Spouses' Half-Interest in Family Property May Not Expire: A comment on the FLA's only triggering event

A recent question on a listserv for family law lawyers, and another from a colleague involved in a collaborative process practice group, have raised some interesting issues for me about the effect of separation as a triggering event under the new Family Law Act. I swear, the new act is like a matroyshka doll; just when you think you've got it figured out, you discover another layer of meaning underneath.

Triggering Events

A "triggering event" is a hard thing to explain; in a nutshell, when a triggering event happens each spouse is deemed to receive a one-half interest, as a tenant in common, in all family property.

Let me unpack that a bit. Family property is the pool of assets that accumulate during a couple's relationship, minus certain kinds of assets, such as assets brought into the relationship and gifts and inheritances received during the relationship, that are excluded from the pool of family assets. A one-half interest means having a legal interest in the asset, even though a spouse may not be a registered owner of the asset. A tenancy in common is a way that two or more people can both own something. Someone who is a tenant in common owns a specific share of an asset and can sell his or her share, or use it as collateral for a loan, without needing the permission of the other co-owners.

During a relationship, spouses manage and own their assets as they wish. Some couples own everything together as joint tenants (a joint tenancy is another way that two or more people can own something, and in this kind of co-ownership each owner owns the whole asset and can't dispose of his or her share without the consent of the other owners), others each own their own property, and others arrange for a particular spouse to own all of the assets to protect the property from creditors and lawsuits. However, the Family Law Act says that each spouse is entitled to a half interest in the family property, just like the old Family Relations Act said that each spouse is entitled to a half interest in the family assets.

The importance of a triggering event is that when the event happens, each spouse is deemed to receive his or her half interest in the family property, regardless of whether the property is owned by both of them or by one of them alone. Among other things this means that:

• a spouse who isn't a registered owner of family property gains a legal half interest in that property;
• if a spouse goes bankrupt after separation, the other spouse still owns his or her share of the family property, including his or her share of any assets that are registered in only the name of the bankrupt spouse;
• if the spouses own an asset together as joint tenants, the joint tenancy is severed and they now own the asset together as tenants in common; and,
• if a spouse dies after separation, only half of the family property goes to the dead spouse's estate.

Triggering Events under the Family Relations Act

The implications of the arrangements under the Family Law Act are best understood in comparison to the old Family Relations Act. Under the old law, there were four possible triggering events: the court making a divorce order or annulling a marriage; the spouses executing a separation agreement; or, the court making a declaration that the spouses were unable to reconcile and save their marriage, called a s. 57 declaration.

The thing about all of these triggering events is that you had to do something to get one. Getting a divorce, an annulment or a s. 57 declaration all required you to start a lawsuit, serve your ex and go to court. Getting a separation agreement required you to actually sit down and sign a piece of paper with your ex. Since triggering events weren't automatic, there were cases in which a party failed to get a s. 57 declaration, the most common triggering event, only to see his or her share in the family property disappear into the hands of a creditor or trustee in bankruptcy. Whoops.

The Triggering Event under the Family Law Act

There is now only one triggering event available, the separation of the spouses. The following is s. 81 of the Family Law Act; s-s. (a) sets out the general rule that each spouse is entitled to half of the family property, and s-s. (b) provides the triggering event:

Subject to an agreement or order that provides otherwise and except as set out in this Part and Part 6, 

(a) spouses are both entitled to family property and responsible for family debt, regardless of their respective use or contribution, and 

(b) on separation, each spouse has a right to an undivided half interest in all family property as a tenant in common, and is equally responsible for family debt.

Of course, separation is something spouses do when they're breaking up; it doesn't require making an agreement or going to court, it is automatic. I expect that separation is also something most spouses do without realizing that a triggering event has just occurred.

The Time Limit on Property Claims

There are some other really important differences between the Family Law Act and the Family Relations Act.

