Matrimonial Property General Information

Transcription

1 Matrimonial Property General Information Introduction What is the Matrimonial Property Act? Each province in Canada has its own law to deal with the division of property on marriage breakdown. In Alberta, we have the Matrimonial Property Act ( MPA ) which classifies property and sets out rules for its distribution. The purpose of the MPA is to make sure that property is divided in a fair way between spouses when they separate. The MPA starts from a presumption that property and debts acquired by either party during the marriage are to be shared equally. Does the MPA apply to me? The MPA only applies to married couples. The MPA does not apply to unmarried or common law couples. For more information on the division of property for common law couples, please go here (link to property unmarried couples) The MPA only applies to residents of Alberta. If you want to have a judge apply the rules of the MPA to you, you must be able to show either that: both you and your spouse reside in Alberta now; the last place you and your spouse lived together was in Alberta; if you have not lived together since the marriage, you each resided in Alberta at the time of the marriage; or a Statement of Claim for Divorce has been issued in Alberta. If you are unsure if the MPA applies to you, talk to a lawyer. How and when do I get started? Before you can ask a judge to apply the rules of the MPA to you, you must be separated or divorced from your spouse. You can bring an application to divide your matrimonial property alone or with an action for divorce by filing a Statement of Claim in the Court of Queen s Bench of Alberta. It is important to note that there are certain time limits for when you can start an action under the MPA. If you and/or your spouse: 1

2 are separated but not yet divorced, you must start the action within two (2) years of date of separation or else you must also start divorce proceedings; are divorced, you must start the action with two (2) years of the date of the Divorce Judgment; think your spouse is giving or selling property to a third party to avoid the rules of the MPA, you must start the action within one (1) year of the date your spouse sold or gave the property; is deceased, you must start your action within six (6) months of the grant of probate or administration of the estate, but only if you could have started the action immediately before your spouse s death. If you think some of these time limits may apply to you, talk to a lawyer. Division of Property Identification of Property Why? As already mentioned, the basic idea behind the MPA is that all matrimonial property should be divided equally between spouses when they separate. The first step to figuring out who should get what is to identify all the property owned by you and your spouse. Once an MPA action is started, each party must give full disclosure to the other, including a list of all assets they have and property disposed of within one year of the start of the action. This includes all property acquired by you and your spouse either jointly or individually by way of purchase, gift or otherwise. It includes all property located in Alberta or elsewhere. Examples of the kind of property that you need to disclose are: real estate, farming operations, businesses, vehicles, pensions, RRSP s, life insurance policies, household contents, and jewellery. In addition to disclosing assets, each party must disclose all of their debts. How do I get my spouse s disclosure? Under the MPA, each party must file and serve a sworn Statement of Property on the other party. This form is quite long and cumbersome and, as a result, it is not used very often. The most common way to ask for disclosure is by using the Notice to Disclose/Notice of Motion provided in 2

3 the Alberta Rules of Court (the Rules ). Under the Rules, either party can file and serve a Notice to Disclose/Notice of Motion on the other party. Once your spouse is served, he/she must provide you with a list of assets and debts as well as copies of certain financial documentation within a specified time limit. The Rules also allow parties to a matrimonial action to obtain disclosure in other ways. If you are having difficulty getting disclosure from your spouse, you should speak to a lawyer about these other options. Understanding Property Once you have exchanged disclosure with your spouse, you can then put together a complete list of what the two of you own. This list is not helpful on its own unless you also understand how the MPA classifies and treats different types of property. For instance, a dining room table that you inherited from your grandmother is treated differently in property division than a dining room table you bought during the marriage. What are the different types of property under the MPA? Essentially, there are three types of property described in the MPA: Exempt property exempt property includes property owned before the marriage, received by way of gift from a third party, property that has been inherited, an award or settlement for tort damages (i.e. if you were injured in an accident), or proceeds of a non-property insurance policy. Increase in value of exempt property this refers to the increase in value of exempt property during the marriage, or property acquired with income received from exempt property. Matrimonial property matrimonial property is all property not caught in either of the above two categories and includes all property and debt acquired by the spouses either jointly or individually during the course of the marriage and even after separation. How is each type of property treated under the MPA? Exempt property if you are claiming that a particular asset is exempt property, you must be able to show that the particular asset 3

4 still exists or that it can be traced into an existing asset. If you can do this, then the market value of that asset at the date of marriage or at the date the asset was acquired, whichever is later, is exempted from the property distribution. In the case of the dining room table inherited from your grandmother, assuming that you still have it and that the market value of the dining room table has not gone up during the course of the marriage, the whole dining room table would belong to you. Increase in value of exempt property the increase in value of exempt property, that is, the difference between the market value of the property at the date of marriage and the current value of the property, is shareable between the spouses. There is no presumption in the MPA that this type of property be shared equally between the spouses. For example, if you owned a condo before you were married and at the date of marriage it was worth $150,000, then if you kept title in your own name during the marriage and the condo was worth $170,000 at the date you and your spouse separated, there would be a $20,000 increase in the value of the condo that should be shared between you and your spouse. You will get to keep the first $150,000 because of your exemption (as above), but you would have to share some of the $20,000 increase with your spouse. The MPA says that this property should be shared in a just and equitable manner taking certain matters into consideration. For a list of what matters the judge may take into consideration, see section 8 of the MPA. Matrimonial property all matrimonial property is distributed equally between the spouses. The judge will divide all matrimonial assets and debts 50/50 between the spouses unless it would be unfair to do so, taking the matters in section 8 of the MPA into consideration. Valuing Property Now that you have your list of property and you understand how each asset is to be divided, you will want to go ahead and place a value on each asset and liability. Which value do you use though? Will it be the value of the property at the date of separation? What if you separated a year ago, what value do you use then? What is the date of valuation? The MPA directs that property be valued as at the date of trial. This is how a judge would value your property if you had a judge decide at trial. However, because most people cannot afford a trial, they will have to agree with their 4

