The Matrimonial Property Act, RSNS 1989, c. 275 (the Act) governs, among other things, the division of matrimonial assets between spouses upon separation. Persons who have received a damages award or settlement for a personal injury claim should be aware of important provisions in this Act with respect to the status of these funds in the event of a separation or divorce.
Matrimonial assets subject to division between the parties following a breakdown of a relationship will include “the matrimonial home or homes and all other real and personal property acquired by either or both spouses before or during their marriage” (s. 4(1)).
Although this definition applies very broadly, s. 4(1)(b) specifically carves out an exception for “an award or settlement of damages in court in favour of one spouse.” The Courts of Nova Scotia have interpreted this to mean that, in general personal injury settlements are outside the scope of the Act and therefore are not subject to division upon separation. However, there may be circumstances in which a court can take the settlement or award into account. For example, s.13(k) provides that a court has discretion, where “the division of matrimonial assets in equal shares would be unfair or unconscionable”, to consider the effect of the proceeds of an insurance policy, or an award of damages in tort, intended to represent compensation for physical injuries or the cost of future maintenance of the injured spouse. How this factor is treated is unpredictable, due to the discretionary nature of the Court’s assessment, and its view of the fairness of the overall division of property.
A further exception (outside the personal injury context) is found in s.4(2), which provides that, to the extent that a settlement or award “is made, paid or payable in respect of a matrimonial asset”, it will be included as a matrimonial asset, subject to division. For example, monies paid for damage to a matrimonial home, or a car considered to be a matrimonial asset, will not be protected from division by s. 4(1)(b)
Practical Considerations Regarding Your Personal Injury Award
For spouses subject to the Act, there are issues that should be taken into account at an early stage to ensure that personal injury awards are protected from equal division. In Fraser v Fraser, 2011 NSSC 178 (CanLII), the Court focused on the concept of traceability and co-mingling of funds. What this means is that the Court will generally consider what the money from an award was used for and/or whether it can be clearly identified. It is important to keep clear and accurate records of any settlement or award to ensure, if need be, that upon separation it is possible to show a history of where the funds were deposited, and what they were used for. Whether by keeping in separate accounts, or documenting expenditures from the funds, this “traceability” will permit the recipient spouse to show that an award or settlement was not put towards a matrimonial asset. To avoid having your award or settlement fall within the scope of the Act, it may be important to avoid placing it in joint bank accounts or using it to pay towards your matrimonial home. Any use of the funds toward something that falls within the scope of the Act may weaken your ability to show that the award or settlement should not be considered a matrimonial asset.