How to Divide Assets in Separation or Divorce

Dividing assets during a separation or divorce can be a challenging and often contentious process. Generally, assets acquired during the relationship are considered joint property, while those obtained before or after the relationship are separate. The goal is to reach a fair distribution, which can involve negotiation, legal guidance, and, in some cases, court intervention. The approach may vary depending on jurisdiction, the length of the relationship, and individual circumstances, but the process typically seeks to ensure both parties are treated equitably.

Working with an experienced family law lawyer is the best way to protect yourself and what’s important to you. The family lawyers at Onyx Law Group have a deep understanding of the legal issues and challenges that arise when dividing property after separation. Reach out to us today for a consultation with a dedicated family lawyer.

This article is all about dividing property. We’ll discuss how to identify, value, and split assets and debt. We’ll also provide an overview of the steps to divide your property and ways to resolve property disputes.

Different Types of Assets

When we talk about assets in a separation or divorce, we’re talking about family property. Generally speaking, family property is what you and/or your spouse bought into or accumulated during your cohabitation or marriage. It includes all assets and property owned by either one spouse or both spouses on your separation date. It doesn’t matter whose name the property is in.

Examples of family property that are subject to division on separation include:

• your family home
• other real estate (cottages, investment properties, condos, etc.)
• personal property (jewelry, art, electronics, furniture, vehicles, etc.)
• RRSPs, RRIFs, TFSAs
• bank accounts (separate account and joint account)
• investments
• insurance policies
• pensions
• business interests (business ownership, shares, intellectual property, etc.)
• certain types of property held in trust
• any gain in the value of excluded property (see the next section for more on excluded property).

Debts and liabilities must also be divided when a relationship ends. Family debt includes all financial obligations incurred in the name of one spouse or both spouses during their relationship. It also includes debts taken on after separation if the debt was incurred to maintain family property. Common examples include mortgages, loans, lines of credit, vehicle financing, credit card debt, and income tax liabilities.

How to Divide Assets and Debts in Divorce

In British Columbia, the rules about the division of family property and family debt apply to both legally married spouses and unmarried couples who have been living together in a marriage-like relationship for at least two years (common law spouses). The general rule is that all family property and all family debt is divided equally when you separate, regardless of whose name the property or debt is in.

That being said, there are other factors that can impact the default 50/50 property division. For example, if you have a domestic contract such as a cohabitation agreement or prenuptial agreement, it may alter the general rule that all is split equally when your relationship ends. Other factors that can alter the outcome when you split assets and debt include each spouse’s contributions during the relationship, the duration of the relationship, and any actions taken by either spouse to reduce the value of family property or increase the value of family debt.

What Assets Cannot Be Touched in Divorce?

There is another key type of asset to consider: excluded property. BC law states that excluded property is not family property, so it’s not divided equally on separation. Examples of excluded property are:

• property brought into marriage or cohabitation by one spouse
• inheritances received by one spouse
• gifts to one spouse from a third party
• one spouse’s beneficial interest in property held in a discretionary trust

It’s very important to understand, however, that any increase in the value of excluded property during the relationship is family property subject to equal division. 

It’s also important to understand that excluded property can lose its exclusion from equal division if it’s commingled with other marital assets or used to purchase family property (e.g., one spouse puts their inheritance into a joint savings account or uses their inheritance to buy a family home with their spouse). The spouse claiming the exclusion has the burden of proving that the property qualifies as excluded property.

Community Property vs. Equitable Distribution

You may have heard of the concept of “community property.” In community property jurisdictions, all property acquired during the relationship is deemed to be jointly owned equally by both spouses, regardless of whose name it’s in.

British Columbia is not a community property jurisdiction. Instead, BC uses an equitable distribution approach, which requires the equalization of net family property. The calculation of an equalization payment is discussed in the next section.

Best Way to Divide Assets in Divorce

The best way to divide assets is with professional guidance. Assistance and advice from a family lawyer will ensure you understand your rights and receive what is fair.

You may also need professional guidance from a tax advisor, property appraiser, financial advisor, and/or business valuator to ensure tax implications are considered and the full value of assets are known. Read on for a step-by-step guide to dividing marital property.

1. Identify All Assets and Liabilities

The best way to start is by creating a comprehensive list of all marital assets (marital home, investment properties, cars, bank accounts, retirement funds, investments, etc.). Don’t forget to list assets such as business interests and intellectual property. You should also create a detailed list of all debts and liabilities (mortgages, loans, credit cards, etc.) to ensure a complete picture of financial responsibilities.

If you aren’t sure if an asset is family property or not, reach out to a family lawyer for advice. We can advise you with respect to what qualifies as a pre-marriage asset, excluded property, separate property, or separate debt.

2. Review Legal Agreements and Contracts

Review any written agreements (e.g., marriage contracts) and any other contracts that could influence asset division. A legal document or contract may govern entitlements or stipulate how specific assets or debt should be dealt with in a divorce.

3. Collect Financial Information and Records

You’ll need to gather and review documents and financial information such as deeds/title documents, bank statements, insurance policies, income tax returns, pension statements, mortgage statements, loan documents, business records, etc.

4. Determine Ownership and Value

Once you’ve gathered all financial records, you must exchange financial information with your spouse. The documents and records should establish who owns what, and when the asset or debt was acquired. If they don’t, steps must be taken to ascertain that information.

The documents may indicate the value of the asset or debt (for example, bank statements that show the balance of bank accounts at a certain date). For other assets and liabilities, professional appraisals may be needed to determine the value of the property or debt at the relevant date.

After each spouse has made proper financial disclosure, the next step is to calculate the net family property value for each spouse.

