Written by Tanya Thakur, Family Lawyer at Crossroads Law, Vancouver
One of the biggest concerns many people have when they separate is dividing family property and debts. It can be a difficult process, rightfully so, especially when trying to figure out who gets to keep the house or other significant assets that are emotionally tied to your family.
In British Columbia, the Family Law Act (the FLA) predominantly supports an equal division of family property. This means the law generally wants separating spouses to split their assets and debts equally, down the middle. But what happens when an equal division doesn’t seem fair? This is where section 95 of the FLA comes into play, allowing for adjustments in cases of ‘significant unfairness’.
In this blog, we’ll break down the basics of family property under the FLA, explore how BC courts handle property division, and explain what ‘significant unfairness’ really means. We'll also highlight a few key court cases where unequal divisions were ordered.
Understanding Family Property and Debt
The first step in dividing family property under the FLA is to identify what family property exists.
Generally, family property includes all property acquired by one or both spouses during their relationship. This encompasses both assets and debts, such as real estate, mortgages, vehicles, personal property, investments, credit card debts, and business interests.
If either spouse were to acquire new debts or assets after separating, they are generally considered separate assets and obligations of each spouse. However, there are two key exceptions to this rule:
- Property purchased with family property - If an asset is acquired after separation using family property, that new asset would also be deemed family property. For example, if you purchased a home using funds earned after your cohabitation or marriage began, the home will be family property regardless of which spouse contributed to the purchase.
- Debts to maintain family property - Debts incurred after separation for the maintenance of family property are still considered family debt. For example, if you and your spouse separate but you need to pay for necessary repairs on the family home, such as replacing a broken furnace, that expense may still be regarded as family debt.
Notional Exclusions
As part of the process of identifying family property, you must also consider whether any property is exempt from division due to specific rules or exclusions, known as ‘notional exclusions’.
The purpose of notional exclusions is to recognize that some property should not be subject to equal division because it falls outside the scope of shared family property. Common notional exclusions include:
- Pre-relationship property – Assets owned by one spouse before the relationship began. However, it is important to note, if the asset increases in value during the relationship, that increase is considered family property and subject to division.
- Inheritances - Assets inherited by one spouse, unless that inheritance was intended as a gift to both spouses.
- Gifts from third parties - Gifts received by one spouse from someone other than the other spouse, unless that gift was explicitly given to both.
- Court awards - Certain awards or settlements from legal proceedings that are personal to one spouse.
- Trust property - Certain properties held in trust that benefit one spouse specifically.
Notional exclusions can be quite complex and often become a point of contention. Seeking legal advice in these instances is highly encouraged to ensure your rights are protected.
The Process: Dividing Family Property
When dividing property under the FLA, the first step is to conceptually split the family property. To do this, legal professionals will list all the parties’ assets and debts on paper (or in Excel) to work out how to equally divide their total value, rather than physically splitting each item. Any notional exclusions must also be identified in that list and separated out.
Family assets are assessed based on their current fair market value, not on their purchase price. This means we consider what these assets would sell for in the open market right now. The valuation is done at a specific point in time—either the date of the trial or when an agreement is reached between the parties. This ensures that the value used in dividing assets is current, accurate, and reflects their actual worth at the time of division.
The Concept of Significant Unfairness
After the party’s family property and notional exclusions are identified, the court will consider whether it is ‘significantly unfair’ to divide their property unequally.
The term 'significant unfairness' describes a level of unfairness that exceeds ordinary unfairness. This concept has been clarified in several legal cases, like Jaszczewska v Kostanski, 2016 BCCA 286, (“Jaszczewska”) and Remmem v Remmem, 2014 BCSC 1552. It means that a situation must be unjust or unreasonable in a substantial way to qualify as ‘significantly unfair’.
Another case, G (L) v G (R), 2013 BCSC 983, emphasized that this principle serves as a reminder not to depart too easily from the usual rule of dividing property equally unless there’s a compelling reason to do so for fairness. This establishes a default presumption of equal division of family property and debt, unless there is a strong case for why the default is significantly unfair to a spouse.
Understanding Section 95(2)
Section 95 of the FLA provides the court with the discretion to order an unequal division of family property or debt if an equal division is deemed ‘significantly unfair’ to one of the parties involved. In making this determination, the court must consider several factors as provided under section 95(2), including:
- Duration of the relationship
Example: If a couple was married for only two years and one spouse brought in significantly more assets, the court might consider an unequal division more appropriate. - Terms of any agreement
Example: If the spouses had a prenuptial agreement stating specific terms for property division, this agreement will influence the court's decision. - Contribution to career potential
Example: If one spouse worked full-time to support the other spouse through medical school, this contribution will be considered when dividing property. - Family Debt Incurrence
Example: If debts were incurred to support the family’s lifestyle and living expenses, these will be considered differently than debts incurred for personal hobbies. - Ability to Pay Family Debt
Example: If the family debt exceeds the family property, the court will consider each spouse’s financial ability to repay the debt. A spouse with a higher earning potential might be assigned a larger portion of the debt. - Post-separation Changes in Property Value
Example: If one spouse significantly increased the value of a family property after separation by renovating it using their own money and labour after separation. - Reduction or Disposal of Family Property
Example: If a spouse, without good reason, sold off family property and reduced its overall value, the court may adjust the division to account for this loss. - Tax Liabilities
Example: If transferring or selling property would result in a significant tax burden for one spouse, this will be considered in the division. - Other Factors Leading to Significant Unfairness - any unique circumstances not covered by the other factors but that would result in significant unfairness if an equal division were ordered.
Analyzing Parties’ Contributions
The FLA does not completely ignore the fact that partners might contribute differently to their shared assets, but it does limit how much this factor can influence decisions. For example, in Slavenova v. Ranguelov, 2015 BCSC 79, the court explained simply having different financial contributions isn’t enough to justify an unequal split of property. This idea was further supported in Jaszczewska, where the court mentioned that focusing too much on unequal contributions could lead to unpredictable outcomes and go against the goals of the FLA. Considering unequal contributions is not a dollar-for-dollar comparison but requires a broader analysis of fairness.
An important factor in deciding if it's really unfair to divide property equally is to look at how the value of assets has changed from the time of separation to the time of the trial, as seen in Blair v. Johnson, 2015 BCSC 761. It’s important to evaluate whether splitting the increase in value of these assets equally would be fair, particularly in cases where one partner is mainly responsible for that increase. By comparing the value of assets at both these points in time, the court can make a better decision on whether splitting everything equally would be unjust to either partner.
Summarily, the division of family property and debt under the BC FLA seeks to balance fairness with equity. While the default rule is an equal division, section 95 allows for adjustments when such a division would result in significant unfairness. Case studies demonstrate how the courts apply these principles, considering factors like the duration of the relationship and contributions to family property. These examples highlight the importance of a nuanced approach, ensuring both financial and non-financial contributions are fairly acknowledged. As family law continues to evolve, these cases underscore the necessity for a fair and just resolution, reinforcing the broader objective of promoting equity and stability for all parties involved.
At Coach My Case, we understand the intricacies involved in the division of family property and debt. Our experienced legal coaches are well-versed in the nuances of section 95 and are equipped to provide meaningful legal advice and guidance. Whether you’re facing significant unfairness in property division or need advice on your specific situation, we strongly advise seeking legal advice to ensure your rights and interests are protected. Don’t navigate this complex process alone—book a free 20-minute consult today to explore your options.
