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Apr 16, 2018

Excluded Property in BC Family Law | Everything You Need to Know

Apr 16, 2018

Excluded Property in BC Family Law | Everything You Need to Know

When the Family Law Act introduced the concept of excluded property back in 2013, it became the hottest topic in (the legal) town. Heated debates by lawyers ensued and so did litigation. Then judges got involved and with their incredible intelligence and reasoning, they respectfully disagreed with one another in written and published decisions. The result? A total mixed bag of court cases that often contradicted one another and a whole lot of confusion in the BC family law realm.

Note that you MUST read this article in its entirety to understand the different ways the law treats excluded property. The concept is complicated and you should pay careful attention otherwise you might lose fortunes in your family law case. 

The issue of excluded property under the Family Law Act is so complicated that I actually had to go online and figure out how to do a table of contents in my blog to make sure I stay as organized and clear as possible. As you can see it is a work of art:

Why Do We Even Have Excluded Property?

Excluded property came into existence because the previous laws said that any property brought into the marriage or accumulated during the marriage is open to 50/50 division as long as it was used for family purposes.

This meant that for example if you had a $1 million dollar house before you married your spouse and you used that house to live in as a family, at the time of separation, you would normally have to pay your spouse $500,000 to buy out their ‘interest’ in that house. This really was not fair in some circumstances. Why would you have to give half of the assets you accumulates prior to marriage or cohabitation to someone just because you married or lived with them?

The Family Law Act tried to make things simpler. It got rid of the concept of use for family purposes (don’t worry about this part as it doesn’t apply anymore) and said pretty much if you bring something to your marriage or cohabitation, it will remain yours. Any appreciation of assets or assets accumulated during the marriage or cohabitation will usually be split 50/50. Fair enough right? I think so.

Straight forward enough, right? Not so much.

Us lawyers are known to make things complicated. That’s why this simple concept is now so vast that it is making everyone scratch their head and swim in a sea of confusion. Hey don’t shoot the messenger, I am just here to spread love (and information).

And be not afraid, I am going to make it simple for you.

What is Excluded Property Under BC Family Law Act?

Section 85 of the Family Law Act defines what excluded property is. In simple words, excluded property is:

  1. Property you brought into your relationship;
  2. Inheritances you received during your relationship;
  3. Gifts you received during your relationship by someone other than your spouse;
  4. Personal injury or settlement awards received during your relationship such as ICBC settlements, etc;
  5. Property held for you in a discretionary trust held by someone other than your spouse;

Note that with inheritances, gifts or personal injury awards, if they happened before the relationship, obviously they are automatically excluded as per #1 above. But even if they are received during the relationship, the principle amount is excluded. What is open to division is the appreciation in the value of these properties during the relationship.

Also note that if you want to prove that you have an excluded property that needs to revert back to you, you have the obligation of tracing and proving that it is excluded. Otherwise, it will be considered as a family property which is open to 50/50 division.

The Ways Excluded Property is Treated Under FLA:

There are no uniform ways the courts have treated excluded property. For that reason it is very important that you read the below to best familiarize yourself with the likely outcome of your case:

What Happens When You Put Excluded Property in Your Spouse’s Name?

If you put your excluded property under the name of your wife, it means you gifted it to her. And when an excluded property becomes a gift between spouses, you can only get back 50% of it. This according to the BC Court of Appeal Case of V.J.F vs. S.K.W.

In this case, the husband received $2 million dollars as inheritance during his marriage which was his excluded property. The husband had a high paying job and worked in the inner circle of a big corporation. In order to protect his $2 million dollars from creditors, he put the amount in his wife’s name. The parties later used it to purchase a home. The husband said that the parties understood that this money was the husband’s money and he only put under the wife’s name in order to make sure it is not taken by future lawsuits or creditors of the company he used to work for. The parties then separated and the money was being held in a trust account pending judgment on whether husband could keep the $2 million or not.

The BC Court of Appeal essentially said that:

  • The husband couldn’t say that the money was the wife’s when it came to creditors; but then when it came to his marriage and separation, it was his;
  • When a husband transfers property to his wife, a presumption called the presumption of advancement arises. This basically means that the court will presume that the transfer of the funds was a gift unless the husband can show through documents or evidence that no gift was intended.

A combination of uproar and outrage ensued after V.J.F vs. S.K.W. came out in the legal community. Many lawyers argued that the decision in VJF was simply wrong and went against what the Family Law Act Intended – that if you receive a gift during your marriage, it is yours as long as you can trace it and show where it came from. After all, the Family Law Act almost spelled it out.

More importantly, family lawyers and people questioned, what happens if you had a house prior to marriage and during marriage you put it in joint names? Does that mean now your spouse gets 50% of it even though you brought in to the marriage? This is when conflicting cases started coming out of the BC Supreme Court:

What Happens When You Put Excluded Property in Joint Names?

If you put an excluded property under joint names, that does not mean that you have gifted half of your property to your spouse. The presumption of advancement (gift) does not arise. As long as you can trace that the funds to purchase or maintain it came from an excluded property, you are safe get back what you put in. Most likely, you will need good documentary or witness evidence to prove whether funds came from and satisfy the judge about your claim for excluded property.

The above runs contrary to the VJF case. This is because many judges at the Supreme Court of BC disagreed with VJF and thought that it would be unfair or dangerous to simply divide properties 50/50 because one spouse decided to put his/her excluded asset under the other spouse’s name. In addition to that, the presumption of advancement (gift) only applies when it goes from the husband to the wife, not the other way around. It runs contrary to our modern society and standards (don’t worry I will explain this below).

