When it comes to dividing your property as part of your divorce or separation, generally each person continues to own any property acquired before the marriage. However, property acquired during the marriage and any increase in value during the marriage of assets acquired before the marriage, will need to be equally divided.
Every situation will be unique depending on what assets you have, what type of relationship you had, the province where you live, and what you and your partner may have agreed upon before and during your marriage.
Inheritances either person received during the marriage may be excluded from the property to be divided. Other types of property may also be excluded or exempt from division, depending on the applicable provincial law.
The general rule is that the net value of the family property (the value of the property owned by the spouses minus any debts and excluded property) be equally divided between both spouses in a divorce. However, the actual assets or value received by each partner will not always be the same and will vary depending on the circumstances of each case and the applicable provincial family law.
Types of assets and how they’re treated
You’ll usually need to split the value of these assets:
- Any family residence (house, cottage, travel trailer, etc.)
- The furniture and items inside any family residence
- Any vehicle(s)
- Retirement savings (employer savings plans, registered retirement savings plans, tax-free savings accounts, locked-in retirement accounts, registered retirement income funds)
- Government pensions (Canada Pension Plan, Quebec Pension Plan, Old Age Security, Guaranteed Income Supplement)
- Joint debts used to acquire, maintain or preserve assets included in the net family property
The value of these assets isn’t usually part of the family property to be split between partners:
- Assets owned by a spouse before the marriage
- Assets inherited or received as gifts from a third party during the marriage
- Damages or awards for personal injuries
- Assets the spouses agreed in a domestic contract not to include in the division of family property
What about debt?
Generally, both partners are equally responsible for debt incurred during the marriage. However, there may be some exceptions depending on the circumstances of each case:
- When 1 partner takes on debt to deplete the net family property
- When the debt is reckless due to something such as gambling
- When 1 partner is responsible for a disproportionate amount of debt to support the family
Marriage contracts and cohabitation agreements
A marriage contract is an agreement signed by couples before or after they marry to protect their rights if they ever split up, including rights to property.
Couples in a common law relationship may opt to sign a similar document, called a cohabitation agreement.
These legal documents can dictate what happens if the relationship ends, including:
- How much spousal support will be paid
- How property will be split
- How the couple will dispose of the marital home
To increase the likelihood a marriage contract or cohabitation agreement will be binding and enforceable, both partners should sign the agreement in front of a witness.
Also, both partners should get independent legal advice from different lawyers and exchange financial information before signing a marriage contract or cohabitation agreement.
Once signed, both partners must abide by the agreement. You can negotiate changes in the future if they’re made in writing, signed, witnessed, and made with independent legal advice.
If you separate and either partner challenges the contract, you’ll have to go to court and ask a judge to decide whether to enforce the terms of the contract.
How assets are divided in divorce or separation
The way property is divided varies across Canada depends on the applicable provincial family law. Generally, however, each partner must first calculate their own net family property (NFP):
- Total value of assets less any debts/liabilities at the separation date to calculate the separation date total
- Total value of assets less any debts/liabilities at the marriage date to calculate the marriage date total
- Calculate the final NFP by subtracting the marriage date total from the separation date total.
The spouse with the higher NFP then pays the other spouse half of the difference between their respective NFPs. This is known as an equalization payment.
The NFP value can never be a negative number. If you have a negative NFP, it’s treated as though it were zero.
Here some sample calculations to show you how this works:
- Separation date assets = $120,000
- Separation date liabilities = $50,000
- Separation date total (assets - liabilities) = $120,000 - $50,000 = $70,000
- Marriage date assets = $30,000
- Marriage date liabilities = $20,000
- Marriage date total (assets - liabilities) = $30,000 - $20,000 = $10,000
- NFP (separation date total - marriage date total) = $70,000 - $10,000 = $60,000
- Separation date assets = $200,000
- Separation date liabilities = $100,000
- Separation date total (assets - liabilities) = $200,000 - $100,000 = $100,000
- Marriage date assets = $40,000
- Marriage date liabilities = $20,000
- Marriage date total (assets - liabilities) = $40,000 - $20,000 = $20,000
- NFP (separation date total - marriage date total) = $100,000 - $20,000 = $80,000
NFP Partner B $80 000 - NFP Partner A $60,000 = $20,000
Partner B pays $10,000 (half of the difference between NFPs) to Partner A as an equalization payment.
Getting legal and financial advice
There are many good reasons to get legal and financial advice as you work through a division of assets during a divorce or separation. These include:
- Helping remove emotions from the process
- Helping you recover financially from a divorce or separation
- Helping ensure you get a fair settlement. 65% of those who responded to a Canada Life survey and worked with an advisor felt their settlement was fair and equitable, compared to 35% who didn’t work with an advisor.¹