving the cash in a separate bank account and not sharing it with partner B, decides to use that money to renovate the family home, the home that the parties have been living in for the last five years. If that’s what partner A does with that $50,000 cash inheritance, it could lead to that person losing their exemption status. In a sense, if you share it, if you intermingle it, it puts you in a position to lose your exemption and not be able to claim it fully as an exception or as an exemption.
Another example of when an exemption might come up is when let’s say partner A owned the family home before the parties even knew each other. Let’s say five years before partner A and partner B got together, partner A had owned this home. Partner B may not be able to claim a 50/50 split of the entire value of that property because some of it existed before they got together and partner A might be able to claim some of that as exempt, not subject to division, leaving partner B having to potentially claim only, if any, the increase in market value of that property from the time of cohabitation to the time of separation or trial.
So there’s a lot of different rules in terms of how things might play out because anytime there’s a nuance, then the rules might shift a potential outcome in division of property claims. What I’ve just provided you is the general rules so that you know how they generally work. But keep in mind, sometimes depending on your specific fact scenario, it could result in a slightly different outcome in your particular matter.
How Lawyers Approach Division of Property
All right. So now that I’ve kind of given you a bit of information about how division of property works, let me tell you how I come to provide legal advice when it comes to division of family property.
So as a lawyer, I’m not going to normally give anybody legal advice, specific legal advice about what they should ask for in division of family property or what they’re entitled to until I do a few things. I’m going to want my client to provide me their financial disclosure.
Financial disclosure is going to include things like tax information, bank information, bank statements, credit card information, credit card statements as an example, ownership documents, investment statements, anything that someone might claim as being divisible or claim as an exemption. I’m going to want to know what that is and then have documentation to back it up. So, we do that normally through a financial disclosure exchange process.
So, what I would do is I would gather information into what we call a disclosure statement. I’m going to organize my client’s financial disclosure, put it in a neat little package and digitally send it to the other side or even file it with the courthouse. And I would expect the same from the other party. So, at some point, I would expect them to also provide me their client, the other partner’s financial information.
Once that basic step is completed, it then allows the lawyers to start to formulate their opinions. Sometimes they might need more information. So if the financial disclosure exchange didn’t quite do it and we need more information about income, assets and liabilities and exemptions, we could do a more sort of advanced financial disclosure pursuit, which is through a questioning. A questioning is when the clients and their counsel sit down and the lawyers ask the other lawyer’s client questions about their finances, about their financial situation. If they still have questions after reviewing their financial disclosure and if they still have questions, they can get those questions answered usually through a questioning and even obtain further financial documentation called undertakings through that same process.
So once you do a measure of financial disclosure exchange, maybe even a questioning, then the lawyer should be in a position to start populating a spreadsheet that is going to help them figure out a numerical value that they could attach to what one or the other party might be entitled to.
So once the financial disclosure exchange portion is done, then I’m going to put the information about the assets, liabilities, and exemptions into a spreadsheet, literally a basic Excel spreadsheet. So column one is going to be partner A, column two is going to be partner B. I’m going to list all of the assets in each of their possession. I’m going to list all of the debts in each of their possession. And I’m going to list any exemptions that they’re claiming in their respective column.
And normally what we like to do, not always, but it’s due diligence to get the financial information to back up what’s in the spreadsheet. So, for example, if I have a home listed under someone’s column because they’re occupying it currently and the other person is renting somewhere else, I’m going to likely need an appraisal of that property so that that number I’m putting in the spreadsheet is accurate. Or if we’re going to list vehicles, sometimes the parties, especially if they’re not very trusting of each other, will want to provide the other with the backing of what that car may be worth. So you can either get it appraised, get book value online as an example. So you’ll want to know what the values are of the things in the spreadsheet and not just know them but back them up with documentation.
So once you go through the exercise of gathering information, populating values in the spreadsheet and adding up the two columns, so adding each partner’s assets minus liabilities minus exemptions, each of them are going to have a number at the bottom of their respective column in that spreadsheet. And if those numbers are not equal, then the one who has more in their column may have to pay the other some sort of payment to make those numbers equal. That’s called an equalization payment.
That’s a very basic way to consider how to divide property. It’s not the only way, but if your matter is going to court and you’re going to be battling it out in front of a judge, nine times out of 10 that is going to be the way that a judge is going to handle dividing property. They’re going to expect the parties to come to court with their respective property spreadsheets and binders of financial disclosure to back up the numbers in those spreadsheets. And then the judge is going to expect the parties to have the valuations and appraisals done.
Sometimes parties will have a dispute over appraisals and values. So they may get independent appraisals and then each will come to court presenting their spreadsheets, backing it up, and then the judge decides how it gets divided if it gets to the point where a judge has to decide it.
Most people, and it should be this way, don’t need a judge to decide for them how property is going to get divided. And for those people that don’t ask a judge to do it, they can rely on the same basic method that I just outlined in this video to figure out how to divide property. Or they can be more creative, imaginative, and deviate from the rules. You technically are allowed to deviate from the rules as long as the process to get to a deviation of the rules is fair. As long as each party received an opportunity to review disclosure, an opportunity to receive disclosure, financial disclosure, to get legal advice, legal opinion, as long as the process to get to the agreement is fair, then judges will uphold agreements that don’t align exactly with the method that I just outlined in this video.
The method that I just outlined in this video is normally associated with people that don’t know how to divide property, so they stick to the basic way to do it or you end up in front of a judge and that’s how a judge might divide it.
So, that’s in a nutshell division of family property. I know you might have additional questions and I’m going to try to think of some of them and come up with a follow-up video, but that’s essentially it. Some basic information about division of family property. Hope it was informative and stay tuned for the next video.