What’s Mine is Ours, Unless it Isn’t: Matrimonial Property
When a married couple decides to get a divorce, one of the major issues that must be settled is division of property. Division of matrimonial property is governed by the Matrimonial Property Act in Alberta and the Family Law Act in BC. Under these Acts it is standard to divide all marital property and debts equally between the spouses. However, many people have assets which do not require an equal division, because they are considered an exempt asset.
Exempt Assets can include the following:
- Assets acquired by one party as an inheritance;
- Gifts from third parties;
- Assets that were owned by one party prior to the marriage or relationship;
- Proceeds received from an insurance policy; or
- Award or settlement received from a tort claim.
A common example of an exemption claim arises when one party owned property prior to marriage. The value of the property at the time of marriage (or cohabitation) is exempt from division. Similarly, if one party receives an inheritance during the marriage, the value of the inheritance at the date it was received would be considered exempt.
If the owner of the property decides to add their spouse to the title of the property they lose a portion of their exemption. Once the property is transferred into joint names, the original owner would only be entitled to 75% of the value of the property as an exemption and their spouse would be entitled to 25% of the value of the property. This is one of the reasons to get legal advice before adding a significant other onto the title of any property which you own.
If the asset in question has increased in value since the date of the marriage (or the date it was gifted), the increase in value may also be divisible. The courts in Alberta have not mandated an equal division of the increase in value of exempt assets, but have advised that the increase in value be shared “equitably”. This means that if both spouses contributed to the increase in value (for example, both participated in the renovation of an exempt matrimonial home) then it is likely that the increase in value will be shared more equally.
An important step in establishing the status of exempt assets is tracing the exemption from the time of marriage until separation. For exempt property to be carved out of the divisible property, there must be evidence that the property in question still exists, or can be traced into an asset that still exists. If the money from the sale of an exempt asset is spent on ongoing living expenses, that exemption is lost. If the money from the sale of an exempt asset is put into an account which also contains joint funds and that account is used by the couple, the exemption may be lost. Using the example of an exempt property from above, the owner of the property may decide to sell and purchase another property during the course of the marriage. It is important for the owner to provide the documentation which traces the funds from the exempt asset into their current state (this can include purchase and sale documents and bank records evidencing the transfer of funds). If the exempt funds can be traced directly from one asset into another that still exists, it is likely that the value of the exemption will stand and can be deducted from the matrimonial property.
The lawyers at Crossroads Law have extensive experience in matrimonial property division, including dealing with exemptions. Contact one of our team to find out if you have property that may be exempt from division upon divorce or separation.