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Surprise! Dividing property in divorce isn’t always straightforward

Alberta couples are often surprised when they start to divide their property during a divorce. Many people don’t know that the law considers many things besides houses and land to be ‘property’. This can make the property division decisions very complex. Each person must have their own legal advisor to help them reach an agreement that the court will recognize and enforce.

The definition of property

Property includes anything one party owns separately, or that both own together. Examples include:

  • Real estate: the home where the couple lives, other land they own including recreational property, and time shares;
  • Financial assets: bank accounts, term deposits, bonds, stocks and stock options, and life insurance;
  • Investments: shares in private companies, and interests in sole proprietorships and partnerships;
  • Retirement and education saving: RRSPs, RESPs, LIRAs, pensions and Retirement Compensation Arrangement Accounts; and
  • Personal property: vehicles, jewelry, clothing, furniture, pets and other personal effects.

Property division agreements under the Matrimonial Property Act

The Matrimonial Property Act (MPA) defines how married couples divide property if they cannot agree and decide instead to go to court. Otherwise, the couple is free to divide their property any way they like, as long as they consult separate lawyers for independent legal advice before entering into a written Agreement.

The courts enforce Agreements reached by the parties if:

  • There has been full disclosure of all financial information satisfactory to both parties and their legal advisors before both parties accept the Agreement;
  • Each party has enough information to obtain appraisals of the value of assets whose worth is uncertain, such as real estate, vehicles or business interests; and
  • The Agreement includes an Acknowledgment, signed by each lawyer, that each party understood:
    • the nature of the agreement
    • their property claims under the Agreement, and
    • signed the Agreement of their own free will.

Property valuation before division

Property value is based on its worth or the price it can be sold for on a date both parties agree on. The valuation date can be the day the couple separated, December 31 of the year the parties separated, or any other mutually acceptable date.

Property the parties obtained during the marriage will be worth its value on the valuation date. This is required, as some types of property increase in value as time passes, such as houses and other real estate. Others, such as vehicles, furniture, computers and televisions quickly lose value.

Property valuation is easy for some property and much more difficult for other types of property. Financial institutions can easily produce statements of the value of RRSPs, mutual funds and bank accounts on the valuation date. An appraiser must value other items, such as businesses, pensions and real estate holdings, to determine their worth.

The parties may adjust the value of property to take the costs of dividing them into account. A realtor’s commission is a reasonable deduction when selling a house. Income tax a party pays after selling shares or investments may be deducted from the financial assets the parties are dividing.

Division rules and exempt property

The MPA requires that all property the parties acquired during their marriage be divided equally, no matter who holds title to it. However, there are some exemptions:

  • A gift a party receives from a third party;
  • An inheritance;
  • A property a party obtains before the marriage;
  • An award of damages in tort to one party (unless it was meant as compensation for a loss both parties suffered); and
  • An insurance policy payment for death or personal injury.

The party claiming an exemption won’t get it unless they can prove they are entitled to the exemption for the amount they seek. But if the value of the exempt asset rises during the marriage, the court can divide the amount of the increase between the parties equitably.

Unfortunately, married couples considering divorce must protect their individual interests. Before starting proceedings, they must determine the value of their personal and real property to prepare for the division of property required under the Matrimonial Property Act.

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