According to the Canadian Constitution, the federal government has authority to enact legislation dealing with Marriage and Divorce, and the provinces have the authority to enact legislation dealing with Property and Civil rights in the province1. This constitutional division of powers means that a married couple’s divorce will be sanctioned under the federally enacted Divorce Act, while the division of a married couple’s assets is determined by reference to a provincial statute. In the case of Ontario the relevant statute is the Family Law Act.
Divorce & Division of Property in Canada
The property regime laid out in Part 1 of the Family Law Act is generally referred to as a deferred community property regime. This means that all property acquired during the course of the marriage by either party, with certain exceptions2, is deemed on the breakdown of the marriage, to be the property of both parties notwithstanding legal title.
The principle underlying this regime is that marriage constitutes an economic partnership. The critical dates in this economic partnership are the date of marriage, which constitutes the entry into the partnership, and the “valuation date”, which can be viewed as the date when one or both partners decide to dissolve the partnership, for example the date when the parties separate or divorce3. When the partnership is dissolved, each partner is entitled to one half of the value of the accrued property and not one half of the property itself.
How Are Marital Assets Calculated & Divided in Canada?
To effect the actual division, the Family Law Act introduces the concepts of “net family property” and the “equalization payment.”
For each spouse, a balance sheet of assets/property as at the valuation date is created4. These assets are totaled to give a value. From this figure is then subtracted a spouse’s debts and liabilities. The value of property that a spouse brings into the marriage, with the notable exception of the matrimonial home, is also deducted from this figure. The resultant sum is a spouse’s “net family property.”
The difference between the “net family properties” of each spouse is then calculated and the spouse with the higher “net family property” pays to the spouse with the lower “net family property” one half of the difference. This payment is referred to as the “equalization payment.”5 If a spouse wishes to claim a deduction with respect to any property, it is that spouse’s responsibility to produce evidence supporting his or her entitlement to the deduction.
A spouse sets the equalization process in motion by making an application to the court, which must be initiated within a certain time frame. Generally, a spouse must seek the division within 2 years after the Final Divorce Order or six years after the day the parties separate.6
Who Gets the House?
As noted, the matrimonial home is afforded special treatment. A matrimonial home brought into the marriage will not be included in a spouse’s date of marriage deductions, nor will a matrimonial home received as an inheritance or gift from a third party during the marriage be considered as an allowable exclusion.
A matrimonial home is defined as “every property in which a person has an interest and that is, or if the spouses have separated, was at the time of separation ordinarily occupied by the person and his or her spouse as the family residence.”7 This broad definition includes properties such as cottages and trailers and indeed allows for more than one matrimonial home at any given time.
The special status attributed the matrimonial home is also confirmed in Part II of the Family Law Act that sets out certain possessory rights in the home regardless of actual legal title that cannot be overridden by contract.
Domestic Contracts & Division of Property
The Act acknowledges that a married couple may wish to organize the division of its assets in its own peculiar fashion. A couple can achieve this by preparation of a domestic contract. The Act specifically allows for property contained within a domestic contract to be excluded from a spouse’s net family property.8
Erroneously, many common-law couples believe this statutory scheme respecting property division governs their relationships as well. A 2002 decision of the Supreme Court of Canada made it quite clear that this is not the case.9 The case centered on the exclusion of common-law partners from the definition of spouse, which it was argued constituted a violation of the equality rights protected by the Charter of Rights and Freedoms. The decision, by drawing a bright line between couples who chose to cohabit but not marry and those who chose to marry, confirmed that the narrow definition of spouse found in the Family Law Act is constitutional.10
Thus, for couples in a common-law partnership in which legal title to property is not held jointly yet one spouse believes he or she should be entitled to an interest in the property, no protection is provided under the statute. In such cases the spouse may, however, resort to trust law principles that have been imported into family law. These principles essentiallyrecognize interests in property on the basis of fairness, which is much more expensive to litigate.
1See Constitution Act, 1867 (U.K.), 30 & 31 Vict., c.3, ss. 91(26) & 92(13), reprinted in R.S.C. 1985, App.II, No.5.
2These exceptions are set out in Family Law Act, R.S.O. 1990, c.F.3 as am. [hereinafter FLA], s.4(2) and include gifts or inheritances received from third parties after the date of marriage, property received as damages for personal injuries, property that the couple has chosen to exclude by a domestic contract, etc.
3The valuation date is determined by reference to s.4(1) which states “valuation date” means the earliest of the following dates: 1. The date the spouses separate and there is no reasonable prospect that they will resume cohabitation. 2. The date a divorce is granted.
4The statute contains a very expansive definition of the term property in s.4 (1) which includes “any interest, present or future, vested or contingent, in real or personal property…” However as noted above, see Footnote 2, the statute has carved out exceptions for certain items which are not included in a spouse’s property.
5See s. 5 of the Family Law Act. Potential variations to this division are possible under s.5 (6) of the Act in circumstances such as when one of the spouse’s incurs debts recklessly or the parties have cohabited for a period of less than 5 years. In such a case, the court must regard it as “unconscionable” to equalize the couple’s net family properties.
6See FLA s.7 (3).
7See FLA s. 18.
8See FLA s.4 (2) 6.
9See Nova Scotia (Attorney General) v. Walsh [2002] 2 S.C.R. 325.
10See s. 1 of the FLA in which a spouse is defined as either of two persons who (a) are married to each other, or (b) have together entered into a marriage that is voidable or void, in good faith on the part of the person relying on this clause to assert any right.