Tag Archives: matrimonial property

The Four Basic Steps to Matrimonial Property Division

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(c) Patriot Law, 2016

When couples decide to separate and divorce, there are many issues to be dealt with.  One of these issues is how to deal with the property and debts of the relationship.

In Alberta, the legislation that deals with this for married persons is the Matrimonial Property Act.  The basic scheme involves determining the value of all property and debts, and then dividing it between the spouses.  Most property acquired during the marriage is divided equally,  (There are some exceptions, to be dealt with in another post.)

There is a simple process that we use to plan for the equal distribution of matrimonial property.  It has four basic steps:

  1. Inventory.  You start by making a list of all of the property and debts involved.  The assets include real property (your home), vehicles, bank accounts and investments, RRSPs, pensions and the like.  A business (whether a sole proprietorship, a partnership or a shares in business corporation) is also an asset.  The debts include mortgages, line of credit, vehicle loans and so on.  This first step is important, but not usually difficult.
  2. Valuation.  The next step is to take each item in the inventory and assign a value to it.  This step is important because when all of the values of the assets and debts are sorted out, we can then know the “net” value of the property (assets minus the debts) to be equally divided.  Some values will be known (for example, a savings account balance or the balance owing on a mortgage).  Some values may have to be determined, such as the value of a home or of a business owned by one of the spouses.  When the spouses cannot agree on the value to be assigned to a particular item, valuation by a disinterested third party with some relevant expertise is the best option.  Of course, there will be some expense involved in getting a valuation.
  3. Allocation.  The next step in the process of matrimonial property division is to decide what to do with each asset and debt.  There are two parts to this step.  First, you need to decide whether an asset that physically exists (such as a the home or a vehicle) will be distributed as it is (“in kind”) or whether it will be sold and converted into cash.  Second, you need to decide who gets which assets and debts by allocating them to one spouse or the other.  This includes assets that have been sold.  There may be a good reason to sell an asset and equally divide the proceeds of sale, but (contrary to the common misconception) it is not necessary (or desirable) to do this for every asset.  This part of the process allows for the most creativity by the spouses, and increases the potential for a “win-win” result: both spouses may be able to walk away with the mixture of assets and debts that is most beneficial for their future plans.
  4. Equalization.  Once you have done the allocation of the property and debts, you need to equalize any imbalance between the net amounts that each spouse receives from the allocation.  Each spouse is entitled to 50% of the net value of the property as a whole.  Therefore, if one spouse gets more than half of the net value of the property in the allocation process, then that spouse has more than he or she is entitled to.  The fix is a cash payment from the spouse who got more to the spouse who received less, in an amount to equalize them.  Here is a simple illustration.  If the net value of the matrimonial property is $800,000 in total, then each spouse is entitled to $400,000.  If the wife receives net property worth $600,000 and the husband receives net property worth $200,000 when allocating the assets and debt, then the wife will need to pay an equalization payment of $200,000 to the husband so that they both end up with their equal shares.

Overall, it has been our experience at Patriot Law that taking a methodical approach to the division of matrimonial property makes the process easier to understand and to simpler to resolve.

 

Some Basic Information on Dividing Matrimonial Property

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When married couples decide to part ways, one of the things that needs to be determined is what to do with all of the stuff that they’ve amassed during the relationship.

In Canada, the law of divorce falls within the federal sphere of power but the division of a married couple’s property is governed by provincial law. In Alberta, that law is the Matrimonial Property Act (MPA). The MPA empowers a court to distribute the property owned by either or both of the spouses.

(The MPA does not apply to unmarried couples. We will discuss how property for unmarried or “common law” couples gets divided in a future blog post. Stay tuned!)

The general concept is that spouses are financial partners in a marriage and, broadly speaking, each spouse has a claim to half of the value of the property that the couple acquired during the marriage. This means that it usually doesn’t matter whether a car is registered in only one spouse’s name or whether the home the couple lives in has only one name on the title – each spouse has a claim to half the value of that property if it was acquired during the marriage.

However, not all property owned by a spouse is necessarily subject to an equal split. The MPA identifies three broad categories of property and how they are dealt with:

1) Exempt Property. Certain property is exempt from being distributed as matrimonial property, based on the idea that not all property falls within the financial partnership of a marriage. This category includes gifts from third parties, inheritances, property that was owned before the marriage, awards for damages (such as an award in a slip-and-fall lawsuit) and proceeds of certain insurance policies. The value of the property at the date of the marriage or at the date the thing was acquired (whichever is later) is exempt from distribution.

2) Increases in the Value of Exempt Assets. The court must order a “just and equitable” distribution of property for the increase in value of an exempt asset or the income generated by an exempt asset for the period of the marriage. For example, the value of a collectible car owned by one spouse before the marriage is exempt, but the increase in its value over the course of the marriage – the accrued equity – is subject to a “just and equitable” division (which is not necessarily 50/50). Determining what is “just and equitable” requires the court to consider a variety of specific factors. For example, one such factor that the court will consider is any contribution (financial or otherwise) made by a spouse (or on behalf of spouse) in relation to the acquisition, conservation or improvement of the property.

3) Everything Else. If the property does not fall into the first two categories, then its value is subject to division between the parties. This is typically an even-steven split but it doesn’t have to be, if the court thinks that an even split would actually be unfair.

Most of the time, couples are able to come to an agreement on how they will split their property. The MPA specifically allows couples to make agreements that opt out of the MPA default rules for dividing property, so long as the agreement is in writing and both spouses have independent legal advice before signing. For the times when a couple doesn’t agree, Alberta courts rely on the MPA to determine the division of property.

If you have questions about divorce and your legal entitlements to property, Patriot Law Group can help.