1. 
   

2. What If I Owned Property Before We Got Married?

3. What Happens to the Increase in Value?

4. What About an Inheritance?

5. What About Gifts?

6. What If My Parents Gave Us Money for the House?

7. What Does "Tracing" Exempt Property Mean?

8. What If I Put Exempt Money Into the Family Home?

9. What If the Exempt Property Was Sold?

10. Who Has to Prove the Exemption?

11. What If I Cannot Find Records From 20 Years Ago?

12. Are RRSPs Owned Before Marriage Exempt?

13. What About a Business Owned Before Marriage?

14. Is Exempt Property Always Completely Protected?

15. Don't Give Up an Exemption Without Understanding It

16. How Bridgestone Law Can Help

Introduction

When people hear that property is divided after a divorce, they sometimes assume that everything they own will simply be added together and split in half.

Alberta family property law is more complicated than that.

Certain property may qualify as exempt property, meaning that some or all of its value may be excluded from the ordinary division of family property.

This can be particularly important if you entered the relationship owning a house, investments or a business, or if you received a significant inheritance or gift during the relationship.

However, simply saying:

"I owned it first"

or

"It was an inheritance"

does not necessarily answer the entire question.

You may need to establish that an exemption exists, determine its value and trace the exempt property if it was later sold, transferred, invested or used to acquire something else.

The increase in value of exempt property may also be treated differently from the original exempt amount.

What Does "Exempt Property" Mean?

Alberta's Family Property Act identifies certain categories of property whose value may be exempt from distribution between spouses.

Generally, these include:

• property acquired by a spouse before the marriage or qualifying relationship;

• property acquired by a spouse by gift from a third party;

• property acquired by inheritance;

• certain awards or settlements for damages in tort; and

• certain insurance proceeds.

  
  

The legislation generally exempts the market value of qualifying property at the relevant time.

That distinction is important.

The exemption does not always mean that everything the property becomes worth in the future is automatically excluded from division.

What If I Owned Property Before We Got Married?

Property that you owned before the marriage or before the qualifying relationship began may have an exempt value.

For example, suppose Julia owned an investment account worth $75,000 when her relationship with Matthew began.

Years later, they separate.

Julia may be able to claim an exemption relating to the value of the investments she brought into the relationship.

However, if the investments are now worth $200,000, the entire $200,000 is not necessarily exempt.

The original exempt value and the subsequent increase in value need to be considered separately.

This is why knowing what an asset was worth at the beginning of the relationship can be extremely important.

What Happens to the Increase in Value?

This is one of the most important concepts to understand about exempt property.

Under Alberta's Family Property Act, the increase in value of exempt property is treated differently from the original exempt value.

The Court may distribute that increase in value in a manner that it considers just and equitable, taking into account the factors set out in the legislation.

Example: House Owned Before Marriage

Suppose Alex owned a Calgary home before beginning his relationship with Rebecca.

At the relevant date, the home had a market value of $400,000.

By the time they separate many years later, the home is worth $850,000.

It would be too simplistic to say:

"Alex owned the house before the relationship, so the entire $850,000 belongs to him."

The original value may support an exemption, while the increase in value must be analyzed separately.

The mortgage balance, contributions during the relationship and other circumstances can also make the calculation more complicated.

What About an Inheritance?

An inheritance received by one spouse can qualify as exempt property.

Suppose Maria inherits $150,000 from her mother during the marriage and deposits the entire amount into an investment account held solely in her name.

If the spouses later separate, Maria may be able to claim the inherited amount as exempt property, subject to the requirements of the Family Property Act.

However, inheritances can become more complicated when the money is mixed with other property.

For example, what if Maria:

• deposits the inheritance into a joint account;

• uses it toward the family home;

• invests it together with family savings;

• uses it to purchase another asset; or

• transfers the money several times between accounts?

The exemption may not necessarily disappear simply because the original cash is no longer sitting in the original account, but tracing the property can become extremely important.

What About Gifts?

Certain gifts from third parties can also qualify as exempt property.

The key distinction is that the legislation refers to property acquired by gift from a third party.

For example, if a parent gives their daughter $100,000 during her marriage, that gift may potentially qualify for an exemption.

Evidence can become important if there is later disagreement over whether the money was truly a gift and who was intended to receive it.

Was the $100,000 a gift to the daughter alone?

Was it a gift to both spouses?

Was it actually a loan that was expected to be repaid?

Documents such as bank records, correspondence, gift letters and loan agreements can become important evidence.

What If My Parents Gave Us Money for the House?

This is a common source of disputes.

Suppose the wife's parents provide $75,000 toward the down payment on the couple's first home.

Years later, the couple separates.

The wife says:

"That was my inheritance from my parents."

The husband says:

"No. Your parents gave the money to both of us to buy our family home."

The outcome can depend heavily on the evidence.

A court may need to determine what the parents intended when the money was transferred.

This is why substantial family gifts should ideally be documented at the time they are made.

A clear written record can prevent significant uncertainty years later.

What Does "Tracing" Exempt Property Mean?

Tracing means establishing a connection between the original exempt property and property that exists later.

Imagine that you receive a $100,000 inheritance.

You then use that $100,000 to purchase investments.

