There are so many people who believe that when they separate from their married or common law partner, the law automatically requires them to divide the property they own equally between them. People believe that common law partners eventually acquire the same rights as married partners if they live together long enough. Most of us also think about property as being something tangible – something we can touch or feel, or something we can verify with paper such as money in the bank. In this blog, I hope to give you a brief overview of how the law is supposed to work, the practical problems in trying to apply the law and to give you an understanding of what constitutes property that must be divided on separation.
All of the information contained in this blog relates only to the law of the Province of Ontario. In Canada, each Province has its own property legislation which in some cases is similar to that of Ontario but not necessarily the same. So if you are our reading this plot from somewhere outside Ontario, you will need to check with the lawyer in your area to see if you have similar legislation.
Under the Canadian constitution, Provinces have the right to set out the rules for property division for married and common law couples when there is a relationship breakdown. Right now, there is no legislation in Ontario which deals with the property rights of common law couples. It would be nice if there was. Right now, the legislation deals only with the rules applying to married couples who separate. In other words, common law couples never acquire the same property rights as married couples no matter how long they live together. Couples who are unmarried but live together as if married are called “common law” couples primarily because it is the common law, and not Ontario legislation, which governs their property rights on relationship breakdown. I am not going to go into the property rights of common law couples in this blog. If you have lived in a common law relationship which has broken down and you have questions about your property rights, you should get legal advice.
For married couples, the philosophy of our legislation which is called The Family Law Act, is fairly simple conceptually at least. Essentially, Ontario law says that when a couple separate with no chance of a reconciliation, all of the wealth which the couple accumulated during their marriage should be divided equally between them. It also brings into this division the concept that only property which was acquired by the joint efforts of the parties should be shared. In other words, if property is acquired by one partner from someone outside the marriage by way of a gift or by way of inheritance for example, then the value of that particular property is not shared because it is not the product of the contributions made by the couple during the marriage.
So the law in Ontario is only interested in the value of property accumulated during marriage, that is the change in values of property owned by each partner from the date of the marriage to the date of the separation. If you win the lottery right after the day you separate, then you won’t be sharing that with your spouse (unless maybe because he helped you buy the ticket!) because our legislation says it’s only the value of property accumulated during the marriage that gets shared.
The legislation also lays out for us how to do this sharing of wealth. It tells us that we first must determine who owns what property. We then place that property on the side of whoever owns it. We then have to value the property which each party owns on the date of the separation so that we know how much wealth each party has as of the date of the marriage breakdown. We then have to figure out all of the debts and other liabilities of the parties at the date of separation so we can figure out each parties net worth as of that date. We then have to go back to the date of the marriage and do the same calculation so we know the net worth of each party at that date. The difference between the net worth at date of separation and the net worth at date of marriage constitutes the wealth that accumulated during marriage and it is called “net family property”.
We then have to figure out if there are any items of property owned by either spouse at the date of separation which falls into that category of property called “excluded property” which is what we call the property that was not generated by the couple themselves such as those gifts or inheritances from parents. So if one party accumulated $100,000 of wealth from the date of marriage to the date of separation and the other party accumulated $200,000 of wealth, the party with the $200,000 of wealth would have to pay $50,000 to the other party in order to “equalize” the net family property. Each party would then have $150,000 worth of property. This right is exactly that – a right to a payment, not a right to property. There is now a debt owed from one partner to the other and, like any other debt, if the party owing the debt goes bankrupt, then the party to whom the debt is owed loses out.
While all of this may sound fairly simple, in practice, the issues arising from this legislation can be very complex and difficult to determine. One of the big issues for us lawyers is to determine exactly what is meant by the word ” property”. Rather than get into the legalities of the definition of property as contained in the legislation, I would like to first give you a few examples of what actually constitutes property that must be valued for purposes of this exercise.
The most commonly owned property item in this category is someone’s interest in a pension plan. As far as our legislation is concerned, this is property which must be valued. Changes in Ontario legislation over the past 2 years have resulted in a method of valuing someone’s interest in their pension by way of a formula. There have been many criticisms of the formula in the sense that there is the potential for it to improperly value the pension plan. However, if you have a pension, it will be counted as part of the wealth you accumulated during the marriage. Only that part of the pension which was accumulated during the marriage is shared and the formula figures that out for you.
So one would think that a pension of any kind would be property for purposes of dividing wealth accumulated during the marriage. Not so. A disability pension is not property under Ontario law. This type of pension is viewed by the courts as a replacement of income and therefore not property.
In a very recent case, the wife’s right to the payment of future commissions was found to be property. During her employment as a commissioned insurance salesperson, she sold various policies to her clients which generated ongoing commissions for her. When her employment ended, under her employment agreement, she was entitled to her company’s “commission on release program” which meant that the capitalized value of the commissions which she was to receive was payable to her over a ten-year period by way of 120 equal installments. The capitalized value of these payments was found to be property even though,
the income tax department would probably consider these payments to be taxable income to her.
Similarly, stock options have been determined to be property. So too has the “book of business” of an investment adviser, that is his customer base from which his income is determined.
In other words, it does not matter if the money you receive will be taxed as income as that is not how property is defined in the legislation. The only question is whether or not the item fits the definition of property as contained in the legislation which reads “any interest, present or future, vested or contingent, in real or personal property and includes, a) property over which a spouse has a power of appointment exercisable in favor of himself or herself, b) property disposed of by a spouse but over which the spouse has a power to revoke the disposition or a power to consume or dispose of the property and c) [the right to a pension plan as noted above].”
In other words, in Family Law, nothing is as ever as simple as people think and unfortunately, because the law is complicated in this area, it is necessary to make sure that you understand your property rights a process which can often take some time to investigate and thoroughly establish.
It sure might have been easier (and cheaper) for all of us if the Family Law legislation simply did say that we should divide up the “property” itself on separation instead of dividing up “the wealth”. But I am sure that even then the complications would be tremendous.