New Family Law Act – major changes to division of property and debt

The new Family Law Act came into force on March 18, 2013, replacing the outdated Family Relations Act (1979). The legislation was developed after consultation with more than 500 organizations, community groups, the legal community and other stakeholders. It aims to meet the changing needs of families, including common-law families, which are growing at a rate four times faster than married couples, according to the BC Ministry of Justice.

Property division
Under the old Family Relations Act, when a married couple separated, assets including property owned by one spouse before the marriage were subject to presumptively equal division unless the court found grounds to “reapportion” property and bring about an unequal division (for example to take into account then length of the marriage or an inheritance).

The old Family Relations Act did not apply to unmarried couples. While unmarried couples could apply to court for a division of property pursuant to the common law principle of “unjust enrichment”, this provided less certainty due to the absence of statutory provisions guiding the division of assets for those couples..

Under the new Family Law Act, unmarried couples who have lived together in a marriage-like relationship (common law) for at least two years are considered to be spouses and are treated the same as married couples for the purposes of property division.

Now if a couple separates, the general rule is that all couples, whether married or common law, will share equally the family property and debt that accrues during the course of their relationship.

What is family property?
Family property is all property that either spouse owns at separation, regardless of whose name it is in, including the family home, RRSPs, investments such as shares, income tax refunds, bank accounts, and insurance policies and pensions, unless the property is excluded.

What is excluded property?
Excluded property includes property acquired by a spouse or held in trust before the relationship, gifts or inheritances, settlements or awards of damages, and money paid under an insurance policy, other than a policy respecting property. The exclusion does not include increases in value during the relationship, however. The value of this property as of the later of the date of the commencement of the relationship, or the date it was acquired generally will not be shared upon separation.

For example, if one spouse owned a home valued at $600,000 at the beginning of the relationship and in three years the home increased in value to $750,000, providing title to the house remained in that first spouse’s name, he or she would premumptively be entitled to retain the original value – $600,000 and one-half of the increase in value that accrued during the relationship – $75,000. The other spouse would also prenumptively be entitled to $75,000.

Debt
Debt accrued during the relationship is also presumptively equally shared. This includes mortgages, loans, bank lines of credit or overdrafts, credit cards, income tax, repair costs.

Written and co-habitation agreements
Common law couples who do not want the property division rules to apply to them, can opt-out by preparing a written agreement and divide their property and debt as they see fit. Couples can also enter into a co-habitation agreement. The court will have less ability to overturn these agreements than in the past providing that certain conditions such as full financial disclosure are met.

As always, it is in the best interest of all relevant parties to get legal advice.

Source: REBGV & Michael Sinclair (lawyer with Harper Grey LLP).