A common misconception surrounding divorce proceedings is that individuals must solely manage their financial affairs independently until the final divorce decree is issued. This is not always the case. The legal system recognizes that during the often lengthy period between the commencement of divorce proceedings and their ultimate conclusion, financial needs may arise. Therefore, provisions exist allowing parties, under certain circumstances, to petition the court for an interim distribution of marital assets. This mechanism allows access to shared resources before the finalization of the divorce, addressing immediate financial requirements. The court’s determination regarding an interim distribution considers a variety of factors, including applicable legislation governing property division and any pre-existing domestic agreements, such as prenuptial agreements or cohabitation agreements, that may be in place. These agreements can significantly influence the court’s decision. The process of seeking an interim distribution requires careful consideration of both legal precedent and individual circumstances.

In this blog, we explore the concept of interim distribution of marital property, including in what circumstances one may be permitted to apply for such distribution and what must be proven to succeed in such an application.

A Relationship Begins; A Relationship Ends

Cohabitation Agreement for “Marriage-Like” Relationship

A recent decision of the Supreme Court of British Columbia provides an excellent illustration of the concept of interim distribution of marital assets. The case involved parties who, despite never entering into a formal marriage, had been involved in a marriage-like relationship from 2012 until 2019. The parties signed a cohabitation agreement in March of 2017 dictating that both parties waived any rights and obligations related to any property under BC’s Family Law Act.

The cohabitation agreement also stated that both parties would still have the right to seek spousal support if their relationship ended. The parties maintained separate finances and bank accounts throughout their relationship, and each owned property in their own name only (i.e., the two did not share title to nor ownership of any property).

The Breakdown of the Relationship

After the couple’s relationship ended, the wife sold one of her properties for approximately $3.5 million. The husband claimed he was entitled to a share of the sale proceeds. He argued that ongoing legal disputes from their breakup would cost him $200,000, so he sought interim distribution of $200,000 from the sale proceeds. As a result, the money from the wife’s property sale was held in trust until the court decided on the interim distribution.

Importantly, neither party had received spousal support from the other at the time the application was filed. The husband claimed he had been forced to rely upon his savings and sell one of the properties he owned in order to pay for his daily living expenses and to fund the divorce-related litigation.

Interim Distribution of Marital Property in BC

Interim distribution of marital assets is governed by section 89 of BC’s Family Law Act. This section states that a court may make an order for interim distribution of such assets in the event it would not be harmful to either party to do so, and the redistribution is required to fund:

  • resolution of a family legal dispute;
  • all or part of any proceeding that arises under the Family Law Act;
  • or the ability to obtain evidence in support of the resolution of a family dispute or an application made to a court.

However, even where the two criteria are satisfied (i.e., the person seeking distribution can prove that the redistribution would not cause any harm to either party and is for one of the reasons delineated in section 89 of the Act), the court is entitled to exercise discretion in issuing such orders. The language of section 89 asserts that a court may, but not must, issue such orders. In exercising that discretion, courts are obligated to consider whether it would be in the interests of justice to order such distribution.

The Third Factor: Establishing a Prima Facie Right

The court also pointed out in this case that there exists a third factor that must be considered. This factor is whether the person who applies for interim distribution has established a prima facie right to such compensation. This factor is particularly important where the parties are governed by a prior contract such as a cohabitation agreement. The agreement may operate in such a manner that it precludes entitlement to any property distribution whatsoever.

The court’s central concern in evaluating applications for interim distribution is the needs and means of each party to the divorce. In other words, if one spouse has no significant assets and is unemployed, and the other spouse owns multiple properties and has access to millions of dollars, then the courts will consider that the spouse who has nothing is entitled to receive something to balance the scales, so to speak. However, where an agreement such as a cohabitation agreement exists, the courts must review it, and may only issue orders that coincide with the principles agreed to in the contract.

Disparity in Parties’ Circumstances Results in Interim Distribution Order

This case involved determination of two issues:

  1. Whether an interim distribution would potentially cause harm to the wife, which includes consideration of whether the husband could repay any monies distributed to him in the interim in the event that he was unsuccessful at trial; and
  2. Whether such interim distribution was necessary to enable the husband to continue funding the divorce litigation.

Establishing the Need for Interim Distribution

The evidence revealed that the husband had earned an average of $205,000 in income throughout the three prior years and owned a property that was worth approximately $1.6 million. Despite his high income and assets, the court was satisfied that the husband also had significant expenses, some of which it acknowledged may be characterized as unnecessary and/or extravagant. Regardless of that fact, the court was satisfied that the husband was spending everything he earned and, as his bank account was overdrawn at the time of the hearing of this application. This showed that he did not have the funding necessary to continue the divorce litigation. Thus, the husband’s need for interim distribution had been established.

With respect to whether such distribution would cause any harm to the wife, the court was satisfied that the wife enjoyed “a significant economic advantage” relative to her husband, and that to order such distribution would not cause her any financial harm.

Establishing the Third Factor

Turning to the third criterion, whether the husband had substantiated a prima facie case of entitlement to such distribution, the court was satisfied that the husband had established such entitlement. Spousal support is typically payable by the higher-earning spouse to the lower-earning spouse, and the cohabitation agreement applicable in these circumstances did not negate this expectation. As the husband was the lower-earning spouse and there was no agreement denying him his supposed entitlement to spousal support, a prima facie entitlement had been established. In these circumstances, the court ordered the interim distribution of $200,000 by the wife to the husband, to enable the husband to continue to fund the divorce litigation appropriately.

Securing Financial Stability During Divorce

Divorce often brings significant financial strain, particularly when one spouse has greater resources. Interim distributions can provide access to shared assets before the divorce is final, helping with legal costs and living expenses. However, courts grant these requests only under specific circumstances, taking into account fairness, financial need, and any pre-existing agreements. Successfully managing these complexities during separation or divorce requires sound legal counsel to protect your financial future and ensure a just settlement.

Contact the Vancouver Family Lawyers at Meridian Law Group for Assistance with Interim Property Distribution

If you are involved in a family law dispute regarding divorce, domestic agreements, spousal support, or child support, particularly concerning the interim distribution of property, experienced legal representation is crucial for the stability of your financial future.

Meridian Law Group, located in downtown Vancouver, British Columbia, provides comprehensive litigation representation to clients throughout the province. Our team of experienced family law litigators offers skilled advocacy in all family law disputes, including matters related to property division, contract interpretation, and support obligations. To discuss your case and how we can represent your interests, contact us online or by calling (604) 687-2277 to schedule a confidential consultation.