When relationships end, dividing family property can be complex. One aspect of family property division that is particularly complex is identifying and proving exemptions. Exemptions are types of property that are generally excluded from division between parties.
While exemptions under Alberta’s Family Property Act may appear straightforward, real-life situations often fall into grey areas. From personal injury settlements to gifted funds and home renovations, understanding what counts, what doesn’t, and how to prove it, can make a significant difference in achieving a division in accordance with the law.
Laurie J. Tymchuk shared key insights on this subject during her recent family law presentation, “Exemptions – The Grey Areas.” She detailed how Alberta courts interpret and acknowledge exemptions in these in-between scenarios. Below, we outline some of the most common grey areas and how the courts have approached them.
Under section 7(2) of Alberta’s Family Property Act, certain assets are excluded from division between spouses or adult interdependent partners. Classes of exemptions include property owned before the relationship, gifts from third parties, inheritances, and portions of damages in tort such as personal injury awards. However, real-life situations rarely fit neatly into exemption categories or are difficult to isolate and prove, and it’s these nuanced scenarios where disputes often arise.
One area where grey zones often arise is personal injury settlements, where not all categories of damages are treated the same under the law.
Damages that compensate for pain and suffering, loss of enjoyment of life, or future care costs are typically exempt from family property division. These are considered personal to the injured party.
However, income replacement — money meant to replace wages lost during the marriage — is generally not exempt. It’s treated as part of the shared financial partnership pool.
Courts often look for clear evidence distinguishing these categories. While the burden of proof lies with the person claiming the exemption, in Williams v. Williams, 2020 ABCA 15, the Alberta Court of Appeal concluded that absent specific evidence, the court was able to take a “rough-and-ready” approach, estimating which portion of the settlement is exempt versus shareable.
In Pederson v. Pederson, 2024 ABKB 360, the court confirmed that:
If you’re pursuing an exemption for a settlement, documentation such as medical reports, tax returns, or legal correspondence can be crucial in demonstrating how the settlement should be apportioned.
Using exempt funds to pay down joint debts can raise complex questions about whether the exemption is preserved and traceable.
In Rosin v. Rosin, 1993 CanLII 7280 (ABKB), the court held that a wife’s exemption was preserved even after she used her inheritance to pay off a joint mortgage — because there was evidence she did not intend to gift that money to her spouse.
Conversely, if exempt property is pledged as security for a joint loan, the exemption may be lost if the lender realizes on that asset and there is insufficient remaining equity in the pledged asset to pay out the secured loan (H.B. v. S.B., 1996 ABCA 4).
The key takeaway is that exemptions may be preserved when used to pay joint debt where sufficient evidence exists to rebut the presumption of intention to gift and where sufficient equity exists in property pledged as security for repayment of joint debt.
A common grey area arises when one spouse uses exempt funds, such as an inheritance or pre-marital savings, to improve or renovate jointly owned property.
Alberta courts have held that the value of the renovation itself isn’t automatically exempt unless you can prove it increased the property’s fair market value. In Chalifoux v. Chalifoux, 2008 ABCA 70, the wife’s claim for an exemption failed because she lacked expert evidence showing her renovations increased the home’s value.
By contrast, in Kazmierczak v. Kazmierczak, 2001 ABQB 610, the court accepted a renovation’s value as part of the exemption even without expert appraisal — a decision upheld on appeal.
The lesson: if you’ve used exempt funds for home improvements, be prepared to provide evidence of the increased value through an appraisal or expert report and don’t simply rely on value invested.
If an exempt asset — like inherited property — is pledged as security for a joint loan, the exemption isn’t automatically lost. Courts distinguish between using the asset as collateral and using its actual value to pay debt.
In M.J.W. v. B.J.W., 2006 ABQB 19, the court confirmed that simply pledging an exempt property as security for repayment of a renovation loan did not erode its exempt status. However, once the secured creditor enforces the loan and the asset is used to satisfy it, the exemption may no longer be traceable (H.B. v. S.B., 1996 ABCA 4).When it comes to family property exemptions, context is everything. Even small differences in how an asset is acquired, titled, or used can determine whether it remains exempt. Proving intent—and keeping detailed documentation—is essential to preserving exemption claims.
If you’re unsure how your property might be classified under Alberta’s Family Property Act, consult a lawyer experienced in complex property division.
Our team of professionals at Richmond Tymchuk Family Law can help you understand your rights, protect exemptions where possible, and navigate these grey areas with clarity and confidence. Reach out to us today.