Division of property upon separation: The Rule for Legally Married Couples
The rule for the division of property upon separation is dependent upon the status of the separating couple. For legally married couples, the law that governs the division of property upon separation is the Family Law Act. Each spouse is entitled to share equally in any increase in value of the other spouses’ property that has occurred during marriage. This typically means that one spouse must pay the other spouse what is commonly known as an “equalization payment.”
To determine the division of property upon separation, spouses first need to determine what qualifies as property. Property includes all assets such as: home, car, personal items, household items, bank accounts, life insurance policies, RRSPs and any businesses owned (even if incorporated).
Importance of Financial Disclosure Upon Separation
To calculate the equalization payment, each spouse must properly disclose their relevant financial records. This means that each spouse must disclose the value of all assets and liabilities at both the date of separation and the date of marriage, with proof of these values. As such, to determine the spouse responsible for making the equalization payment and the correct amount, it is vital that each spouse properly disclose complete and accurate financial information to resolve the matter. Full and accurate financial disclosure is necessary and will help avoid unnecessary complications that arise from inaccurate disclosure or non-disclosure.
Calculation of the Equalization Payment
In order to determine the amount of the equalization payment, each spouse must calculate their net family property (“NFP”) at the time of separation.
To calculate the NFP, each spouse must add up the value of their property (minus any debts) as of the date of separation and then subtract the value of his or her property (minus any debts) as of the date of marriage, subject to any other exclusion. Once the NFP value is calculated for each spouse, the spouse that has the higher NFP must pay the other spouse 50% of the difference between the two NFP values. For instance, if spouse A has a NFP value of $100,000 and spouse B has a NFP value of $50,000, then spouse A must make an equalization payment of $25,000 to spouse B (50% X ($100,000 – $50,000)).
Special Rule for Matrimonial Homes: Calculation of NFP
A matrimonial home is the home where the married couple was ordinarily residing at the time of separation. There can be multiple matrimonial homes; for instance, a cottage could be considered a matrimonial home if the parties ordinarily reside there. When calculating a spouse’s NFP, the entire value of the matrimonial home is always included in the calculation of the NFP, not just the increase in value of the matrimonial home throughout the marriage.
Special Rule for Gifts and Inheritance: Calculation of NFP
Typically, a gift or inheritance is excluded from the calculation of NFP. However, if the gift or inheritance is used to buy, help pay, or make improvements to a matrimonial home, it will be included in the calculation of the NFP. Caution should be taken to ensure that the gift or inheritance can be traced at the date of separation. For example, if a spouse receives a gift of $50,000 and uses this as cash on groceries, the spouse shall not benefit from the $50,000 exclusion.
Special Rule for Canada Pension Plan credits: Calculation of NFP
All Canada Pension Plan credits are excluded from the calculation of NFP because they are treated separately in determining the division of property upon separation. See below for more details.
For both married couples and common-law couples, each party is typically responsible for paying their own debts, unless there is an agreement between the parties that states otherwise.
Private pensions fall under the heading of property and are subject to division upon separation. There have been some important changes to legislation, effective January 1, 2012, which now makes it easier for married spouses to value and divide private pension plans following separation. If a married couple has separated on or after January 1, 2012 or prior to this date but have not yet resolved their property issues by that time, then the new rules apply.
Canada Pension Plan Credits
Most people assume that their Canada Pension Plan (CPP) is not divisible upon separation; this is incorrect. If a married or common-law couple has lived together for at least one year (note that common-law is usually three years but for CPP credits, it is 12 months) the CPP pension credits each party has earned while they were together can be added up and then divided evenly between each party upon separation. This division of CPP credits has been referred to as a credit split or a “Division of Unadjusted Pensionable Earnings” (DUPE).
Time Limits for DUPE Application: Legally Married Spouses
Upon separation of legally married spouses, there is no time limit to apply for a DUPE. However, if the spouse died following separation without obtaining a divorce, the time limit is 3 years after the spouse’s death.
Time Limits for DUPE Application: Common-Law Partners
Upon separation of common-law partners, the parties must apply for a DUPE within 4 years after separation unless there is an agreement in writing between the parties to ignore this time limit. In addition, common-law spouses must wait at least one year following separation to apply, unless the common-law partner has died in that first year following separation.
AeroPlan Miles and Loyalty Points Program
The accumulation of AeroPlan miles or loyalty points can add up to some value and their inclusion or exclusion from matrimonial property is dependent upon whether the points were accumulated as part of personal, family-related spending or as part of business spending or work-related activities. If the points are accumulated due to personal, family-spending then these points will form part of the matrimonial property that is subject to division upon separation. However, if the points were accumulated solely due to business or work-related activities, then the points will be exempt from matrimonial property and not subject to division upon separation.
The Division of Property: Common-Law Couples
The rules that govern the division of property for legally married couples, as found in the Family Law Act, do not apply to common-law spouses. Thus, there is no automatic right to divide property between common-law spouses upon separation, as is the case for legally married couples. However, in cases of unjust enrichment, a common-law spouse can make a claim to the home owned by the other spouse. The law is complicated and common-law spouses should seek legal advice with respect to this.