Property Division Under The New Family Law Act

With the coming into force of the new Family Law Act on March 18, 2013, there are wide sweeping changes to how couples divide their property upon separation and divorce. Most notably, common law couples (those residing together in a marriage like relationship for at least 2 years) are now included in the property division regimen under the new Act.

There are now two classes of property under the Act: excluded property and family property. Family property includes all property owned by either spouse as of the date of separation. Excluded property includes:

(i) property owned by either spouse at the date the parties began to cohabit together;

(ii) gifts and inheritances;

(iii) settlements or an award of damages unless the award is for lost income;

(iv) insurance proceeds paid to one spouse, unless for lost income such a disability insurance policy;

(v) certain property held in trust for one spouse; and

(vi) property acquired with excluded property.

The definition of excluded property is new under the Family Law Act. It will be very important moving forward to keep concise and accurate records which may assist in valuing excluded property. Particularly with respect to larger ticket items such as real estate and business assets, spouses would be well advised to hang onto property appraisals, tax returns, financial statements and any other documents which may assist in later valuing ‘excluded property’. Also, if excluded property is used to purchase another asset, it will be important moving forward to keep track of the value of the excluded property that was used to purchase other property.

In most cases, family property will be divided equally upon separation and excluded property will remain the property of the owning spouse. The exception is whether equal division is significantly unfair considering factors such as:

(i) the length of the relationship;

(ii) contributions to a spouse’s career;

(iii) ability of the spouses to manage debt; and

(iv) tax liabilities which may accrue upon the sale or transfer of the family property.

The changes to the property division scheme under the new Family Law Act are for the most part well received. Many couples in my practice over the years have entered Marriage (Prenuptial) or Cohabitation Agreements providing very similar excluded property versus family property definitions as to what is now contained in the Act.