In the case of K.R. vs. J.D. the court stated:

In my view, no presumption of advancement arises when one spouse’s investment is put into a property that is jointly owned by that person and his/her spouse. Additionally, courts dealing with similar facts under the FLA have deemed that spouse’s initial investment as excluded property, so long as the party claiming excluded property establishes, on a balance of probabilities, the basis for and extent of the exclusion with precision: see Shih v. Shih, 2015 BCSC 2108 (CanLII) at paras. 64 and 103-107, aff’d 2017 BCCA 37 (CanLII) [Shih], Lahdekorpi v. Lahdekorpi, 2016 BCSC 2143 (CanLII) at paras. 93-94.

What is Wrong with the Presumption of Advancement?

The presumption of advancement means that when a husband puts his assets under the wife’s name, it is assumed that the transaction constitutes a gift. But this presumption does not apply when the wife puts her assets under the husband’s name. In those cases, the presumption of resulting trust applies. This means that the wife putting something under the husband’s name constitutes a loan which the wife can get back unless the husband can prove that it was in fact a gift. The presumption is therefore reversed based on gender.

That is because back in the 18th century, women were so unequal and disadvantaged that the law treated them differently than men and gave them the advantage of getting back what they gave to their husbands (unless husband could prove that it was gift). Clearly this created a double standard that should no longer apply in this modern day and age.

For this reason, the brilliant and honourable Justice Voith in his famous case of H.C.F. vs. D.T.F. stated:

[110]     It is necessary at the outset to understand that the presumption of advancement only pertains to gifts made by a husband to a wife and not to gratuitous transfers made by a wife to a husband. The authors of Waters at 413 explain that “the origins of the presumption between husband and wife is to be found in the eighteenth century, and, prior to World War l in particular, it reflected very much the course of affairs in the average middle-class or aristocratic family”. Waters further observes that the transfer of property from a husband to a wife is regarded as an “advance” of what might be expected on the transferor husband’s death; see Waters at 412.

[111]     Gifts made from a wife to a husband, however, are governed by the presumption of resulting trust and the onus would lie on a husband to establish that a gratuitous transfer made to him was intended as a gift. In this case these competing presumptions have direct relevance. It is to be remembered that when the parties bought the Connaught Property Mr. F. and Mrs. F. contributed $50,000 and $45,000 respectively to that purchase. In the absence of evidence to the contrary Mr. F.’s contribution is presumed to have been gifted to Mrs. F. while Mrs. F.’s contribution is presumed to remain her money.

[129]     If one considers both that the presumption operates only from a husband to his wife and that the presumption is grounded on the theory that a wife is economically dependent on her husband extending the presumption to common law relationships would make little sense. It would cause a dated and now largely inaccurate view of marital relationships to be superimposed on a contemporary form of marital union; see Waters at 414.

[130]     These same considerations extend to both same-sex marriages and same-sex common law relationships. Under the Definition of Spouse Amendment Act, S.B.C. 1999, c. 29 and the Definition of Spouse Amendment Act, 2000, the definition of “spouse” was expanded to include persons in a marriage-like relationship, including marriage-like relationships between persons of the same sex. In 2003 the British Columbia Court of Appeal in Barbeau v. British Columbia (Attorney General), 2003 BCCA 251 (CanLII), ruled that the common law bar to same-sex marriage contravenes s. 15 of the Charter. Two years later the federal government enacted the Civil Marriage Act, S.C. 2005, c. 33, which allowed same-sex partners to marry across the country.

[132]     The operation of the presumption poses pragmatic and conceptual difficulties in the same-sex context. As a practical matter, if the presumption only arises when property moves from husband to wife, when would it arise between spouses of the same sex? On a conceptual level, if the presumption was historically designed to ameliorate a wife’s legal and socially engineered economic dependence on her husband, does such a relationship exist between two men or two women?

Justice Voith than went on to reject the VJF reasoning and bravely decided not to follow it.

So as of today, no one really knows what is going on with excluded property under the Family Law Act really. We will follow the above noted case law depending on the facts of each case. In the years to come, we will see more clarity on this subject but the above is a run down on what has happened to date.

How to Trace Excluded Property

In order to prove what is your excluded property and why you should get it back, the obligation is on you to trace it and show that it came from your pre-marriage assets or gifts or inheritances, etc. Sometimes it is difficult to prove excluded assets by bank or other documentary evidence because many marriages are long and it may not be possible to get documents to prove excluded assets.

The Court in the case of Shih v. Shih provided guidance on how to prove an excluded asset:

[64]        The principle that emerges from the case law is that a broad brush or rough estimate approach to identifying excluded property is not appropriate and that a party claiming excluded property must establish, on a balance of probabilities, the basis for and extent of the exclusion with precision.  Where it is asserted that excluded property has changed character, each link in the chain required to trace the property into a currently owned asset must also be established.  Depending on the nature of the claim in question, this may mean, in practical terms, that it is impossible for a party to meet the onus without documentary evidence.  For example, where the claim in question is a bank account that one party says pre-existed the relationship the court may conclude that a party’s viva voce testimony of the balance in the account at a particular point in time several years earlier is unreliable, and therefore insufficient to meet the onus, if not corroborated by a bank statement.  On the other hand, where the claim in question is founded upon an unusually memorable event, such as inheritance, the court may conclude that a party’s viva voce testimony as to the value of the inheritance is reliable without corroborating documents.  In other words, in determining whether the onus has been met, the court will assess the credibility and reliability of the whole of the evidence tendered in the context of the specific case, but having regard for the precision mandated by the more formulaic approach of the FLA.

Do you have a headache yet? well just remember that you are lucky you do not have to deal with this kind of stuff as a family lawyer day in and out. And spending your free hours for a week writing this blog!

Remember excluded and family property concepts are extremely sensitive and complicated. It is always best to talk to one of our excluded property lawyers at YLaw to get a better understanding of your chances of success with your case. Call us at 604-974-9529 or get in touch.