5 spouse on a how to divide their property. Many people will agree to use the value of their property as at the date of separation. How do I value the property? For many assets and debts, the value can easily be found by looking at the most recent statement (i.e. bank accounts, bonds, RRSP s, mortgage, student loans) or bill of sale. For other assets like your house, furniture or car, the value is the amount you could sell that asset for. Some assets may be harder to value and may require the use of an expert. For instance, if you and your spouse do not agree on what value to give your house, you may decide to hire a real estate agent or an appraiser to prepare a valuation report. You may hire an appraiser on your own or jointly with your spouse. When deciding what values to give to different items of property, you must also think about any tax payable if the asset is sold or transferred. Retirement assets such as pensions, RRSP s, LIRA s, and RRIF s are pre-tax assets and require that income tax be paid on them when they are cashed in. As a result, you must net down these assets for tax. Another option is to treat all pre-tax assets separately from your post-tax assets, such as your home, car, and bank accounts. Pre-tax assets can be rolled over to a spouse on marriage breakdown without incurring any income tax, under the provisions of the Income Tax Act. Dividing Property How do I figure out what I get and what my spouse gets? Once you have completed your list of all your property, taken some time to understand each item of property, and have assigned values to each item of property, you will want to start thinking about who, as between you and your spouse, will keep each item of property. You will probably prepare a list of assets and liabilities with headings entitled his and hers like the chart on the following page. 5

6 PROPERTY HIS HERS ASSETS: VALUE OF ASSET: House $150,000 $150,000 Car $20,000 $20,000 Truck $25,000 $25,000 Furniture $10,000 $10,000 Savings Account $10,000 $10,000 DEBTS AMOUNT OF DEBT Line of Credit ($10,000) ($10,000) Student Loan ($5000) ($5000) TOTALS $175,000 $25,000 Assuming that all of the above-mentioned property is matrimonial property under the MPA, each party will receive an equal value of the property on distribution. This means that each party must end up with $100,000 ($175,000 + $25,000/2) in either cash or property in their column. If the husband wants to keep the house, the truck, and the household furniture, then he must pay the wife $75,000 in cash. As you go through this exercise, you may decide that it does not make economic sense to have one spouse buy the other spouse out of the matrimonial property. As a result, it may be necessary to sell some or all of the matrimonial property in order to effect an equal distribution of property. Once all the assets are sold then the exercise of dividing the property becomes very simple, you just divide the net sale proceeds of all the property in half. Remember that it may make more sense to treat your pre-tax assets (i.e. pensions, RRSP s, LIRA s, RRIF s) separately from your after-tax assets. In this case, you will do a his and hers list for the after-tax property (as above) and then a separate his and hers list for the pre-tax property. One spouse will owe the other spouse a pre-tax payment which can be done by tax-free rollover under the Income Tax Act. If you want to divide your pre-tax property in this way, you should talk to a lawyer and/or financial planner. 6

7 Procedure Powers of the Court If a Statement of Claim is filed in the Court of Queen s Bench of Alberta for a division of matrimonial property, the judge has the power to deal with property located in Alberta. Under the MPA, the judge has wide powers to make any order that it considers necessary to divide up property within the province and it may even consider the fact that other property exists outside the province. In addition to making a distribution of property at a trial, the judge may also order that certain property be sold, that one spouse pay money or transfer an interest in property to another spouse, and declare that one spouse has an interest in property even though they do not have a legal or equitable interest in the property. MPA Agreements There are only two ways to settle your property division under the MPA; either a judge decides at a trial, or you and your spouse agree and enter into a valid agreement under the MPA ( MPA Agreement ). If you and your spouse agree as to how to divide your property and you want to do an MPA Agreement, then you must make sure that the agreement: is in writing; is entered into freely and without pressure from the other spouse; and shows that each spouse has had independent legal advice about the effects of signing the agreement. This means that each spouse must see a different lawyer. By entering into an MPA Agreement, each spouse is effectively contracting out of the MPA. This means that the MPA will not apply to their property. It is not enough to just have an agreement drawn up and have your spouse sign it, rather, both you and your spouse must know of the possible future claims to property that you each may have under the MPA and must want to give up the these claims and replace them with the MPA Agreement. If the all of the above conditions are met, then the MPA Agreement will be binding by the Court. 7

8 Conclusion Division of matrimonial property is a very vast and complex area of the law. The information provided here is intended for general purposes only and, as such, provides just a brief overview of the steps and process of dividing your property on marriage breakdown. If you have specific questions or concerns about your situation, protect yourself by speaking with a family law lawyer. This publication has been prepared by Family Justice Services, and provides general information about the law as of the date it was written. It is not intended to provide you with legal advice. If you want advice on your case, speak to a lawyer. 8