Transmutation Of Property: When Separate Property Becomes Marital Property

Divorce is rarely an easy process — even when the divorcing parties are generally in agreement. More often, there will be disputes and disagreements about how to fairly divide assets, and confusion over property status can make the process even more daunting. When you’re going through a divorce, you want things to go as smoothly as possible so that you can retain the assets you need while getting the divorce complete as quickly and easily as circumstances allow. During this process, you may hear the term transmutation of property.

Let’s take a moment to explore what that phrase means and how it could apply to your divorce proceedings.

What is Transmutation of Property?

To put it simply, transmutation of property means that the status of the property has changed. Property can be classified in different ways. Generally speaking, property falls into one of two categories:

  • Separate property- Property solely under the control and belonging of a single party
  • Marital property- Property jointly held under the control and belonging of multiple parties (most frequently spouses)

If property is transferred from one status to another, a transmutation has occurred.

When Does Transmutation of Property Matter for a Divorce?

Obviously, the most pressing question about property and its control during a divorce is what assets are available for division. In Ontario, divorce proceedings focus on the debts and assets each party had when they entered the marriage, what assets and debts were jointly accrued during the marriage, and what debts and assets each party had on the date of separation. These calculations will be used to determine a net family property, which will be divided during the divorce proceedings.

Division of this property is designed to be equitable, but that doesn’t mean it is always straightforward. Typically, one spouse will have a greater net family property than the other. In this instance, that spouse can be required to pay the other an equalization payment.

As you can see, the determination of the net family property is an important one for those who are going through a divorce. The calculation of this value will determine the course of the rest of the divorce proceedings.

When Can Separate Property Become Marital Property?

Most of the time, any property that is acquired after the parties married is considered to be marital property. Likewise, any property obtained before the marriage date is typically considered to be separate property belonging to the person who owned it prior to the marriage.

There are some exceptions to this general guideline, however.

One major exception is the “matrimonial home.” This term refers to the dwelling that the married couple shared during their marriage. It can refer to more than one physical dwelling in the case of cottages or vacation homes. These shared spaces are generally considered marital property even if they belonged to one member of the marriage prior to the wedding date.

Section 18(1) of the Family Law Act defines the matrimonial home broadly as “every property in which a person has an interest and that is or, if the spouses have separated, was at the time of separation ordinarily occupied by the person and his or her spouse as their family residence is their matrimonial home.”

Why is a Formal Division of Property Important?

With the special legal status of the matrimonial home, it’s incredibly important for divorcing parties to go through a formal division of property. Under Canadian law, both parties of a divorce have equal claim to the matrimonial home, and that claim continues until the home is sold or a judge rules that one party has been granted sole possession of the home. This means that, until that ruling takes place, it is not legal to block access to the home to one party of the marriage — even if that party has moved out.

Obviously, this can lead to some challenging living arrangements, and many divorcing parties want to settle the dispute over possession of the matrimonial home and the calculation of any equalization payments as quickly as possible.

Notably, the division that’s typically used is not the only way that a couple could choose to divide up the assets of their marriage. While the court will typically use the above-mentioned guidelines and definitions of marital property, a divorcing couple is free to come to a different agreement that better fits their individual situation.

Just as every marriage is unique, so is every divorce. Finding a property division arrangement that meets the needs of both parties may be complex — especially with the transmutation of property from separate into marital property — but it is not impossible. An experienced divorce lawyer can help you navigate the challenges of reaching a property division plan that fits your needs. Having the help of an experienced lawyer can also ensure that the assets are evaluated fairly when calculating the net family property values.

It’s important to go into this challenging process with a clear mind and the ability to consider each piece of property and all assets from the marriage with clarity.

If you are facing the prospect of divorce, it is important to reach out to an experienced divorce lawyer as soon as possible.

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