Key Factors To Consider in Property Division During Divorce in Canada

Statistics Canada reported 42,933 divorce cases in 2020, marking the lowest number of divorces recorded in Canada since 1973. But despite this overall decline, it’s important to recognize that the impact of divorces extends beyond the married couple. 

When a marriage ends, it not only affects the couples involved but also disrupts family dynamics. During this time, spouses will face numerous legal decisions. Among them is determining child support and division of the property brought into and earned separately during the marriage. 

The process of property division can vary significantly among divorcing couples. Some may navigate it quickly and efficiently, while others may struggle. The divorce process can be complex, often resulting in disputes. 

The Canadian legal system for dividing property during a divorce is structured to be fair as possible. Each spouse must have equal financial standing after property division or divorce proceedings. However, that’s not always the case for all divorcing spouses. 

Seeking legal advice from a family lawyer is crucial when determining who should get what in the divorce. A lawyer will advocate for your interests to ensure a fair division of assets and debts. 

Understanding How Property Division During Divorce Works in Canada

Spouses may have accumulated assets throughout the marriage. It’s also possible that they have incurred intermingled debts or loans. Dividing these assets and liabilities is crucial when the marriage ends. 

The general principle is that only the property obtained during the marriage requires equal division. Each married spouse retains ownership of any property acquired before the marriage. Moreover,  the method of dividing property during a divorce depends on specific circumstances and applicable laws. 

Overview of family law in Canada

Family law deals with legal matters that arise when family relationships begin and end. In Canada, various legislations exist to address issues concerning family law. One of them is the Divorce Act. It establishes the regulations for ending a marriage across the country. 

Besides setting the requirements for obtaining a divorce for all of Canada’s provinces and territories, this federal law also addresses other related matters. Some of these issues include spousal support obligations, child custody, parenting arrangements, and decision-making responsibilities. 

Basic principles and grounds for divorce are the same throughout Canada. However, provincial or territorial laws may come into play for some issues, such as property division during divorce. 

Role of provincial or territorial legislation

The Constitution Act grants specific powers to the federal, provincial, and territorial governments in Canada concerning family law. Except for extraordinary circumstances, the federal government can’t make laws on property rights. 

When spouses divorce in Canada, the provinces and territories are responsible for establishing rules for dividing property. Hence, legislation concerning the division of assets or debts and considerations in determining a fair distribution during a divorce may vary in different parts of Canada. 

For instance, the Family Law Act of British Columbia specifies parental responsibilities and equitable division of assets if a relationship breaks down. It applies to married couples and unmarried partners who have resided in a marriage-like relationship for at least two years. 

Similarly, the Family Law Act of Ontario sets out rules for equal property division. However, this provision only applies to married spouses and does not extend to common-law partners. On the other hand, the Family Property Act of Alberta regulates the distribution of property when married spouses decide to separate or divorce. 

Canada’s other provinces and territories likely have different rules and guidelines when dividing property after marriage. Thus, divorcing spouses must work with a lawyer well-versed in provincial and territorial legislation to ensure a fair outcome in property division. 

Key Considerations When Dividing Property During Divorce in Canada

Understanding various legislations relevant to property division is essential whether spouses start a court proceeding or reach an agreement during a divorce. 

Unless there’s a separate agreement, provincial and territorial laws generally recognize a fair distribution of property rights to divorcing spouses. This means couples can freely decide how to divide their properties and debts.

But when determining whether an equal division of assets and debts would be significantly unfair, the provincial and territorial legal system also considers these specific factors. 

Family vs. excluded property

Assessing what counts as family property and what doesn’t is essential when dividing property during divorce. Technically, only family property will be subject to equal distribution between spouses in a divorce. It’s worth noting that spouses are entitled to half of the family property’s value, not half of each individual asset. 

Family property

Also known as marital assets, family property refers to the property spouses obtained after the date of marriage. In Canada, certain types of assets that can be classified as family property usually include: 

• Family home 
• Other land, houses, or condos
• Registered retirement savings plans (RRSPs)
• Bank accounts
• Insurance policies
• Canada pension plan (CPP) benefits
• Business interest
• Valuable collections, furniture, jewelry, and art

The law considers these assets as family property regardless of whether they are solely in one spouse’s name. 

Excluded property

Conversely, the assets spouses owned before marriage are known as excluded property. When the marriage breaks, spouses don’t have to split the value of the property they brought into the relationship. 

Each spouse can keep excluded property unless a court order affects it or the property’s value grows during the marriage. The increase in value of the property becomes marital assets and must be divided equally on the date of separation. Other types of excluded property may also include: 

• Inheritances that are given to one spouse during the marriage
• Money received as a personal injury award
• Gifts given by a third party to only one spouse 

Valuations for assets

Determining the value of assets owned by spouses is crucial in dividing property during divorce. It helps facilitate informed decision-making and fair property division. 

Essentially, the value of the marital assets spouses owned is its fair market value at the time of separation. This value represents the amount a buyer would reasonably pay for the family property in its present condition, not its purchase price or replacement cost. 

But the process isn’t always straightforward. The value of the family property isn’t determined until the trial or agreement that divides the property. In most cases, the property division process takes four or five months to reach an agreement or two or three years if it goes to trial. 

Equalization payments

When a marriage ends, family law recognizes the equal contribution of both spouses to the relationship. Each divorcing couple has the right to equalization of net family property (NFP). Its primary objective is to address financial disparities and place both spouses in an equal position. 

The divorcing spouse with a higher net family property must pay 50 percent of the difference to the other spouse to equalize marital assets. Subsequently, both spouses end up owning an equal share of the property’s overall value. 

