Are pre-mar­i­­tal assets treat­ed dif­fer­ent­ly to mar­i­tal assets dur­ing prop­er­ty settlement?

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In brief — How pre-mar­i­tal assets are treated

A pre-mar­i­tal asset will be con­sid­ered to be a con­tri­bu­tion of the per­son who bought that asset into the marriage.

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Divid­ing the assets after separation

After sep­a­ra­tion, the par­ties to a rela­tion­ship are enti­tled to seek a divi­sion of assets of the rela­tion­ship. The assets of the rela­tion­ship include all assets held joint­ly or indi­vid­u­al­ly, whether they are acquired pri­or, dur­ing or after the rela­tion­ship. It does not mat­ter which part­ner paid for the asset or from where they obtained the funds.

When con­sid­er­ing the divi­sion of assets of a rela­tion­ship, a court is required to under­take the four steps set out below.

Deter­min­ing the asset pool

The court deter­mines the asset pool by tak­ing the val­ue of all of the assets of the par­ties held joint­ly and indi­vid­u­al­ly and deduct­ing the val­ue of the lia­bil­i­ties of the par­ties. There is some­times an argu­ment about whether cer­tain lia­bil­i­ties should be includ­ed, but on the whole, all lia­bil­i­ties are includ­ed. It is the net val­ue (assets minus lia­bil­i­ties) which is said to make up the prop­er­ty pool for division.

Deter­min­ing the con­tri­bu­tion of both parties

When con­sid­er­ing the divi­sion of assets, the court con­sid­ers the con­tri­bu­tion of both par­ties. It takes into account such con­sid­er­a­tions as who was the pri­ma­ry care­giv­er of the chil­dren, who was the pri­ma­ry finan­cial provider, did one par­ty ren­o­vate the prop­er­ty, who did the greater share of the cook­ing, clean­ing, gar­den­ing and so forth. The court also takes into account any indi­rect finan­cial con­tri­bu­tions through gifts or inher­i­tances from fam­i­ly or friends.

Fac­tors affect­ing each of the par­ties in the future

The court con­sid­ers fac­tors that will affect each par­ty in the future, for exam­ple, the future earn­ing capac­i­ty of each par­ty, the health of the par­ties, the age of the par­ties and any future car­ing respon­si­bil­i­ties either par­ty may have.

Fair and equi­table orders

The court will con­sid­er the effect of the pro­posed orders on both par­ties. The court will take into account the length of the mar­riage and all of the fac­tors out­lined above to deter­mine whether the pro­posed orders are fair, tak­ing into account all of the cir­cum­stances of the relationship.

Pre-mar­i­tal assets and the ero­sion principle

A pre-mar­i­tal asset will be con­sid­ered to be a con­tri­bu­tion of the per­son who bought that asset into the mar­riage. There is a prin­ci­ple in law known as the ero­sion prin­ci­ple, which means that over time the val­ue of the ini­tial con­tri­bu­tion reduces and the con­tri­bu­tion of the oth­er per­son increases.

This is par­tic­u­lar­ly the case if the per­son who did not bring the asset into the rela­tion­ship con­tributes direct­ly to the asset in ques­tion. This means that a con­tri­bu­tion of a pre-mar­i­tal asset in a short mar­riage will have more influ­ence than in a long mar­riage. Nat­u­ral­ly this will depend on the dol­lar val­ue of the asset at the com­mence­ment of the mar­riage, for exam­ple, the con­tri­bu­tion of a prop­er­ty with an equi­ty of $1,000,000 at the com­mence­ment of the mar­riage will be con­sid­ered a greater con­tri­bu­tion than a prop­er­ty with an equi­ty of $40,000.

It is also rel­e­vant to con­sid­er whether a pre-mar­i­tal asset has had lit­tle or no call on the joint assets of the mar­riage. For exam­ple, if the prop­er­ty was pro­duc­ing a pos­i­tive income (no mar­i­tal funds used to top up the mort­gage) from rental income, this asset may be con­sid­ered as a major con­tri­bu­tion of one par­ty alone.

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