Property Exclusions in Net Family Property Calculation

Upon the breakdown of a marriage, an important aspect to consider is the division of property. In many jurisdictions, the goal is to equalize the value of the property acquired during the marriage. However, what is often overlooked are the exceptions to what is included in calculating net family property, also known as exclusions. These exclusions play a significant role in determining the final net family property figure and can greatly influence the division of assets.

Exclusions

Exclusions essentially mean that although the value of certain property is included in listing a spouse’s assets, its full value is later subtracted. As a result, it has no net effect on the final net family property figure. This may seem counterintuitive at first, but it is designed to ensure a fair division of property that truly reflects the assets acquired during the marriage.

One major type of exclusion applies to the value of property that was received as a gift or inheritance from a third person after the date of marriage and before the valuation date. For instance, if a spouse inherits a significant amount of money or receives a valuable gift from their parents during the marriage, this property is typically excluded from the calculation of net family property.

It's worth noting, though, that if the gifted or inherited property can be identified and traced into property that exists at marriage breakdown (other than a matrimonial home), it is excluded. However, if the gift or inheritance becomes the matrimonial home or can be traced into the matrimonial home, it is no longer excluded. This can occur when the gift or inheritance is used to buy, renovate, maintain, or pay down encumbrances on the home.

Timing on Exclusions

The timing of when a gift or inheritance is received can also have a significant impact on whether it's excluded from net family property. If a gift or inheritance is received before the marriage, the value of the gift or inheritance on the date of marriage is deducted in the net family property calculation.

However, if the gift or inheritance is received during the marriage, its entire value at the date of separation, including any increase in value from the time the gift or inheritance was received, is excluded. This means that the other spouse does not share any of its value, regardless of how great the increase.

Other Types of Exclusions

While gifts or inheritances are the most common types of exclusions, there are a number of other types too. For example, insurance proceeds and general damages for personal injury can also be excluded from the calculation of net family property. This means that if a spouse receives an insurance payout or a personal injury settlement during the marriage, these amounts are generally not included in the net family property calculation.

The Importance of Understanding Exclusions

It's clear that understanding these exclusions is crucial for a fair division of property upon marriage breakdown. They can significantly alter the final net family property figure and therefore, the amount that one spouse may owe the other in an equalization payment.

Moreover, understanding these exclusions can also help spouses plan their financial affairs more effectively during the marriage. For instance, knowing that certain types of property may be excluded from net family property can influence decisions about how to use or invest these assets.

Given the complexity and nuances of these exclusions, it's important to consult with a family lawyer to ensure all relevant factors are taken into account. A family lawyer can provide advice tailored to your specific circumstances and help navigate the often complex process of property division upon marriage breakdown.

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