The Marital Property Act, RSNB 2012, c 107, like other marital property legislation across Canada, contains a presumption that the property of both spouses is to be distributed equally between spouses upon the dissolution of the marriage.[i] This presumption is enshrined at section 2 of the Act which reads:
Child care, household management and financial provision are joint responsibilities of spouses and are recognized to be of equal importance in assessing the contributions of the respective spouses to the acquisition, management, maintenance, operation or improvement of marital property; and, subject to the equitable considerations recognized elsewhere in this Act, the contribution of each spouse to the fulfilment of these responsibilities entitles each spouse to an equal share of the marital property and imposes on each spouse, in relation to the other, the burden of an equal share of the marital debts.
The presumption is intended to protect spouses who may not have contributed financially to the marriage, but nevertheless made other contributions in things like childcare or household management that have benefited the family. Marriage is seen as an equal partnership of varying contributions from each spouse and any wealth that is produced by this union is presumed to have been the fruit of both of their efforts. For this reason, marital property is defined quite broadly and includes nearly all property owned by either spouse, regardless of whose name it is in.
These things being said, the presumption is not absolute and there are several categories and subcategories of assets that will either be excluded from distribution or may be subject to what the legislation refers to as “unequal distribution”. It is important in the event of marital breakdown that you be familiar with what these categories are.
- Assets that are not “marital property”
The Act at section 1 excludes from the definition of marital property various assets which are owned by one of the spouses, including business assets, gifts, and inheritances, as well as the proceeds from the sale of these items or assets purchased with those proceeds. It is important to note, however, that even these assets can become marital property if they are used by the family for either a household, educational, recreational, social, or aesthetic purpose. The courts have therefore interpreted a “business asset”, to mean those assets used by the company to carry on its business, but it will generally not include retained earnings which are retained within a company for tax purposes if the earnings that were drawn from the business was generally used for the benefit and enjoyment of the family. Likewise, with regard to gifts and bequests, although the Act provides for some tracing, extensive co-mingling of the gift or inheritance with marital property can turn an inheritance or gift into marital property.
Another subcategory are those assets acquired by the spouses when they were not cohabiting. The Act specifically defines “family assets”, “household goods” and “marital property” as property acquired during cohabitation. For this reason, if after the spouses separate the spouses add to their pensions or purchase a new home, this property will not be considered “marital property”.
- Items excluded by a marriage or domestic contract (commonly referred to as a “pre-nuptial agreement”)
The next category of items not normally subject to distribution are those items excluded by a prenuptial or marriage contract. Such agreements can be entered into at any time before or during the marriage. If they satisfy the formal requirements of the Act, they are usually upheld in court and will only be set aside if they suffer from a severe defect, including lack of independent legal advice prior to signing, or where there has been manipulation, dishonesty, or coercion.
Why mention property that is not “marital property”?
The first two categories listed above represent assets that are, for one reason or another, not normally subject to distribution. But even assets that are not “marital property”, as defined by the Act, may because of section 8 of the Act, be divided by the courts for equitable reasons, either because the owning spouse is responsible for the spoliation or loss of marital property, or for reasons relating to the acquisition, management, maintenance, operation or improvement of the non-marital-property. For example, a business asset may be subject to equal division if it is found that the non-owning spouse made significant direct or indirect contributions to the business during the marriage, including the non-financial contributions set out at section 2. For this reason, it is important not to lose sight of the fact that when it comes to the distribution of marital property, any property of any kind owned by either spouse should be looked at and carefully considered.
But what of the large majority of assets that do fall within the definition of “marital property”, including residences, appliances, cottages, vehicles, savings, and pensions? Although the presumption of equal distribution applies to these assets, the Marital Property Act does specifically outline equitable considerations at section 7, which allows courts to deviate from the principle of equal distribution when fairness demands it. These equitable considerations include:
- Agreements other than domestic contracts.
Even an agreement that falls short of compliance with the strict formalities of a legal pre-nuptial agreement may be given weight by the courts. The most common examples are informal agreements dividing household and personal items that typically take place between spouses upon their separation. Another example is where one spouse has agreed to give the other spouse a greater share of property in lieu of paying spousal or child support. These agreements will especially carry weight if there was an exchange of consideration of some kind going both ways between the spouses and the courts are otherwise satisfied that they are fair and reasonable.
- The duration of the period of cohabitation and separation during the marriage.
Some marriages are punctuated by periods of cohabitation and separation and courts will in these circumstances be more willing to move away from the presumption of equal contribution and look at what actually took place. If the spouses spent most of their married life living separate and apart, this will often lead to an unequal distribution of marital property, based more on their individual contributions. Short marriages, in general, will more often lead to unequal divisions of marital property based on the actual financial contributions of the spouses and what they brought into the marriage. This will especially be the case for childless marriages.
- The date the property was acquired.
Property purchased by a spouse near the end of the relationship will be more likely to be distributed in accordance with the respective contributions of each spouse towards its acquisition. Likewise, property acquired before the cohabitation of the parties may be distributed unevenly if the court decides that it is equitable to do so with regard to the nature of the asset, how it was acquired, the length of the marriage, and the relative amount of property both spouses brought into the marriage.
- The extent to which property was acquired by one spouse by inheritance or gift.
This exception has to do with the tracing of gifts and inheritances, or of the proceeds of the sale of inheritances or gifts. To the extent that there has been some mingling but the property can still be traced to a gift or bequest, the court may use such tracing to justify an unequal distribution of that property.
- Any other circumstances relating to the acquisition, disposition, preservation, maintenance, improvement or use of property.
This last category encompasses a number of rare situations where one spouse has made little or no contribution to the marriage at all, or has dissipated marital property. The 1988 decision of the Supreme Court of Canada in Leblanc v Leblanc, which originated out of New Brunswick, is the most oft-cited case for this category. One subset of this class of cases are the “deadbeat spouse” cases, where one spouse is found to have been both detrimental to the marriage, usually because of addiction, abuse or other negative pattern behaviours, and has made little position contributions to the marriage. A second subset are the dissipation cases, where one spouse has dissipated marital property, often through gambling, or to support some other addiction. The third subset are the cases of suspected fraud by one spouse, where a spouse has sold, hidden, or otherwise disposed of marital property just prior to or after the separation.
The above provides the reader with an overview of the numerous considerations which go into an equal or unequal division of property owned by the spouses at the dissolution of the marriage. Although it looks complicated, more often than not, the length of the marriage and the presence of children will be the most important factors in determining how likely property is to be equally or unequally divided. However, there are classes of assets and unusual situations that require a closer look and you should talk to your lawyer about whether any of these situations may apply to your case.
[i] unlike some provinces, New Brunswick law does not extend the rights in the Marital Property Act to common-law spouses. As the name suggests, you must be legally married to be subject to the Marital Property Act.