Dividing property in Divorce – What Alberta divorcing couples need to know
When a couple is separating or divorcing one of the most important issues that must be dealt with is dividing the property that they acquired during their relationship.
People often think that property refers only to homes, or land. The term “property” actually means anything that is owned by either one of the parties, or both of them together. Some obvious examples of property are the home in which they live, other land, real estate, recreational property, or timeshares. It also includes financial assets like bank accounts, term deposits, stocks, bonds, stock options and life insurance. More examples of property are RRSPs, RESPs, LIRAs, Pensions, and Retirement Compensation Arrangement Accounts. Shares in private companies, interests in partnerships and sole proprietorships are also property. Property also includes vehicles, jewelry, clothing, personal effects, furniture and pets. All of these things must be divided when there is a separation or divorce.
Each province of Canada has its own laws about dividing property on divorce. It is important that you get advice on these matters from members of a Law Society of Alberta with experience in the area of Family Law. All CDAA lawyer members have these qualifications.
In Alberta, the Matrimonial Property Act (The “MPA”) provides direction as to how a Court is to divide the property in the event the parties cannot resolve this themselves. The MPA allows the parties to divide their property in any manner that they see fit provided they each have their legal rights explained to them by separate independent lawyers before entering into the agreement and, provided the agreement is in writing. For the Agreement to be enforceable it must contain an Acknowledgment, signed by each lawyer, that the parties were aware of the nature of the agreement, that they understood their property claims, and that they were signing the Agreement of their own free will.
More recently our Courts have added that there must be a full disclosure of all financial information satisfactory to both parties and their legal advisors prior to the agreement being entered into, and where the value of assets is unclear (as with real estate/business interests/vehicles/etc.) each of the parties must be given sufficient information so that they can obtain valuations or appraisals if necessary. For these reasons, you should consult a lawyer as early as possible in the process. It is important that you learn about the property you have, what its worth, and what you may be entitled to before you begin settlement discussions.
Although the MPA allows parties to divide their property in any way they want, most couples try to divide their property in somewhat the same manner as a Court would if there was a trial.
Date of Valuation:
As a starting point, you will want to agree upon an appropriate date to value your property at.
The parties can agree on any date they want for the purposes of their division. Some couples choose the date of separation or December 31st of the year of separation or another such convenient date. Some couples agree on a temporary date, for discussion purposes, and then update all the values to the actual date their agreement is reached. You will want to agree on a date that is practical and reasonable to both of you.
Separations and divorces take a while to conclude and this is particularly so in the Court process, but even in Collaborative Family Law situations settlement doesn’t happen overnight so at some point you’re going to have to deal with what date to pick to value what you own and what you owe. If a matter proceeds to Court the Court will use the trial date as the date for determining the values.
What is value?
The value of property is what it is worth or what it could be sold for today. For property acquired during the marriage, it is its present value, or its value on the agreed valuation day that is relevant, not the price that was paid when it was purchased. Some property, like houses, generally increase in value over time, other things, like vehicles, decrease in value immediately after being driven out of the showroom and every year after that. Furniture, except for antiques, loses value very fast. A computer or TV you bought for over a $1,000.00 a year ago may not be worth one hundred dollars today. It is important to obtain the most accurate estimate of value possible for all major property items.
Property divisions are rarely simple and some assets are easier to value than others. Values for assets like bank accounts, mutual funds and RRSPs can be determined easily from statements received from the financial institutions. Real estate assets often require an opinion from a reputable realtor or even a real estate appraisal. Pensions often require the services of a valuator as do privately held corporations, partnerships and sole proprietorships. It is important that you obtain a good understanding of what the value of all your property is.
Adjustments to Value:
In determining the value for some property items it may be necessary to take into account some adjustments to the value. For example, if a house is to be sold it may be reasonable to deduct a real estate commission from the value. The sale of some assets-like a second home, or shares in a corporation can often have income tax consequences so it might be appropriate to deduct all or part of the potential income tax from the value of the asset. For this reason, it is important, in trying to determine the value of property items, to consider disposition costs or taxes.
General Scheme of Division:
Generally, the MPA provides that all property acquired by the parties during their marriage, regardless of whose name it was purchased in, is to be distributed equally between the parties.
The MPA provides that some property is to be “exempt” from a division. This means that the Court will not divide it. For property to be “exempt” it must fall into one of the following categories:
- Property acquired by a spouse by gift from a 3rd
- Property acquired by a spouse by inheritance.
- Property acquired by a spouse before the marriage.
- An award or settlement for damages in tort in favour of a spouse unless this was compensation for a loss to both spouses.
- The proceeds of an insurance policy that is not in respect of property.
The Courts have held that if you are claiming an exemption the onus is on you to prove it, and to prove the value that is to be exempt. Then only the original value of the exempt property at the time of the marriage, or on the date on which it was acquired is exempt from a distribution. If the value of the exempt asset has increased during the marriage that increase in value can be divided between the parties in a manner that the Court deems just and equitable. The MPA lists a substantial number of matters a court must take into consideration in making a just and equitable division of the increase in the value of exempt assets.
Exemptions are not always easy to prove and can be lost. Exemptions can be complex to deal with. This is particularly so in situations where one of the parties has taken funds that would have been exempt and invested those funds in a property or account that is jointly owned with the other party. For this reason, if you believe you or your spouse has an exemption claim you will want to seek advice from a lawyer about it.
Collaborative Family Law Process:
In Collaborative Family Law we follow a process and work with the parties:
- To obtain the necessary financial disclosure;
- To list their assets and debts;
- To help them determine if there are exemptions ;
- To help them value the exemptions.
We work with the couple and help them come to agreements on valuation issues. In the CDAA we have easy access to member financial professionals who are Business Valuators or Pension Valuators that can be available, if needed, to help us:
- To deal with valuation issues and help them come to an agreement on values;
- To value exemptions;
- To recognize income tax issues that may have an impact on the value of assets.
We also have access to member Financial Planners that can be available, if needed, to help the parties:
- To understand the financial assets they have;
- To divide their property in a manner that is satisfactory to each of them;
- To organize their financial life post-separation.
When the process is complete we will record the agreement reached in a written Agreement that complies with the MPA. After the Agreement is signed it has to be carried out. The parties will be required to sign documentation transferring their interests in assets to each other and paying any settlement amounts in accordance with the Agreement. Some assets, like Pensions, often require court orders before they can be divided. Your lawyers will work with you to ensure that the necessary documentation is completed and any court orders that may be required are obtained so that the Agreement is carried out as the parties intended.
The division of Matrimonial Property is often not simple and straightforward. The sooner people come to the settlement table and agree upon a date at which they will value their assets, the more accurate the property division will be. The longer they take, the more likely it will be that difficulties arise. All assets change value over time. Some assets increase in value and other assets decrease in value with the passage of time and valuations become dated and need to be updated. It is therefore in both parties interests that once the process is started they work diligently with their legal counsel to reach a settlement as soon as reasonably practical.