Later, you sell the investments and use the proceeds toward another asset.

At separation, the original inheritance no longer exists as cash.

The question becomes whether you can demonstrate where that value went.

This may require reviewing:

• historical bank statements;

• investment statements;

• purchase and sale records;

• real estate documents;

• mortgage records;

• wire transfers;

• tax records; and

• other financial documents.

The longer the relationship and the more transactions that have occurred, the more difficult tracing can become.

What If I Put Exempt Money Into the Family Home?

This is an important and sometimes complicated situation.

A spouse may use money from an inheritance or property owned before the relationship to purchase, renovate or pay down the mortgage on the family home.

That does not necessarily mean the answer is simply:

"I contributed $100,000, so I automatically get $100,000 back."

How the funds were used, how title was held, whether the funds can be traced and the applicable provisions of the Family Property Act all need to be considered.

The treatment of exempt property transferred into jointly held assets can be legally complex.

If a substantial exemption is involved, obtaining legal advice before agreeing to a division of the home can be particularly important.

What If the Exempt Property Was Sold?

Selling an exempt asset does not necessarily end the analysis.

Suppose you owned a rental property before the relationship and later sold it.

You then placed the sale proceeds into an investment account.

If you can establish the original exemption and trace the proceeds into the new property, there may still be an exemption claim to consider.

But if the proceeds were deposited into an account that was then used for hundreds of family transactions over many years, proving what remains of the original exempt property can become much more difficult.

Good records matter.

Who Has to Prove the Exemption?

A spouse claiming an exemption should be prepared to establish it with evidence.

If you say that you owned $200,000 in investments when your relationship began, you may need documents supporting that value.

Useful evidence might include:

• historical investment statements;

• bank statements;

• property appraisals;

• purchase agreements;

• mortgage statements;

• corporate financial statements;

• tax records;

• probate or estate documents;

• gift letters; and

• other contemporaneous financial records.

A vague recollection that an asset was "probably worth around $200,000" may create significant difficulties.

What If I Cannot Find Records From 20 Years Ago?

This is a very common problem.

Someone divorcing after a long marriage may be asked to establish the value of property they owned decades earlier.

Banks and investment firms may no longer have all of the original records.

Depending on the asset, other evidence may be available.

For a house, historical appraisals, municipal assessments, mortgage records and purchase documents may help.

For investments, old tax returns, financial statements, advisor records and account statements may provide useful evidence.

For a business, historical corporate financial statements, tax returns and accounting records may assist.

The earlier these records are investigated, the better.

Are RRSPs Owned Before Marriage Exempt?

An RRSP owned before the relationship may give rise to an exemption claim.

For example, if one spouse had an RRSP worth $90,000 at the beginning of the relationship, evidence of that value may become important when the spouses later divide their property.

As with other exempt property, however, the original value and subsequent increase in value may require separate consideration.

This is why historical RRSP statements can be extremely valuable during a divorce.

What About a Business Owned Before Marriage?

A business owned before the relationship may also have an exempt value.

But business exemptions can be particularly complicated because a company's value can change dramatically over a long marriage.

Suppose a spouse owned shares worth $100,000 when the relationship began.

Twenty years later, those shares are worth $1 million.

The original value and the substantial increase in value may need to be treated differently.

A professional business valuation may be required to determine the relevant historical and current values.

Is Exempt Property Always Completely Protected?

No.

This is perhaps the most important takeaway.

Calling something "exempt property" does not necessarily mean that every dollar associated with the asset is permanently protected from division.

The exemption may apply to a particular value at a particular time.

An increase in value may be treated differently.

The property may also have been sold, transferred, mixed with other funds or used to acquire jointly held property.

Every significant exemption should therefore be examined individually.

Don't Give Up an Exemption Without Understanding It

Exemption claims can materially change a property settlement.

Imagine that one spouse entered a marriage with a home worth $500,000 and significant investments, while the other spouse entered with very little property.

If those potential exemptions are ignored and all current property is simply divided equally, the financial result could be dramatically different from the result contemplated by Alberta's family property legislation.

The opposite is also true.

A spouse should not assume that an asset is completely excluded from division simply because it existed before the relationship or originated from an inheritance.

The evidence and the history of the property matter.

How Bridgestone Law Can Help

Exempt property is one of the areas where careful financial investigation can make a significant difference in an Alberta divorce.

At Bridgestone Law, our Calgary family lawyers can help identify potential exemptions, determine what documents are needed to establish historical values and trace exempt property through subsequent transactions.

We can assist with exemptions involving:

• homes and other real estate;

• inheritances;

• gifts;

• RRSPs and investments;

• businesses;

• insurance proceeds; and

• other significant assets.

Where necessary, we can also work with appraisers, accountants, business valuators and other financial professionals to establish historical and current values.

If you owned significant property before your relationship or received an inheritance or substantial gift during your relationship, do not assume that it will automatically be divided equally.

At the same time, do not assume that simply calling an asset "exempt" resolves the issue.

The value, source, history and documentation all matter.

If you are separating or divorcing in Alberta and believe you may have exempt property, contact Bridgestone Law to speak with a Calgary family lawyer about protecting your property interests.