By David Kim, Alberta Legal Coach
If you are considering separation or divorce from your spouse or adult interdependent partner (formerly, and more commonly known as a “common law spouse”), you are likely grappling with a difficult question: how should you divide your property? More specifically, which property must be split between you and your spouse, and which can you keep?
In this blog, we aim to answer these questions and offer clear insights and guidance. Using a practical example to help tie it all together, we’ll help you to understand not just the “how” but also the “why” behind each step.
What is Family Property?
In Alberta, family property is considered to be the assets and debts acquired by spouses or adult interdependent partners (“AIPs”) during their relationship. This definition encompasses a wide range of items, including:
- real estate
- vehicles
- bank accounts
- investments
- pensions
- RRSPs
- And, other personal belongings.
In some instances, it can also include property acquired by either party after the date of separation, but more on this later.
What is the Alberta Family Property Act and does it apply to me?
The Alberta Family Property Act (or “FPA”) is the legislation that governs how family property should be divided when spouses or AIPs separate (so long as the separation took place after January 1, 2020).
If the parties separated before January 1, 2020, and were legally married, the FPA does not apply to them. Instead, they would have to file a claim for the division of property under the Matrimonial Property Act (the “MPA”). The parties can, however, both agree to divide their property pursuant to the FPA - if they so choose. For married people, the MPA and FPA are very similar in how they allow you to divide your property. So, there is little difference for spouses who apply under either legislation.
Unfortunately, if you separated as an AIP before January 1, 2020, neither the FPA or the MPA applies to you, and no current legislation allows for property division in the same way as it does for spouses. Instead, you must make an application under the law of constructive trust or unjust enrichment.
Today, the MPA has essentially been phased out, having been replaced by the FPA. Further, and because the MPA requires claims to be made within 2 years after separation, spouses who separated before January 1, 2020, are likely too late to apply for property division under either the MPA or FPA.
Property Equalization and the Presumption of Equal Division
One of the key principles under the FPA (and MPA) is the right to equalize family property. This means, upon divorce or separation, the total value of the parties’ family property is divided equally between them - regardless of who holds legal title to specific assets. This concept is grounded in the idea that both parties contribute to the acquisition of any family property during the relationship.
Let’s look at some examples.
Example 1
Alice and Bob married in 1995 and separated January 1, 2024.
During their marriage, they purchased one house and one car together. Neither had any property before the marriage.
The house was purchased at a price of $100,000, and they are both listed as registered owners on the title. It is currently valued at $150,000 and has a mortgage balance of $60,000 owing.
The car has a present value of $10,000 and has been paid off in full. It is registered in Alice’s name alone.
How do we equalize their property under the FPA?
Example 1 answer:
As both the car and house were purchased by the parties together, both are clearly family property, and the total value should be equalized between the parties.
The equity in the house at separation is $40,000 – being the difference between how much remains owing on the mortgage and the current value of the home. Combined with the current value of the car, the total value of assets to equalize is $50,000.
Thus, Alice and Bob are each entitled to receive half of the total value of assets under the FPA, being $25,000.
Family Property Exemptions
While the equalization of family property is a key principle under the FPA, not all assets are subject to equalization. This type of property is known as exempt property, or “exemptions”. The most common exemptions are:
- gifts from a third-party
- inheritances
- property acquired before the marriage / relationship
- or, an award or settlement for damages in tort, such as a car accident or injury settlement. The only exception to this would be if that award or settlement was compensation to both spouses.
Exempt property is not equalized upon separation, but rather retained by the person who claims it. The value that is exempt is the value of the asset at the time it was acquired or at the time the spouses began living together (aka cohabitating), whichever is later.
However, if the exempt property has increased in value over the course of the relationship, that increase in value may be divided between the parties based on what would be fair - it is not automatically presumed to be equalized. Examples of property that may be divided unequally depending on fairness include:
- Any increase in value of exempt property - for example, let’s say you have a condo that you purchased on your own prior to your relationship. After marriage, you and your spouse decide to keep the property and continue to maintain the home, maybe even investing in renovations or repairs to keep it current. You and your spouse decide to separate 20 years later, and that same home is now worth double what it was worth when you and your spouse were married. It is that increase in value that may be subject to division between you.
