Rebecca: Alex, lately I have been assisting clients – either as a mediator or as a lawyer – who have been separated for quite some time but have never formally reached a separation agreement regarding their property, among other issues. One of the most common questions I hear is how they are supposed to deal with the fact that one of them has lived in the family home for some time since separation – maybe even years. Now that they are formalizing things by either selling the house, one of them buying out the other’s interest, or continuing to co-own for an agreed upon period of time, they wonder how to deal with that murky time between separation and when a formal agreement is reached.
The starting point is that section 87 of the Family Law Act says that all family property should be valued at the time of an agreement or trial, not at the time of separation (unless this is agreed to). But this doesn’t always seem fair, does it?
Alex: It doesn’t always seem fair, and especially where one of the spouses has gone to exceptional lengths to maintain or preserve an asset after separation. For this reason, the Court does have the discretion to order valuation at a date other than the date of trial: for example, the Court can sometimes value assets as of the date of separation rather than trial. The Court’s discretion here is limited, however. Because using a date of valuation other than trial gives one of the spouses a greater share of family property than would be the norm, the Court can only tinker with valuation dates if valuing the asset as of trial would be significantly unfair. This is more than just generally “unfair”: it has to be unfair in an objective sense.
That is not to say that a spouse who makes exceptional efforts after separation has no recourse. The Family Law Act actually specifically acknowledges the fact that sometimes one spouse really goes “above and beyond” when it comes to family property. That is why s. 95 of the Act gives the Court authority to give one spouse more than a 50% share in family property if that spouse has, after the date of separation, “caused a significant decrease or increase in the value of family property or family debt beyond market trends.”
So if the spouse who stays in the home can show that they’ve made exceptional efforts (more than just paying the mortgage and other routine expenses) and that these efforts have increased the value of the home (or conversely reduced the balance on the mortgage), the Court is fully equipped to recognize those efforts by way of reapportionment.
Rebecca: So if a couple has continued to keep the status quo financially since separation, then it is likely cleanest to just move on and make an agreement going forward. But in other situations, it makes more sense to actually do an “accounting” of sorts, yes?
Alex: It can. Often we need to sort out who should have been paying what. For example, imagine a couple where the wife moves out and the husband stays in the home with the children. The wife does not pay child support and does not pay towards the house expenses, but has to rent her own place. The husband does not pay spousal support and pays the house expenses, but doesn’t have to secure rental accommodations. In this scenario, we might need to work out how much the wife should have paid in child support but didn’t; the amount the husband should have paid in spousal support and didn’t; the amount the wife should have contributed to the household expenses; and the amount the husband should pay the wife for using the house “rent free”.
Rebecca: When it comes to the family home, there are three costs that are owner costs that would usually be shared between two owners – the mortgage, the house insurance and the property taxes. However, there is a concept called “occupational rent” that courts (and couples) can consider to ensure fairness. In essence, if one person has had the sole benefit of the family home since separation, then it does not always makes sense that the other spouse would pay half of those owner costs, particularly if he or she has had to pay rent or mortgage somewhere else. How does occupational rent work – there are a few options for calculating this, yes?
Alex: Occupational rent is a wide-ranging equitable remedy, at least in the family law context. In different cases, the Court can require the occupying spouse to pay rent to the other (or to compensate the non-occupying spouse for his or her own rental costs). The Court can use the notion of “occupational rent” to get the non-occupying spouse “off the hook” for expenses relating to the home or as an adjustment/credit against support or other obligations or occupational rent can be used as a factor pointing towards (or away from) an equal division of family property.
Rebecca: It used to be that someone could not claim occupational rent unless they had been ousted – or thrown out – of the family home. But this is not what the law says anymore. Instead, it is an equitable tool that courts (and couples) can use to determine what seems fair. It’s not perfect, but it can be used to pass the “gut test” on fairness.
Alex: Exactly. It’s a broad tool that the Court uses to avoid unfair outcomes, and something for couples to also consider if they are negotiating a separation agreement outside of court.
If you or someone you know if dealing with a divorce or separation and has questions about property division issues, feel free to contact us at Connect Family Law.