The old act used the definition of "spouse" at s. 1 to set limits on when you could bring a property claim, saying that spouse "means a person ... who applies for an order under this Act within 2 years of the making of an order for dissolution of the person's marriage." Once two years had passed from the date you got divorced or had your marriage annulled, you ceased to be a "spouse" and once that happened:

• you stopped being a "spouse" entitled to an interest in the family assets under s. 56; and,
• you stopped being a "spouse" entitled to apply for a share of the family assets under s. 66.

Under s. 3(2) of the Family Law Act, however, once you're a spouse, you're always a spouse. The time limit for making a property claim instead appears at s. 198:

(2) A spouse may start a proceeding for an order under Part 5 to divide property or family debt ... no later than 2 years after,

(a) in the case of spouses who were married, the date

(i) a judgment granting a divorce of the spouses is made, or 

(ii) an order is made declaring the marriage of the spouses to be a nullity, or

(b) in the case of spouses who were living in a marriage-like relationship, the date the spouses separated.

The passage of the two-year time limit doesn't mean that you've ceased to be a spouse, it means that you're out of time to apply for certain orders under the act.

Why Spouses' Half Interest in Family Property May Not Expire

Let me summarize where we've gotten to.

1. Under the Family Law Act, if you are a spouse you're entitled to an equal share in the family property under s. 81(a).
2. Once you separate, you gain a one-half interest in all of the family property as a tenant in common under s. 81(b), regardless of how the family property was owned before you separated, and regardless of whether you meant to get (or give) a half interest in the family property.
3. Under s. 198(2), you have two years from the date of separation (unmarried spouses) or divorce (married spouses) to make your claim for an order for your share of the family property, assuming you can't make an agreement about how the family property will be divided.
4. However, under s. 3(2), once you've qualified as a spouse under the act you are always a spouse for the purposes of the act, regardless of how much time has passed.

So here's the nifty thing. Since a spouse is always a spouse and it's spouses who are entitled to a half interest in the family property, although the passage of the two-year time limit under s. 198(2) may strip a spouse of the right to apply for a share of the family property under the Family Law Act, it won't strip a spouse of his or her one-half tenant in common interest in the family property.

That's huge.

Among other things, this means that other legislation, like the Land Title Act or the Partition of Property Act, and certain principles of the common law, such as the remedies in trust for unjust enrichment, might be used to realize a spouse's interest in family property even after the spouse has lost the ability to apply under the Family Law Act. I note that s. 104 of the act expressly allows for the application of other rules and laws:

(2) The rights under this Part are in addition to and not in substitution for rights under equity or any other law.

Furthermore, the time limits that will apply are the time limits particular to that legislation and to those remedies, not the time limit set out at s. 198(2). Frankly, I don't know whether a tenant in common interest can expire without an agreement or order to that effect, and such an interest might survive to be exercised years down the road or could conceivably form a part of a spouse's estate.

I also wonder whether or not a spouse who is the sole owner of family property could be considered to hold half of the value of that asset in trust for the benefit of the other spouse once the spouses have separated. There are remedies for the wasting of family property — intentionally decreasing its value — after separation set out in s. 95(2)(f), but I expect we'll see case law on this issue develop soon enough as trustees have a fiduciary obligation (a duty) to manage trust property for the benefit of the trust beneficiary.

And now I'll conclude the list I just started.

5. Even though you can't apply for your share of the family property under the Family Law Act once the time limit at s. 198(2) has passed, under s. 104(2) you may be able to apply for orders about your share of the family property under other legislation and common law principles.
6. The time limits that will apply to claims under other laws and legal principles are not the time limits set by the Family Law Act, and I'm not certain that, without an order or agreement, there are any time limits to potential claims respecting tenancies in common.

Interestingly, these conclusions are just as important for owning spouses as they are for non-owning spouses. Non-owning spouses get the comfort of knowing that their one-half interest in the family property may not expire even though the limit set out in s. 198(2) has passed. Owning spouses, on the other hand, are warned that they can't let their guard down just because the two-year limit has passed; until we get some case law to clarify the situation, unresolved tenancy in common interests may survive separation and divorce for years if not decades.