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Divorce and separation: How are family assets divided?

13 April 2021 by National Bank
Dividing the family patrimony

When a relationship breaks down, there are financial as well as emotional impacts. Did you know that, depending on where you live and the status of your relationship (married or common-law partners), the rules may be different? Here's some useful information if you find yourself in this situation.

Is the impact the same whether you separate or divorce?

That depends on what impacts we're talking about.

Whether you're married or not, if you've separated and lived apart for more than 90 days without potential for reconciliation, the Canada Revenue Agency considers that your relationship is over for tax purposes. 

At this point, your tax situation changes, and you may be entitled to benefits based on your new individual net income. There are also other consequences. For example, you will no longer be able to share certain tax credits or split your pension income

N.B.: If you are still married but no longer living together, this is called a de facto separation. This is not the same as a legal separation, which requires a court judgment. 

Legal separation is similar to divorce in many ways. Because you’re still married, you can’t marry someone else. But legal separation is an opportunity to make decisions about support payments, if applicable, and how to divide family assets. 

When you divorce, it cuts all ties between you. Depending on where you live, you may need grounds to get a divorce.

Once you're divorced, all ties are severed in the eyes of the law, as well as for tax purposes. Like legal separation, divorce requires a court judgment.  

Find out how much it costs to get a divorce.

Do common-law spouses have the same rights and obligations everywhere in Canada?

The legal impacts of being in a common-law relationship vary widely depending on where you live. 

In some places, such as British Columbia and Alberta, when a long-term relationship breaks down, the rules on dividing up family assets are similar to the rules that apply in a divorce. 

In other places, like Quebec, common-law relationships offer far fewer protections. There is no division of family assets, and the former spouses have no obligations toward each other. Each party leaves with their own property. Of course, when common-law spouses separate, their obligations toward their children remain, and they must both continue to support them. 

Think about drawing up a cohabitation agreement to protect yourselves and establish the rules in the event of a break-up. 

Good to know: Other types of relationships

Quebec introduced civil unions in the early 2000s, before same-sex couples were able to marry. Civil unions are open to everyone, regardless of their sex. They are very similar to marriage, but may not be recognized outside Quebec. 

Couples in Nova Scotia can register a "domestic partnership" with the government. This gives them some of the same rights as married couples. 

The best thing is to check with your provincial or territorial government what rules apply in your situation. 

How is property divided after a break-up?

What is family patrimony?

The way property is divided up depends on the legal status of your relationship (marriage, civil union or common-law relationship), your matrimonial regime if you were married, and your province or territory of residence.

As a general rule, when a marriage ends, each person remains the owner of any property acquired before the marriage. It's the property acquired during the marriage that will have to be divided up. There are still exceptions, however. For guidance on the kind of specific expertise you need, consult one of our specialists.

Inheritances received during the marriage may be excluded from the property to be shared. In certain cases, however, this must be specified in the will.  If you have a marriage contract with rules on how to divide property excluded from the family patrimony, you have to follow it. Once again, there are several exceptions. The best course of action is to consult an expert.

What are the basic rules for dividing up property?

The law requires that the net value of the family patrimony (taking debts into account) be divided equally in a divorce. This means that you may have to split the value of the following assets (or buy your former spouse's share):

  • The family's residences (house, cottage, vacation home abroad, travel trailer, etc.)
  • The furniture and items inside these residences
  • The family's vehicles
  • Retirement savings (employer plans, government pensions, RRSPs, LIRAs, RRIFs)
  • Joint debts used to acquire, maintain or preserve assets included in the family patrimony

Be aware that the assets, like a residence, must be valued and exchanged at fair market value. 

A note about debts 

It doesn’t matter what your marital status is (married, divorced, in a common-law relationship or civil union): unless you’re a co-signer or guarantor, you’re not responsible for the other person’s personal debts or bankruptcy. 

However, you are responsible for joint debts, like a line of credit in both your names. This is true no matter who used the money and for what purpose. If your ex can’t pay their share, you’ll be liable for the entire amount owing.

Are any assets excluded from division?

Assets that are not considered part of the family patrimony do not need to be divided up. Here are a few examples:

  • Income properties
  • Businesses
  • Bank accounts, shares, bonds
  • Jewellery and other personal belongings
  • Money and goods inherited or received as gifts

Remember that some assets may need to be shared under your matrimonial regime, even if they are not part of the family patrimony. A marriage contract can provide clarity on this issue. 

How do you make sure that property is fairly divided? 

  1. One of the first things you should do is determine together the value of the property to be divided. Remember that in a divorce, each party is entitled to half the value of the family patrimony acquired during the marriage.
  2. The next step is to calculate the net value of the assets by subtracting any debts (mortgage, car loan, etc.).
  3. Then deduct the value of the assets at the time of the marriage, as well as any money inherited or received as a gift and used to buy family property. Let’s imagine that you owned your home before you got married: you could get back your investment when the family patrimony is divided up.
  4. Don’t forget to take into account how assets may have increased or decreased in value during the marriage. Any increase in value will be shared between spouses in proportion to the amounts they had already paid at the time of the marriage. 

Let’s say you had already paid off 15% of your mortgage before you got married. You could get back this amount, plus 15% of the increase in value that occurred during the marriage.

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Good to know: Dividing the market value of the property

Contrary to popular belief, it’s the market value of the assets in the family patrimony that is divided between the spouses, not the assets themselves. Here's an example: a couple draws up a balance sheet of their family patrimony and determines that one spouse owes $100,000 to the other. They can settle this by giving the other spouse cash or by transferring ownership of property.

Is there any way to avoid family assets being divided up?

In some places in Canada, such as Quebec, you can waive your rights to the family patrimony when you separate or when your spouse dies, but not before. One spouse cannot compel the other to do this.

The spouse waiving their rights must do so before a notary or by judicial declaration, and the renunciation may need to be recorded in a register. 

In any event, make sure you get the information you need from the authorities in your province or territory.

Good to know: If one spouse dies

When one of the spouses dies, the family patrimony must be divided up before the rest of the estate can be settled. The rules about family patrimony take precedence over the provisions of a will.

Who do you need to notify about a separation or divorce?

If you divorce or separate, make sure you notify the federal government and your provincial or territorial government before the end of the month following the month in which your marital status changed. It’s often possible to do this online. 

A change in marital status often affects your taxes. Because you’ll be filing your next tax return alone, not with your ex, you may be able to receive benefits you weren’t entitled to before. Examples include the Canada child benefit, the Quebec Family Allowance, the Guaranteed Income Supplement, the GST credit and the amount for an eligible dependent.

Don’t forget to:

  • Make the necessary changes to your insurance coverage (life, critical illness, health, etc.)
  • Update your will
  • Update your protection mandates 
  • Change your emergency contacts
  • Notify your shared service providers (electricity, internet, etc.), if need be

There’s no one-size-fits-all advice to help you get through a break-up. For many people, it's a difficult period to navigate. However, you can take steps to prepare for the future by making an appointment with your financial planner. We can help you understand how to divide up your assets, find the experts you need (accountant, notary, etc.), notify the relevant authorities and explain the financial and tax impacts. We're here to answer your questions.

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