Property Division: What You Need to Know
For Separation and Divorce Mediation
model House with a Set of Keys
The division of family property need not be a confusing and contentious issue.
Whether you are married or in an adult interdependent partnership, you typically accumulate assets over the duration of the time you are together. You may also have intermingled debts and loans. When the relationship ends, it is important to divide these assets and liabilities fairly.
In Canada, only provincial laws deal with how property should be divided and applies to both married and adult interdependent relationships. In Alberta the applicable legislation is the Alberta Family Property Act. However, if you were married and separated before January 1, 2020 then the Matrimonial Property Act may apply, and for adult interdependent partnerships that ended before January 1, 2020 it would be the principles of unjust enrichment.
Given that, legislation does allow couples (married or in an adult interdependent relationship) to determine how they want to split their property and create their own property settlement agreement instead of going to court. However, it is very common for couples to have disputes over property division and be unable to reach a mutually acceptable agreement on their own. Sometimes, couples/partners require assistance with reaching agreement on a portion of their property to be divided, while others only need a mediator to draft their agreement as they have agreed on property division on their own.
Typically, property is split 50/50 as of the time of marriage, including property acquired before marriage while living together. Three types of property division couples may need to consider are:
1) property that is exempt from splitting
2) property that can be divided unequally, and
3) property that must be divided equally, unless it would be unfair to do so.
Whatever they decide, the goal is to divide the properly fairy. Factors of what is fair may include:
Length of the relationship
Roles and contributions of each spouse/partner
Income, earning capacity, financial obligations
Liabilities
Has property been squandered by a spouse /partner
Any existing agreements between spouses/partners
Regardless the need, a mediator, such as JRB Mediations, can assist couples/partners with coming to a fair mutually acceptable agreement. It is important that the parties complete a financial disclosure statement with supporting documentation and share this document with each other and the mediator prior to mediation.
Even if parties have already agreed on how they want to split their property and only want a mediator to draft the document, the mediator must still engage in this process with the parties. This enables a wholesome review of what was agreed to and provides the opportunity to delve deeper should there be anything in the agreement needing clarification or which could be deemed unfair in future.
Regardless of the extent of the need for a mediator, the mediator must understand the views, issues, and desired outcomes of all parties involved so the mediator can assist them with reaching a mutually acceptable, fair agreement.
How is Property Divided?
STEP 1. Listing of all Assets and Liabilities
It is very important to list ALL assets and liabilities and their values, including property you had before the marriage or adult interdependent partnership, and after separation. This includes things like real property, vehicles, investments, pensions, bank accounts, chattels, jewelry, business interests, etc. as well as ALL liabilities (loans, mortgages, credit cards, etc.).
Actions for each spouse/partner:
Gather your list of property (assets and debt)
For your assets create three or four columns. Identify each column as either a) before living together or before marriage, b) married or living together, c) separation, and d) property outside the province.
Under each appropriate column list all the property you own, when it was acquired, its value at time of purchase, and how it was paid for.
Property acquired after separation may or not be deemed family property depending upon how it was acquired ($$) and if it was treated as family property.
Do the same exercise for all liabilities.
STEP 2: Value the Property
It is important when valuing property to have proof of the value of the property. Whether this is receipts, statements, assessments, appraisals, valuations, etc.
Actions for each spouse/partner:
If possible, value the property at the time prior to marriage or living together.
Value the property at the time of separation.
With some properties you can use say bank statements, investment statements, credit card statements, loan statements, receipts, etc. to value property.
Other properties may require you to reach out to appropriate valuation professionals, such accountants, realtors, appraisers, or other applicable valuators.
STEP 3: Sharing of Financial Disclosure Statements
Once you have gathered all your financial information (real property, investments, bank accounts, vehicles, chattels, pensions, etc.) you can either have an accountant complete the report for you or you can draft it yourself. Either way, once it is complete you must attach it to the financial disclosure statement and have this statement notarized.
You can contact your pension provider and Canada Pension to have them calculate the pension split.
Financial disclosure must also include properties that had been sold or given away in the past year.
This document package must be shared with your partner/ spouse as well as with the mediator.
Remember, it is your responsibility, NOT the mediator, to ensure this document is full and complete and you have identified and valued ALL your property.
STEP 4: Sort property into further categories
Sort properties into either 1) Exempt, 2) Unequally divided, or 3) Equally divided.
A. Exempt properties:
These are properties that do not have to be divided with your spouse and include the following. Be sure to be able to trace the value of the property to current property.
