Who Gets the Airmiles? Changes to Who Gets What When a Relationship Fails in B.C.
Although most marriages commence with a ceremony where both partners solemnly vow, “until death do we part,” life sometimes has other ideas. As a lawyer, financial planner and divorce survivor, I know far more about the law in British Columbia on how assets are divided when love is replaced by other far less pleasant emotions . . . or at least I did until the rules changed a few months ago.
Fortunately, I’ve been able to bone up a bit since then, although no one really knows what some of the new rules really mean until they have been given a good test drive by the courts. With this giant caveat firmly established, here is a hopefully brief summary of some of the new rules that apply to financial matters and how they will affect spouses and common law partners who are no longer quite so fond of the sight of each other.
No Marriage? No Problem!
In the not-so-old days, common-law spouses didn’t have the same property rights when it was time to divide bank accounts and the cd collection. They would be able to get a share of the property in some cases, but it was a far harder road to travel and, even if successfully traveled, the destination was not usually as pretty. Married couples started with a presumption that all family property (i.e. any property used for a family purpose) would be divided even-Steven unless this was “unfair.” For common-law couples, even if the common law spouse could convince a judge that there was “unjust enrichment” (i.e. the basis for arguing that the common-law spouse should get a piece of the pie), there was no basic assumption that it should be divided 50/50.
In this brave new world, common law spouses are treated the same as married spouses when it is time to divvy up the silverware. What is a common-law spouse, dare you ask? It is someone you’ve lived with in a marriage-like relationship for 2 or more years. In a shorter relationship but have a child together? Although you are a “spouse” for the purpose of collecting child and spousal support, you are not a spouse for the purpose of dividing up property. To make things even more confusing, for income tax purposes, you become spouse after only one year or the moment your mutual child draws breath, if this happens before the one year mark! In other words, when splitting up, there are actually 3 different definitions of “spouse” that come into play. As if the breakup process wasn’t already complicated enough!
More People Sharing a Smaller Pie
Although common-law spouses of either sex now have property rights when the relationship goes south that married folks enjoy, these rights aren’t as good as they used to be. Rather than starting with the assumption that all family assets (which traditionally used to include most assets) should be divided down the middle unless “unfair,” the new law goes in a different direction.
The new rules of the game essentially state that only the increase in value of assets owed by either spouse when one spouse ventures forth to new horizons is up for grabs; each spouse is entitled to keep the value of the assets they brought into the relationship. For now, however, it is unclear whether the date of valuation is when two common-law spouses first shacked up or that magic moment is when they cross the two year threshold. However this pans out, this change will (in theory, at least) benefit the spouse that brings the most into a relationship (at least on the property front.)
The new act also states specifically exempts inheritance from division, as well as assets in certain types of trusts, although the increase in value inheritances (and perhaps trusts) might be divided 50/50 if a spouse inherited during the relationship and it was worth more when one spouse handed over house keys. It also says that judges are supposed to try to divvy up the property so that a spouse with a pre-existing business should be able to keep it all, with the other spouse getting other assets.
Remember when I said “in theory” a few paragraphs ago? Well, judges are still allowed to vary how assets are divided if the basic formula is “significantly unfair.” Under the old law, judges had a huge amount of discretion on how to divide pieces of the pie. Under the new law, it appears that this discretion is still in place but that it has been watered down slightly. Of course, it is anyone’s guess how this will all play out in a courtroom; I rather expect that there are some judges that won’t have too hard a time discovering rampant cases of “significant unfairness” in order to let them do what they think is just.
Perhaps this is how it should be. Family law has always been an uneasy union of the desire to provide the certainty and savings in court time and legal fees that come with hard-and-fast rules contrasted with the realization that sometimes firm formulas lead to unfair results. Although the new legislation does attempt to provide more certainty to all concerned, there still appears that there is a significant place for judges to look at the circumstances of each individual case.
Before moving onto the next heading,however, there are 3 more quick points to keep in mind when contemplating who gets what:
· Don’t Forget About Spousal Support! Dividing property is only one part of the financial bickering that surrounds divorce. Even if the new rules may disadvantage spouses who didn’t own a lot before saying, “I do,” judges may try to level the playing field when setting how much spousal support is owing and for how long. Moreover, if one spouse has been playing silly bugger with the court and spouse, a judge may be tempted to award extra property to the other in lump sum spousal support in the expectation that the unreasonable spouse will likely balk at honouring their future support obligations.
· Prenuptial / Cohabitation / Marriage Agreements Still Matter. Married or common-law spouses can enter into agreements before or during (or even after) forming a legal relationship. If they get independent legal advice, there isn’t too much time since the agreement was last confirmed and there haven’t been any huge life surprises (other than the relationship not working out,) judges should continue to respect people’s rights to govern their own affairs. On the other hand, even if parties’ agreement regarding property division is upheld by the court, judges are still more than willing to try to correct any perceived injustices when making spousal support orders.
· Make Friends With Your Business Valuator and Property Appraiser. Since only the growth on assets brought into a relationship is up for grabs, it is important to put a value on things at the time of the ring (or any prenuptial or other agreement.) Even if the parties are reluctant to set down in writing what happens if the relationship fails, hopefully they should at least be able to agree on what things are worth in writing when the relationship begins. Of course, this will require full financial disclosure by all sides and separate lawyers for both, or any agreement will be meaningless. Obviously, the ‘have spouse’ will want to set as high a value as possible while the ‘have not’ will want to lowball the figures, although the wealthier spouse will need to be able to show that s/he provided full and accurate disclosure.
Until Death Do We Part? Not So Fast!
The new act specifically discusses suing dead people. Although the parties may have already divided their property and started separate lives, things might still get a little sticky if one spouse is still paying spousal support when s/he journeys to the great beyond. Accordingly, spouses paying spousal support need to plan on what happens if they die before payments stop. Perhaps this is something that the spouses can cover off using life insurance policies, which is already a common practice, so that the former spouse isn’t duking it out with the deceased new partner and his/her children from the current or prior relationship.
Child support from beyond the grave? This is already covered off under the Wills Variation Act which allows current spouses and dependent children to challenge the deceased’s Will if it doesn’t adequately provide for them. Actually, adult kids of any financial situation can also contest the Will, although they rank lower down the food chain than spouses and their younger siblings.
Finally, the new Family Law Act may also affect how much spouses get when challenging a deceased’s Will under the Wills Variation Act. To date, the starting point has been that a widowed spouse shouldn’t get less than s/he would have got if they’d been divorced instead, factoring in both spousal support and a division of property. As the property division rules upon divorce are now different this will likely have a ripple effect on estate legislation.
We are still in the early days of a brave new financial world for parting spouses and only time (and a plethora of court cases) will determine what the new law really means. All the same, it is clear that there has been a significant shift and that couples need to be aware of these changes now so that they aren’t sandbagged in the future. Perhaps valuing assets at the time you enter a relationship may become a new rite of passage, right up there with selecting the perfect wedding ring.