Reasonable Doubt: Divorcing couples surprised by property division in hot real-estate market
The hot Vancouver real-estate market in recent years has created a unique situation for separating couples who own property during the relationship and must now divide their property. People are often surprised when they seek legal advice and learn how their property—specifically, real property that has increased significantly in value during and after the relationship—is divided according to family law in British Columbia.
To understand the unique situation created by the hot real-estate market, you will first need to understand which property constitutes “family property”—which is property that will be divided equally between the spouses (note that there are some exceptions to equal division, depending on the circumstances)—and how family property is valued according to B.C.’s Family Law Act.
Family property includes property that you or your spouse owned on the date you separate, regardless of whose name the property is registered in. This is often one fact that surprises people, as many people assume that their ex can only receive a share of the property if their name is on the title.
Some properties are not considered family property and are called “excluded property”. Excluded property includes property that one spouse owned before the relationship started—however, the increase in value of the excluded property during the relationship is family property and will be subject to division.
So, for example, if one party owned property prior to the relationship and the property was valued at $100,000 at the beginning of the relationship, the $100,000 is excluded property. However, if the property increased in value during the relationship to, say, $200,000, the $100,000 increase in value will be divided equally between the parties.
How family property is valued is also particularly surprising to many people, because it is often assumed that the value of the property to be divided between the parties is based on the value of the property on the date they separate. However, the law mandates that the value of each party’s interest in the property is determined at the date of trial or the date that the two parties reach a settlement.
The problem is that it could take months or years for parties to settle or to wait for a trial date. In most separations, one party moves out and the other party lives in the property and pays all of the expenses related to the home, such as the mortgage, property taxes, utilities, etcetera. The party remaining in the home often assumes that if the property increases in value, they should be the one to enjoy the increase since they alone made all the financial contributions to the property post-separation.
However, this is not how the law works. In addition to any increase in value during the relationship, the party who moved out of the home is also entitled to half of the increase of value of the property between the time the parties separate and whenever the parties settle their case or go to trial.
There are many situations in recent years where a family-law case does not settle or does not proceed to trial for three or more years and meanwhile the property value has increased by more than $500,000. This means that if one party wants to keep the property and buy out the other party’s interest in the property, the buyout payment would have been far lower if they had reached settlement sooner.
Here are some tips for individuals who are facing the type of situation described above:
- Work with the other party to settle how your property and debt will be divided as soon as possible. Do not assume that the other party will not start court proceedings simply because they have cut off communications with you or did not express any initial interest in pursuing property registered in your name. Parties have two years to start court proceedings. As a family lawyer, I have come across many clients who assumed they would not hear from their exes again after their ex moved out, only to be served with court papers making a claim against their property just a month prior to the two-year limitation date.
- Make sure you seek legal advice and have the settlement terms detailed in a separation agreement or court order. Similar to the point above, many people assume that a verbal agreement to not pursue property division is sufficient, only to be surprised many months later when their ex starts court proceedings respecting their property.
- If you are paying expenses related to the property, keep a record, along with documents such as bank statements and receipts, of all expenses you paid for after you separated, such as mortgage payments, renovation and repair costs, property taxes, etc.
- If the property is registered solely in your ex’s name and you have not reached an agreement regarding property division with your ex, you can protect your interest in the family home by either starting a court action to register a certificate of pending litigation against the title of the property or by registering a Land (Spouse Protection) Act charge on the property. What this does is prevent your ex from remortgaging the property or selling the property without notifying you.
Property- and debt-division issues can be complicated and there may be much to gain or lose. It is highly recommended that you seek legal advice—even if you do not intend on hiring a lawyer to represent you long-term—to get a clear understanding of your rights and have a clear strategy for protecting your property interests.More