The process of dividing property is a significant step for couples headed for divorce. Although the division can be complicated in some cases, the basic steps remain the same.
In Manitoba, two main pieces of legislation govern how property gets divided. One is The Family Property Act, which deals with assets and liabilities the couple owns and guides how the property should be divided. The other is The Law of Property Act, which deals with jointly owned real estate, such as houses and land.
Equalization
You might think that dividing property involves each party taking half of each asset and paying half of every debt, but that’s not the case in Manitoba. Our province’s legislation applies the principle of equalization. Using a process called family property accounting, the couple determines the value of all assets and liabilities and then the net positions of the parties are equalized. So, one of you might get the baby grand piano, while the other takes the home theatre and china dinnerware because they hold similar values. In the end, one party might have to make an equalization payment to the other to even things out.
Valuation
The first step in the property division is to collect statements for all of the assets and liabilities to determine their value or balance as of the date you and your partner separated. In some circumstances, assets and liabilities, such as a home or a mortgage, are valued as of the date they are divided. Some assets don’t have a specific statement of value. These include homes, land, vehicles, household items and recreational vehicles. For these items, you might be able to reach an agreement about the value, but if not, an appraisal will be necessary to provide evidence of their value.
Who gets what?
Next, you will figure out who is keeping which assets and who is going to be responsible for specific debts. In some cases, this decision can be easy; assets and debts that are in the name of only one of you typically remain with that person, though that isn’t always so. With a jointly owned asset, like the family home, you will need to decide if either of you will retain it or if the preference is to sell it and share the proceeds.
Family property accounting
Once you know who is going to keep which items and what the value of each asset and debt is, the final step is completing the family property accounting. This structured process calculates each party’s net asset position and the equalization payment that might be owing from one to the other. The goal is for each person to walk away with half the total of the combined net assets as a way of splitting the family property equally.
The family property accounting is cash accounting only. Because registered investments and pensions aren’t worth in cash what they are on paper, when they are included in the family property accounting, their value is reduced by about 30% to account for the tax payable (at the time they are withdrawn). In the event pensions and registered investments are equalized through the family property accounting, the parties waive any further interest in the pension or registered investments of the other.
An alternative is to divide the registered investments and pensions at source. In that case, half the value (as at the date of separation) of the account is rolled over to the spouse and into a registered account of their own. There is no tax payable by either spouse at the time of the division.
The process of dividing property can be one of the most time-consuming aspects of preparing for divorce. Although there can be many complexities involved depending on your individual circumstances, knowing the necessary steps is a helpful place to start.
By Kelly Riediger
Have more questions about family property in the event of separation? Contact me at (204) 992-3249 or [email protected].