Family Property Exemptions

Generally speaking, most people assume that assets brought into a spousal relationship (marriage or cohabitation in a spousal-like relationship for at least two years) are exempt from division should the spousal relationship break down. While there is some merit to that statement, it is not absolute and there are many traps that can arise that will result in an exemption being lost.

Exemptions under the Family Property Act

In Saskatchewan, the division of family property is addressed under The Family Property Act. Generally speaking,this legislation sets out that (subject to exceptions) the fair market value,at the commencement of the spousal relationship, of family property, other than a family home or household goods, is exempt from distribution where that property is acquired before the commencement of the spousal relationship by gift or inheritance or was owned by a spouse before the commencement of the spousal relationship.

It is important to remember that a family home and household goods receive no exemption under the Act. Household goods are broadly defined in the Act to include personal property that is ordinarily used, acquired or enjoyed by one or both spouses for transportation, household, educational, recreational, social or aesthetic purposes, but does not include heirlooms, antiques, works of art, clothing, jewellery or other articles of personal use, necessity or ornament or any personal property acquired or used in connection with a trade, business, calling, profession, occupation, hobby or investment.

Also important to note is assets received by gift or inheritance during the spousal relationship receive no exemption.

Who is responsible for proving an exemption

The individual who is asserting an exemption regarding an asset is the one responsible for proving the exemption and its associated value. This is not as simple as stating “I owned this asset at the time of marriage.” That is step one, but proving the value at the relevant time and showing the asset still exists (or has been transferred to another asset) can be much more difficult.

How do you value an exemption

The Family Property Act values assets using fair market value. In order to prove an exemption you need to prove the value at the commencement of the spousal relationship. While this may seem like an easy task, it often is not. Consider if someone asked you to prove a value of land, or equipment, or shares in a corporation as of 2005 – could you do it? Would the documents still exist to figure out the value retrospectively? Most people do not keep statements in perpetuity and trying to go back after many years to figure out values can be difficult - or very expensive if you have to hire an appraiser or business valuator to give a retrospective opinion on value.

What if property decreases or increases in value during the relationship?

Very few assets maintain a consistent value. Items like machinery or livestock may decrease in value over time.Exemptions are generally “capped” at the present value, so if the assets decrease in value you do not receive an exemption to account for the full value brought into the relationship. For example, if $100,000 in cattle are brought into a marriage and upon separation the value of the herd is now $50,000 the exemption for the cattle will be capped at $50,000.

Alternatively, should assets appreciate in value, the growth in value is shared. For example, if you have farmland valued at $100,000 brought into the relationship and that same farmland is now worth $300,000 the growth in value of $200,000 is not exempt and is sharable under The Family Property Act notwithstanding the asset was owned prior to the relationship.

What if property is sold or transferred during the relationship?

If an asset owned at the commencement of the spousal relationship is sold during the relationship the proceeds from that sale can be traced to further assets to maintain the exemption claim. However,this can become difficult if sale proceeds are co-mingled with other shareable assets (i.e. funds in a bank account) or there isn’t a clear trail between the asset(s) owned at the commencement of the spousal relationship and the asset(s)owned at the time of division.

If assets are transferred into jointly held property, generally the law says the exemption claim is lost.

What if I don’t like these laws?

The Family Property Act is the default legislation that addresses division of assets in Saskatchewan. The legislation, however, allows you to “create your own rules” regarding asset division through an Interspousal Agreement (also known as cohabitation agreement, prenuptial agreement, etc.). These agreements can be drafted at any time during a relationship to specify how certain assets are to be divided should a separation occur.

Or, even if you’re ok with the laws, an agreement can be a useful tool to set the value for each person’s exemption claim to avoid the task of ascertaining values in the future should that become necessary.

Kimberly Visram is a lawyer, mediator and partner with Stevenson Hood Thornton Beaubier LLP inSaskatoon.

Contact: kvisram@shtb-law.com

This article is provided for general informational purposes only and does not constitute legal or other professional advice.

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