- Property purchased using income received from exempt property – for instance, let's say you inherit a significant sum from Uncle Earl, and this inheritance is exempt. If you then use that inheritance to buy real estate together with your spouse, the situation changes. Although the initial inheritance is exempt, using it to purchase property jointly means the new property does not automatically inherit this exempt status. As a result, this real estate is considered part of the family property and may be divided between you and your spouse upon separation.
Example 2
Carol and Darla are AIPs who began living together January 1, 2000 who decided to separate January 2, 2020.
Prior to their relationship, Carol owned and lived in a house that was an inheritance from her grandmother. She remained the sole owner on title for this property, both before and during her relationship with Darla. This house was worth $100,000 the day Darla moved in.
Soon after they wed, the couple purchased a new condominium together worth $300,000. They were registered as joint owners on the title and lived in this condo together until they separated. They kept the house, opting to rent it out.
Throughout their relationship, Darla played a significant role managing the rental property business and helping with renovation projects.
In addition to their real estate investments, they also used their rental income to jointly purchase a boat worth $20,000. Darla also purchased a Picasso painting worth $90,000 on January 3, 2020, using her life savings she had acquired prior to cohabitation.
Presently, their assets have the following value:
- the house is worth $125,000. There are no mortgages or loans
- registered against this property.
- the joint condominium is worth $450,000, but still has $200,000 left owing on their mortgage.
- the boats value has not changed, it is still worth $20,000.
- and, the painting has tripled in value, now worth $270,000.
How should the parties divide all this property?
Example 2 answer:
Let’s look at the condo, it is simpler to divide because there are no exemptions, so both parties will equally split the $250,000 equity ($450,000 property value minus the $200,000 mortgage owing).
Looking at the house, Carol can claim an exemption on the house as it was left to her as an inheritance. As the house was valued at $100,000 the day Darla moved in, that is the value of the exemption Carol is entitled to. The $25,000 increase in value on that property should be shared based on what is fair. Since Darla helped renovate the property, and that likely attributed to the increase in value, it would probably fair if she were to receive half of the increase in value, or $12,500.
The boat was purchased with income received from exempt property, which Darla helped to manage. Similarly, it would probably fair if Darla were to receives half the value of the boat, being $10,000.
Lastly, Carol may be tempted to make a claim on the painting. However, it was purchased after the separation date with exempt funds—funds that Darla had acquired prior to the relationship – thus Carol will not likely be successful if she did try to make a claim.
Tracing and Co-Mingling
Owning exempt property requires you to actively claim its exemption status. To be successful in that claim, you must be able to prove the property is exempt.
Exempt property must either:
- exist at the time of separation,
- or, be traceable into another asset that still exists.
For instance, if you use funds from an inheritance to buy a new house, you can claim this house as exempt by proving the purchase was funded by your inheritance. This process, known as tracing, involves providing clear evidence of the exempt property's evolution over time. Tracing can be complex, sometimes requiring an expert's help to delineate the property's exempt status through the years.
On the other hand, co-mingling occurs when exempt and non-exempt assets are intermingled. For instance, if funds from an inheritance are deposited into a joint bank account, they may lose their exempt status. Being mindful of how assets are managed and segregated can play an important role in preserving exemptions.
Navigating family property exemptions laws in Alberta requires a nuanced understanding of the FPA and its provisions. While the principle of equalization is central to the division of family property, exemptions exist to protect certain assets from this process. Individuals must be vigilant in understanding and preserving the exempt status of their assets. The experienced legal coaches at Coach My Case can help to ensure that your family property rights and interests are protected.
To help you manage the division of property with confidence, contact us to book a free 20-minute free consultation. Don't navigate these challenges alone - schedule your consultation today and take the first step towards securing your financial future post-separation.
