Marriage and/or common-law spousal relationships that break down can have a serious impact on the family farm.

The Family Property Act does permit spouses to enter into an interspousal contract to permit spouses to exempt property from the distribution rules set out in the Act. This applies to all family property, including a family home and household goods. The only restriction or limitation imposed upon spouses is that the interspousal contract must not be unconscionable or grossly unfair; otherwise, the court has the discretion to disregard the interspousal contract and to distribute the property or its value in accordance with the rules set out in the Act as though there was no interspousal contract. It is folly for spouses to attempt to draw up an interspousal contract by themselves. The Act states that the interspousal contract must be in writing with certain acknowledgements incorporated into the contract and each spouse must obtain independent legal advice from separate lawyers who must also sign a certificate. If the foregoing procedure is followed, the court will uphold the interspousal contract unless, as previously stated, a court determines that the contract is unconscionable and grossly unfair. If the interspousal contract does not strictly comply with the legal procedure relating to interspousal contracts, the court may ignore the interspousal contract in its entirety or give whatever consideration to the interspousal contract it deems reasonable.

The law states that, generally, assets are equally divisible.

The farm residence (the home quarter consisting of no more than 160 acres) is equally divisible (with a few limited exceptions – for example, a marriage of very short duration) regardless of the name(s) on the title or regardless of whether the home quarter was purchased or gifted either before or after the spousal relationship commenced.

All household goods are equally divisible no matter when or by whom the household goods were acquired. Household goods are defined by The Family Property Act as:

S.2(1) "household goods" means 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.

The family farm is not given any special considerations under The Family Property Act (as, for example, is the case under taxation laws. The family farm is a business, not unlike any other business, and is subject to equal division, but is also subject to certain permitted exemptions. The most common permitted exemptions are when farm property (other than the farm residence and household goods) is:

1. Acquired before commencement of the spousal relationship by a spouse by gift from a third party, unless it can be shown that the gift was conferred with the intention of benefiting both spouses;

2. Acquired before the commencement of the spousal relationship by a spouse by inheritance, unless it can be shown that the inheritance was conferred with the intention of benefiting both spouses;

3. Owned by a spouse before the commencement of the spousal relationship; or

4. Property acquired as a result of an exchange of property enumerated in 1, 2, and 3 above is exempt from distribution to the extent of the fair market value of the original property enumerated in 1, 2, and 3 above at the commencement of the spousal relationship.

The court has an overriding discretion to not permit an exemption where the court considers it unfair and inequitable to do so.

It is important to note that the net fair market value (asset value less debt) is exempt on those assets which are subject to exemptions. Therefore, any appreciation in value of an exempt asset from date of commencement of spousal relationship is subject to equal division. The asset is not itself exempt; the net fair market value of the asset is only exempt. Net asset value may appreciate in value from the date of the commencement of a spousal relationship by 1) appreciation in the value of the asset and/or 2) reduction in the debt owing against the asset.

To help clarify legal principals, please consider the following example:

(Please Note: This example is incomplete and fictitious and its purpose is to help clarify and illustrate general legal principals and it does not consider the special, unique circumstances of each individual case. The following example assumes that the date of separation is the date chosen as the date for determining fair market value of the property.)

Example:

Bob and Susan were married for 5 years. Bob and Susan did not live together prior to marriage. Bob has a farm. He owned 3 quarters of farm land plus the home quarter and machinery, when he and Susan were married. In addition, he had outstanding farm loans for the land. Bob and Susan purchased a quarter section of farm land while they were married. Susan worked at a bank before and during the marriage. Susan did not participate directly in the farm operation.

The fair market value of the farmland and the farmland debt are:

1. At date of marriage:     3 quarters of farmland           $90,000.00

land loan balance                  $30,000.00

2. at date of separation:   3 quarters of farmland          $110,000.00

                                land loan balance                   $10,000.00

The division of property for this example would be exactly the same if Bob and Susan were never married but lived together for 5 years (a spousal relationship is presumed to have commenced after a couple has been living together for a continuous period of 2 years).

Division of Property Summary

Farm Land

1. Net fair market value of 3 quarters of farm land owned and valued at the date of marriage is $60,000.00. [$90,000.00 (fair market value) – 30,000.00 (bank loan at date of marriage)].

2. Net fair market value of the 3 quarter of farm land owned at the date of marriage, and valued at date of separation: $100,000.00. [$110,000.00 (fair market value) – 10,000.00 (bank loan was paid down $20,000.00 during the marriage)].

3. $100,000.00 – $60,000.00 = $40,000.00 - which represents the net change in the net equity of the three quarter sections of land between date of marriage and date of separation. In other words, $40,000.00 is divisible.

4. The net fair market value of the quarter section purchased during the marriage is entirely divisible.

5. The matrimonial residence and the home quarter are, generally speaking, equally divisible. No exemption applies to the home quarter.

In this example, Susan worked at a bank and did not participate directly with in the farming operation. Whether Susan works on the farm or works off the farm or whether Susan is a homemaker caring for the household, her husband and her children (if any) is not a factor taken into account in determining the division of the family farm or non farm assets. The contribution of a homemaker, who does not work outside of the home, is of equal value to the family unit in comparison to a spouse who is the bread winner.

It is important to note that farm property, which may be entitled to an exemption, may lose its exemption if the asset is sold and the sale proceeds are not kept in a separate account, separate and apart from any other account that is used to pay family expenses. The sale proceeds of an exempt farm asset will lose its exemption if the sale proceeds are deposited to a "family" account and intermingled with other funds in the account. Also, an exempt asset may lose its exemption once it is converted to cash/savings if any portion of the sale proceeds, even if kept in a separate account, is used for family expenditures. As soon as some of the sale proceeds are used for family expenditures, the law implies that the spouse entitled to the exemption has relinquished the complete cash value of the exemption if any part is used for the benefit of the family. As you can note, there is a bias, either positive or negative depending upon your point of view, for an equal division of family property unless spouses strictly adhere to the rules permitting very limited exemptions.

Like farmland, there are exemptions. In this example the farm machinery was owned prior to marriage and no machinery was acquired after marriage. The machinery exemption is equal to the fair market value of the machinery at date of marriage. In this example there is no debt owing on the farm machinery. Therefore, the net fair market value of the machinery at date of marriage is the same as the actual fair market value at date of marriage. Since farm machinery depreciates, the exemption at date of marriage cannot exceed the depreciated fair market value at date of separation.

If a piece of machinery is sold, the monetary exemption will only be allowed if the money can be traced directly from the old piece of machinery to the new. Again, if the money from the sale was deposited into a "family" account, the exemption will likely be lost as it has been mixed with "family" funds.