Deferred Sharing

Contrary to common understanding, the F.P.A. does not provide for the division of things or the equal sharing of things. It has no effect on ownership.

Manitoba's Act provides for a regime of "deferred sharing", that is, each spouse will account for the assets and liabilities each has as of the date of separation. The spouse with the greater net worth will then be required to equalize the difference in net values. The "assets" minus the "liabilities" of each spouse is compared and the spouse with the greater net worth will be required to pay 1/2 the difference to the other.

Fair Market Value

Value is "fair market value" and is determined as of the date of separation. Thus, the value of the car or household furniture is not what you paid or what it would cost to get a new one, but the "used" or "auction" or "yard sale" value that it would fetch. The definition of value presumes a willing seller and a willing buyer, neither being compelled, and neither having any special knowledge or market.

Some assets have no ready market and their valuation is therefore difficult, requiring expert evidence. The value of a business, commercial goodwill or professional practice is often difficult to ascertain without the assistance of forensic accountants or qualified valuators.

Liabilities

While liabilities are taken into account, to the extent they relate to the assets of the marriage, it requires a special application to the court to force a spouse to share the other's excess of debt over assets.

Exempt Assets

Assets which are previously shared between the parties, or already shared, such as the jointly owned marital home, are not covered by the Act. Issues respecting the jointly held home must be dealt with under The Law of Property Act.

Gifts and inheritances are exempt from sharing, unless it can be shown there was an intention to benefit both spouses.

Prior-acquired assets, or those acquired during a period of separation are shared only to the extent they have increased, or decreased, in value during the period(s) of cohabitation.  An asset, however, acquired in "contemplation" of the relationship will be shareable.

Pensions, R.R.S.P's and Canada Pension Plan

Pensions, Registered Retirement Savings Plans, "RRSP's", and Canada Pension Plan credits are all family property. For a discussion of them go to the Pensions and RRSP Primer.

Disposition Costs

Costs of disposition of certain assets such as pensions, registered retirement savings plans ("R.R.S.P.") and those with other inherent costs are worthy of special attention. It is difficult to predict the future tax costs to an individual. The courts have chosen arbitrary discounts from 15 - 35% for R.R.S.P.'s.

The disposition costs of other assets is more complex. One normally expects to pay real estate commission and legal fees on the sale of a house, or there may be tax costs inherent in the sale of a business or farm, such as recapture or depreciation, or capital gains tax, which should be taken into account. Sometimes these costs are too speculative for the court to accept, but it will do the best it can based on appropriate evidence.

Taxation on Property Transfers

Complex rules govern the transfer of property from one person to another.  Under the special circumstances of marital breakdown, capital property can be transferred between spouses, a rollover, without triggering the usual tax consequences.  The rollover of property from one spouse to another on marriage breakdown in settlement of property rights will pass tax-free. 

This has the effect of transferring the tax consequences to the recipient of the property who is deemed to have acquired that capital property at the same cost base as the transferor had at the time of the transfer. The transferor could elect however not to employ the rollover and the disposition would be deemed to be at its fair market value thereby triggering a capital loss or gain, as the case may be. 

In order to ensure that future gains are payable by the recipient rather than being attributed back to the transferor of the property, the parties will be required to complete an appropriate election (s. 74.5(3)of the Income Tax Act) form.

Given the difficulty in valuation and the complexity of the law, professional advice is usually required in these kinds of transactions.

Dissipation

While one of the parties may claim that the other has dissipated assets, the test is very difficult to meet, as the squandering of assets must be seen to be "jeopardizing of the financial security of a household". Where dissipation is found, the court may add back those assets into the accounting and may follow them into the hands of complicit third parties.

Unequal Division

While many parties claim that there should be an unequal division of the marital property, the court has only a very limited discretion in this area (see s. 14 of the Family Property Act) and has only varied the equality provision in a handful of cases in the last 20 years.

Interest

The court may award interest to compensate for the delay between the separation date and the trial. This issue may be tied to the issue of support.

Reference and Confirmation

The accounting under the Act is often dealt with in a separate proceeding called a "Reference", a form of trial, which is undertaken before a Master of the court whose report is then referred to a Judge for "confirmation".

The confirmation hearing is generally a form of appeal, that is, the judge will review the record, which will include the transcript of proceedings and exhibits filed of the hearing before the master, and will only rarely hear new evidence.

The remedy for joint tenants who want to have the property sold is found in The Law of Property Act. I have included the sections dealing with that only, the rest of the statute being mostly irrelevant to family law issues.

Once a court order for sale is made, the matter is referred to the Master for a reference to set the terms and conditions of sale, and to calculate adjustments between the parties. The Master's report will then have to be confirmed by a judge of the court.