4 Types of Property that Do Not Have to be Split in a Divorce

The assessment and division of family property are often some of the most time-consuming and contentious issues in a separation or divorce. In Alberta, property division is governed under the Matrimonial Property Act. When spouses divorce, the court will generally divide all net family property equally. If one spouse receives property worth more than their share of the net family property, they will usually be required to make an equalization payment to the other spouse to ensure a fair distribution of assets. However, certain types of property are exempt from equalization. For example, property owned by one spouse before the marriage, or property gifted to one spouse during the marriage, may be entirely or partially exempt. Below, we will review the law in Alberta regarding exempt property and how this exemption can be lost or preserved.

It is important to note that couples in an adult interdependent relationship, otherwise known as a common-law relationship, are subjected to different rules upon separation. For the most part, adult interdependent partners will keep the assets and liabilities they brought into the relationship. Property does not automatically become shared or family property by virtue of it being acquired during the relationship, unlike in a marriage.

Which property may be exempt from the division of net family property?

Under s. 7(2) of the Matrimonial Property Act, certain property may be exempted from the calculation of net family property. Note that the entire value of the property at the time of a separation or a divorce may not be exempt, however. The exemption value is calculated as of the date of the marriage or the date the property was acquired, whichever is later. Any increase in the property’s value after that date is typically included in the distribution of property between the spouses. Below are the various types of exemptions one may claim when calculating the net family assets.

Gifts from a Third Party

If one spouse acquires property as a gift from a third party during the marriage, the acquired property is generally exempt from the calculation of net family property. For example, if one spouse were to receive a valuable antique as a gift from a family member, they will generally be entitled to keep the item without sharing the value as part of property equalization upon divorce. Similarly, if one spouse were to receive a gift of cash, they will usually be able to retain this money, so long as they can show they have kept the funds separate from family assets and can trace its location. For more information on this, see ‘Exception to the Exemption’ below. Note that a gift made to both spouses will not be exempt from the calculation of net family property. For this reason, it can be helpful to clearly document the intended recipient in cases where the gift is intended for just one spouse.

Inheritances

As with a gift, money or property received by one spouse as part of an inheritance will generally be exempt from the equalization of net family property. However, as with gifts, the inheritance must remain traceable and not be comingled with family property to retain its exemption status. If one spouse were to inherit a sum of money, for example, they would be advised to keep the funds in a separate account in their name only to ensure it does not become part of the net family property calculation.

Settlements, Damages Awards, and Insurance Proceeds

Settlements or damages awarded as part of a tort action, as well as insurance proceeds, may be exempt from the calculation of net family property, so long as the settlement, award, or proceeds are meant to compensate a loss to just one spouse.

Property Owned Before Marriage

If a spouse owned certain property before getting married, for example, a vintage car, they will generally be entitled to keep the car without sharing in its value upon divorce. However, it is important to understand that this may become complicated when it comes to real property. If one spouse owned the shared family home prior to the marriage, it will become the matrimonial home by default, and both spouses will be entitled to share in its value in the event of a relationship breakdown.

Exceptions to the Exemption: How Exempted Property Can Lose its Status

In some cases, property or money received through one of the exempt means described above will lose its exempt status. To remain exempt from equalization, the property, whether received as a gift, inheritance, insurance settlement or as tort damages, must remain traceable. Once the property is commingled in with family assets, it will lose its exempt status. For this reason, it is important to keep the funds separate and in the name of the recipient only. If the property is sold, the proceeds of the sale should be kept separate from family assets following the sale, to demonstrate that the value remains with the recipient of the property alone.

As mentioned above, using a piece of real property as a shared family home will also be sufficient to remove the property’s status as exempt. Whether received through inheritance, gift or if the spouse owned it before the marriage, the status as a matrimonial home will take precedence in the event of a separation.

Contact Mincher Koeman for Skilled Representation in Family Property Division

At Mincher Koeman, our Calgary family lawyers have the experience and skill necessary to handle any matter involving the division of family property, no matter how complex. We provide knowledgeable and candid advice to our clients, working to efficiently traverse the process of valuing and dividing shared property.

We will always seek to provide a client with the most cost-effective method appropriate for their given situation. If you are facing the end of a relationship and require the services of an effective family law lawyer for the fair division of your family property, contact our office to make an appointment to discuss your matter by calling us at 403-910-3000 or by contacting us online.