But suppose the standard equalization process will result in an unjust outcome. Both spouses can agree, or the court may order an unequal property division. As a result, the equalization payment would be greater or less than 50 percent of the difference between the spouses’ NFPs. 

The spouse seeking the unequal division of net family property must meet the burden of proof. The threshold for demonstrating unconscionability for equalization payment is exceptionally high, so strong and compelling evidence must exist. 

Debt accumulation

Family law in Canada views marriage as an economic partnership. Besides entitlement to equal sharing of marital asset value, spouses are equally responsible for debts and liabilities. These may include mortgages, lines of credit, and credit cards. 

Divorcing couples can make arrangements if they don’t want to divide it equally. But without prior agreement, the court will determine the resolution or repayment of debts and has the authority to split the family debt between spouses. 

Additionally, there are instances where the court may also order a different remedy if debts are incurred in the following scenarios:

• The spouse failed to provide full financial disclosure of debts
• One spouse intentionally incurs debt to deplete net family property
• One spouse accumulated more significant amounts of debt than the other to support the family

How the family got into debt is one factor the court will use when considering whether equal property division during divorce is fair. Suppose unequal debt accumulation and reckless spending deplete net family properties are proven. Equalization payment will amount to more or less than half the difference between the NFPs. 

Length of marriage

The length of the couple’s marriage is also a vital consideration when dividing family property and overall financial arrangements during a divorce. 

For instance, Section 5 of the Family Law Act in Ontario allows unequal division of marital assets and debts if equalization is unfair in a cohabitation period of less than five years.

Cohabitation means residing together in a conjugal relationship, whether within or outside the bounds of marriage. In these cases, there’s a possibility that the spouse’s share would be disproportionately large. Likewise, a full equalization payment would result in unfairness. 

But a short-term marriage or cohabitation of fewer than five years doesn’t automatically lead to unequal division of net family property. The court still has the authority to deviate from the standard equalization process depending on the circumstances of the case. 

Written agreement

Divorcing spouses may decide how to divide the family property and incorporate their decision into a written agreement. They can set out their rights and obligations in a marriage contract or enter a separation agreement if the relationship ends. 

So instead of relying solely on the court’s decision, spouses can negotiate and reach an agreement regarding property division. The legal contract can specify how marital assets and debts will be divided when the marriage ends. 

Distinctions in Property Division for Common-Law Couples in Canada

The federal government of Canada defines common-law partners as spouses living together in a conjugal relationship but are not legally joined in marriage. The couples must cohabitate for at least 12 months to be considered a common-law relationship. 

Common-law partners may be entitled to the same legal rights as married spouses. However, some differences separate common law and married spouses when it comes to property rights. Most legal systems that govern property division don’t apply to common-law relationships. 

Unlike married couples, common-law partners aren’t entitled to property division at the termination of the relationship. Each partner in a common-law relationship is not legally required to divide the property they owned when they lived together. 

But suppose common-law spouses have jointly listed their property, like a home or bank account. They may have to divide it equally since it’s jointly owned by them. 

Moreover, common-law partners can agree to establish their respective property rights on a contract. Likewise, they can also make a claim to the other’s property through a constructive trust or unjust enrichment claim. 

Suppose the common-law partner is not on the property’s title but has made substantial investments. The non-owner spouse may obtain compensation using a constructive trust claim. They can also claim based on unjust enrichment if the other partner benefited from their contribution.

Dividing property in a common-law relationship can be highly complicated. It often results in going to court, so it’s crucial to obtain the assistance of an experienced lawyer. 

Obtain Legal Guidance From a Reliable Family Law Firm 

Do you plan on getting a divorce in Canada? Many divorcing couples mutually agree on dividing their marital assets without the court’s assistance. 

One reason is that the court‘s decision on property division can be unpredictable, leading to more complex divorce proceedings. By choosing negotiation or mediation, divorcing spouses can minimize future conflicts. Still, disputes over property division during divorce are quite common. 

Suppose you’re unable to reach a mutually acceptable agreement with your spouse. Our team of experienced lawyers at the Nussbaum Family Law can protect your property interests and give you high-quality legal representation. Reach out now to discuss your case in detail.

Navigate the intricacies of divorce with a competent lawyer. Get help from Nussbaum Family Law today! 

FAQs on Property Division During Divorce in Canada

What’s the required period of separation to get a legal divorce in Canada?

Married couples must be living apart for at least one year to acquire a legal divorce in Canada. Spouses can initiate the application process, provided they are already living separately at the time of application. But they must complete the full one-year separation before the court grants the divorce. 

The year-long waiting period only applies to no-fault divorces. If a spouse files a divorce on the grounds of fault, such as adultery or physical abuse, they don’t have to wait a year. However, the courts will demand evidence of the circumstances to substantiate the claim. 

How much will it cost to get legally divorced in Canada?

The legal costs of uncontested divorce or simple divorce proceedings in Canada can be as little as $3,600. When the divorce becomes contested, the cost can be as high as $43,500 for court hearings and negotiations. But every divorce has unique circumstances, so fees may also differ widely. 

Does infidelity impact the division of property during Canadian divorce?

With a no-fault divorce system, Canada doesn’t consider conduct within the marriage when determining property division. But suppose the spouse behaved unconscionably concerning specific assets, such as recklessly accumulating debts. Equally dividing the assets would be unfair, so the court can exercise discretion to modify the equalization payment. 

However, since infidelity is not related to property, it won’t impact one spouse’s entitlement to property division during divorce in Canada. This means the other spouse won’t get a more significant portion of the net family property because of such conduct.