Division of Property and Pensions In Divorce or
Property and Pension distribution are some of the most contentious issues after a separation or divorce, particularly because the rules vary depending on the type of relationship the couple was in.
Property can include everything owned by an individual:
· Houses and real estate;
· Cars and vehicles;
· Personal and household items;
· Bank accounts, RRSPs, investments, pensions, other financial assets;
When a couple separates, the division of property and ownership of matrimonial property all depend on whether they were legally married or in a common-law relationship. In the case of married couples separating or divorcing, Canadian law generally states that the value of their property should be shared.
The value of any kind of property that was acquired by a spouse during the marriage and that still exists at the date of separation must be equally divided between the spouses. Furthermore, any increase in the value of property owned by one spouse at the date of marriage must be shared. In essence, each person’s equal contribution to the marriage is recognized.
For common-law couples, there is no expectation that all property and assets be automatically divided evenly; the property you bring into the relationship and anything you buy for yourself with your money during the relationship, including any increase in its value, generally continues to belong to you alone. If there are things that you and your partner buy together during the relationship that are jointly owned, those items would be divided, or their value shared.
Usually, each spouse is entitled to keep the property they own, but they would share any increase in the value of property owned by a spouse from the date of marriage. The payment that may be owed to one of the spouses to facilitate this sharing is called an equalization payment, or an equalization of net family property (NFP). Generally speaking, the time limit to claim an equalization payment is 6 years after you separate or 2 years after the divorce, whichever is the earlier date.
The NFP calculation takes into consideration how much money a married person is worth at the end of a relationship, as well as what they brought into the marriage. There are some possible exceptions to these NFP calculation rules, called excluded property, which may include gifts or inheritances received during the marriage from someone other than a spouse (provided that the gifts or inheritances were not used towards a matrimonial home).
In other words, these will not be included in the NFP calculation as long as the spouse possesses the gift/inheritance at the end of the marriage. However, if it was put towards the matrimonial home, it will be included in their NFP.
If you are in a common-law relationship, you are not entitled to an equalization payment, but may be entitled to a payment from your spouse to pay you back for a direct or indirect contribution to property that he or she owns. These claims are referred to as trust claims.
In cases where you may have contributed financially or in some other way to your partner’s property, you may be able to claim a portion of that property – for instance, where you took care of the household work so your partner could do paid work, or you worked in a family business without pay. This is the concept of ‘unjust enrichment’ – courts look at whether your partner was ‘unjustly enriched’ through your efforts.
It is a difficult principle to prove in court, but where you are granted a share of your partner’s property, the amount of share would depend on how much you contributed, or how much your efforts increased the value of the property.
The matrimonial home is a home that the married couple lived in just before they separated, and there can be more than one. It can be owned or rented property. If you are married, both spouses have an equal right to stay in your home, unless a judge decides that one of you must move out. Neither spouse can sublet, rent, sell, or mortgage the home without the other’s permission, even if your lease or deed is in only one of your names. When calculating NFPs, the home’s total value (less any debts) on the date of separation is added to the equalization payment amount, not just the change in its value during the marriage.
If you have children, the person who has custody of the children will most often be the one who stays in the family home with the children, as this helps them adjust to their new family situation in a place and neighbourhood that they are already familiar with.
Canada Pension Plan (CPP) credits are a type of pension that most workers and employers contribute to and are earned through work. They are not included in the NFP calculation because they are divided separately from that calculation.
If married or common-law spouses have lived together for at least one year, the CPP pension credits that they both earned while they were together can be added up and then divided evenly between them when they separate.
Any other pension that you or your partner had while married is considered a piece of property under the Family Law Act and is included in the equalization calculation. You would need to calculate the Family Law Value of pension assets, which would be determined by the pension administrator. You would then decide whether or not to split the pension, and record this in your Settlement Instrument (i.e. an agreement, court order, etc.).
Please note that as of January 1, 2012, pension plan members who pay their former spouse settlements based on the value of their pension plan can make some or all of the payment from the pension plan itself. This new rule also applies to unmarried spouses who agree to share the value of the pension plan following separation.
Division of property and pensions and calculations related to finances and assets can be difficult to understand, especially during such difficult life circumstances.
Nothing in this article should be considered or relied on as legal advice or opinion. This article only provides general information and should you have any further questions regarding the division of property and pensions in family matters, please contact us to book a free initial consultation 905-366-0202 or through our website here.