5. Negotiate and Prioritize Asset Allocation

Calculating each spouse’s net family property is not necessarily the whole picture. You and your spouse can and should:

• Discuss property division to prioritize key assets you want to keep, such as the family home, retirement pension, or business interests.
• Consider non-financial factors (e.g., it may be important for the spouse with primary custody of children to retain the marital home).
• Consider other factors such as unequal contribution to an asset (e.g., you paid the down payment or all the mortgage payments with respect to a property) or whether certain debts should be only one spouse’s responsibility.
• Explore ways to satisfy the equalization payment. It could be a cash payment, refinance, liquidation of property, etc., or it could be a transfer of property or interest in a business or pension.

The goal is to negotiate a resolution that is fair and balanced, keeping tax implications and long-term financial stability in mind.

6. Seek Legal Assistance if Needed

Ideally, you will have professional guidance from the outset. If you and your spouse negotiate directly without legal advice, you may end up with an agreement that is unfair or unenforceable.

Legal assistance is beneficial for all separating couples. Legal assistance is strongly recommended for business owners, high net worth individuals, spouses who hold assets outside of BC, and any divorcing or unmarried couples with complex assets or debts (e.g., high-value assets, investments that fluctuate in value).

7. Attempt Mediation and Other Alternatives to Court

Sometimes, direct negotiations can get to a resolution. Other times, a little help is needed. You should consider mediation to facilitate communication and create an agreement without court intervention. You may also want to explore collaborative divorce if both spouses are committed to an amicable resolution.

If you aren’t able to come to a negotiated agreement with your spouse, you will have to go to court, asking a judge to decide property and debt issues for you.

How Do Courts Divide Assets in a Divorce?

If you go to court to resolve property and debt issues, the judge will apply the rules found in BC’s Family Law Act. Assuming you don’t have a cohabitation agreement or marriage contract that contains your written agreement to opt out of equal division under the Family Law Act, the judge will follow this general process to divide assets:

• Determine what qualifies as family property, family debt, and excluded property.
• Identify any separate property and/or debt (property or debt you or your spouse acquired after your separation date). Separate property and debt typically remain with the spouse who acquired it, but there are exceptions.
• Calculate the value of excluded property at two points in time: the start of your relationship (or the date you acquired the property, whichever is later) and your separation date. The value of any excluded property on the earlier of the two dates is subtracted from the property’s value on your separation date. Any increase in the value of excluded property is included as family property.
• Add up each spouse’s family property and subtract each spouse’s family debt. The net value for each spouse is their net family property.
• Subtract the lower net family property from the higher net family property value, then divide the difference in half. The spouse with the higher net value pays half the difference to the spouse with the lower net value—this is referred to as an equalization payment.

According to BC divorce law, BC judges apply the 50/50 default in most situations, but they do have discretion to make an order for unequal division. Section 95 of the Family Law Act allows the court to order unequal division of family property, family debt, or both, but only if it would be significantly unfair to divide it equally.

Do You Have to Divide Assets in a Divorce?

You do have to deal with assets and debts when your relationship ends, but they don’t necessarily have to be divided equally. We’ve already discussed the courts’ discretion to order unequal division. We also talked about marriage contracts and the impact of a cohabitation agreement. A written agreement signed earlier in your relationship may specify what property and debt are kept as separate property that doesn’t need to be divided when your relationship breaks down.

There is another situation where asset division may not be required (or where assets and debt can be divided unequally). It’s open to you and your spouse to decide how you want to divide your property and debt, then put it into a legal document called a separation agreement. You can also use a separation agreement to address other issues such as spousal support and child support.

Can You Divide Assets Before Divorce?

You and your spouse can agree on how to divide assets and debts, then incorporate it into a separation agreement. You can negotiate a written agreement on your own, with the help of a family law lawyer, or through processes such as mediation or collaborative divorce.

Flexibility and control are two major advantages of separation agreements. As long as you and your ex-spouse agree, you can settle outstanding family law issues in any way you choose, including opting out of the default that everything must be split equally.

If you are legally married to your spouse, you can make a separation agreement and then bring divorce proceedings to get an uncontested divorce order officially ending your marriage. Common law couples can make separation agreements as well, but they don’t need to bring divorce proceedings to end their relationship.

Is It Worth Hiring a Divorce Lawyer?

Working with a lawyer ensures that your interests are safeguarded and helps you avoid costly mistakes. Your lawyer can:

• advise you on your rights, obligations, and legal options
• ensure that limitation periods to divide family property aren’t missed
• facilitate communication between you and your spouse
• determine what documents you need to disclose and what financial information you need from your spouse
• help classify property and debt that are subject to equal division
• connect you with the right professionals (tax advisor, property appraiser, etc.)
• calculate net family property and the equalization payment
• prepare a written agreement settling property issues without having to go to court
• commence court proceedings if out-of-court settlement can’t be reached

A final note: if your spouse is hiding assets, depleting assets, recklessly overspending, or taking on significant debts, reach out to one of our family lawyers as soon as possible. There are options to deal with such behaviour, including obtaining a court order restraining your spouse from adversely affecting property interests.

Ensure Fair Asset Division with the Right Divorce Lawyer

If you have questions about dividing property and debt, reach out to Onyx Law Group. Our team of family lawyers has the expertise and knowledge to answer any questions you may have and guide you through the process.

Whether you are newly separated or already in the middle of a difficult divorce, Onyx Law Group’s family lawyers are here to help. We use our detailed knowledge and years of experience to find creative approaches to difficult legal situations. From our offices in Vancouver and New Westminster, we work with clients from across the Lower Mainland and the rest of British Columbia to navigate even the trickiest property disputes.

Contact us today to schedule an initial consultation and take the first step towards a positive and successful outcome.