Property owned before marriage or an adult interdependent relationship.
A gift from a third party.
Inherited property.
Awards or settlements from tort damages non-property insurance policies.
B. Property divided unequally.
There are some properties that do not have to be divided equally, but rather divided based upon what is deemed fair by the parties themselves. Typically, this includes the increase in value of exempt property, the base amount of which is exempt from splitting. If the property has increased in value at the time of separation, the couple may divide the increased value portion any way they choose. This may include:
An increase in the value of exempt property.
Example: Jesse inherited $100,000 before entering marriage (or adult interdependent relationship). At separation, 10 years later, the inheritance increased in value to $150,000. It is up to the couple to agree on how they want to split the increased value portion of $50,000.
Property purchased using income from exempt property.
Example: Jesse also inherited a condo which he has been renting over the 10 years. After all expenses for the condo were paid, he would place the remaining rental income into an investment account at the end of each year. Jesse may have to share the investment money but may argue that since s/he manages the property s/he should receive more.
Property acquired after Separation.
Example: After separating Jesse decided to buy a new home using money from friends and his parents. His partner/ spouse has never lived in his new home. He could argue that since it was not purchased using family money, he should not have to share the value of the property with his ex partner/ spouse, nor was it treated as part of the family property.
C. Property to be Divided Equally
Property that is not exempt or is not being divided unequally, must then be divided equally unless it would be deemed unfair to do so. This may include for example:
the family home
Vehicles
Pensions
Investments
STEP 5: Division of the Family Property
Now you can start dividing the family property. This can be done in many ways, after all its hard to split a house or car into two.
One person can buy out the other’s share,
The property can be sold and the proceeds divided
Both can keep different property with similar values (for example if the couple/partners A & B) have a $400K house and a $200K cottage and $300K savings , then perhaps A can keep the house ($400K) plus $50K from savings and B keeps the cottage ($200) plus $250. Both then have an equal value of $450K.
STEP 6 - Calculating Net Family Property
Information from your financial disclosure statement (in step 4 above) is also used to calculate your net family property (NFP). This tells you your net worth at the end of your relationship AFTER taking into consideration what you have brought into the marriage/partnership.
Calculating your net worth at your separation:
1. Add together all assets at the date of separation
2. Subtract all debts you had at the date of separation from the total assets.
3. Subtract all assets less all debts on the day you married or began living together.
4. Note some excluded properties and some debts are not be included in the calculation.
For example:
Partner/Spouse A:
At separation your total remaining assets (assets – debts) = $300,000
On the date of marriage or living together assets less debts = ($200,000)
NFP Partner A: Separation date less marriage/partnership date = $100,000
Partner or spouse B:
At separation: total remaining assets (assets – debts) = $75,000
At date of marriage/partnership: assets less debts = ($25,000)
NFP Partner B: Separation date less marriage/partner date = $50,000
Note: a negative NFP is a zero amount ($0.00).
STEP 7: Calculating the Equalization Payment
Equalization payment is the amount that is paid to the spouse that has the lower Net Family Property (NFP), such that the one with the higher NFP pays the spouse with the lower NFP half the difference between the NFPs. This is to ensure both spouses are placed in an equal financial position, thus owning the same total value of property.
However, it is important to take the factors of “fairness”’ into consideration. As such this may mean a lessor equalization payment may be made. For example, if a marriage or partnership was less than five years a lessor payment may be deemed fairer to prevent an unjust and unreasonable result.
Example:
Spouse/partner A NFP: $100,000
Spouse/partner B NFP: $50,000
Half the difference is ($50,000 divide by 2=$25,000)
A pays to B $25,000
STEP 8: Drafting the Agreement.
Once you and your spouse/partner have agreed on how to divide your property (assets and debts) this is written up into a detailed separation agreement. This agreement can deal strictly with your assets and debts alone or it can also include agreement on other issues such as spousal support, child support, child access, and parenting plan. The separation agreement does not have to have everything decided at once. You can decide to make partial agreements over time until all the separation issues are worked out and agreed upon.
It is important that prior to entering mediation you obtain advice from your lawyer so that you understand your responsibilities and can make informed decisions during mediation. Deciding how to divide your own property can be less stressful, less costly, and much quicker than going to court. You and your spouse/partner determine what is best for each other and your family. And with a written agreement in the end it is easier to prove what you and your spouse had agreed to and why.
Should you and your spouse/partner need assistance with dividing your property, call JRB Mediations, where we Resolve Conflicts & Create Agreements, effectively, efficiently, & with care.