Update: Excluded Property in BC Family Law

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.

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.

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 principal amount is excluded. What is open to division is the appreciation of 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 a family property that is open to 50/50 division.

The Ways Excluded Property is Treated Under FLA:

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

The legislature clarified the law in 2023 and says that regardless of who’s name the excluded property is under, it will still belong to the person who originally received it. Unless you can prove that it was intended as a gift.

So for example, if I had $10,000 and bought a vehicle for my spouse and put it under his name, that money may go back to me at separation (as long as the car is worth $10K or more), unless my spouse can prove that I intended to gift the car to him.

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. As long as you can trace that the funds to purchase or maintain it came from an excluded property, you are safe to 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.

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 the bank or other documentary evidence because many marriages are long and it may not be possible to get documents to prove excluded assets.

The Latest BC Court of Appeal Case on Excluded Property

In the latest 2025 case of Mills v. O’Connor, 2025 BCCA 34, the husband appealed a judgment in which the trial judge declined to find that certain assets were excluded property under the Family Law Act. Instead, the judge found that those assets, mainly a vacation cabin on Galiano Island and related investment funds, were family property and thus subject to equal division.

The husband had inherited a considerable sum from his late uncle before the parties began cohabiting. He argued that the majority of the inheritance retained its excluded status since the funds were used directly, or could be traced, to acquiring and maintaining the Galiano cabin. He explained:

• The inherited funds were placed in a separate account and earmarked for a future real estate purchase;
• He bought the Galiano cabin using these inherited funds, believing it would remain his separate asset;
• He maintained detailed financial records showing when and how the inheritance was spent;
• He believed the cabin should be excluded property under s. 85 because it was acquired solely with inherited money.

The wife opposed his claim, alleging:

• They used the Galiano cabin extensively as a vacation home for family gatherings;
• Part of the cabin’s maintenance and renovations was paid from a joint account to which both spouses contributed;
• There was insufficient evidence to segregate inherited funds from other sources once the couple pooled their finances;
• By using the inherited money to benefit the family, the husband effectively lost his ability to characterize it as excluded.

The Court of Appeal Reasoned as Follows:

[51] There is no question that if a spouse inherits money prior to or during the relationship, that money may qualify as excluded property. However, such a finding depends on a fact-specific examination of how those funds were actually used throughout the marriage. If inherited funds are comingled with family funds or used in a manner that obscures their origin, a judge may justifiably find that all or part of that inheritance lost its excluded character.

[52] There is no absolute rule as to whether an asset retains or loses its excluded property status once it is put to family use. The proper approach, as affirmed in Sanai and Sea, is for a trial judge to consider whether the inheritance remains traceable and distinguishable, or whether the family’s reliance on those funds for joint purposes has transformed the asset into family property. The overarching principle is fairness, informed by the specific evidence in each case.

The Legal Test Applying to Excluded Property at Separation

The Court of Appeal cited the well-established framework for determining whether inherited property qualifies as excluded:

1. Show a Qualifying Source: The onus is on the spouse seeking exclusion to prove that the asset originated from an inheritance, gift, or other source identified in s. 85 of the Family Law Act.
2. Trace the Funds: If the inherited money or asset changes form (e.g., from a bank account to a property purchase), the spouse must produce sufficient evidence linking the new asset back to the inheritance.
3. Assess Extent of Commingling: Commingling with family funds does not automatically defeat the exclusion claim. Instead, the court examines whether the inherited funds can still be reliably tracked or whether they have become inseparably mixed with joint resources.
4. Recognize Growth or Increase in Value: Even where the principal remains excluded, any increase in the value of excluded property during the relationship is generally divisible as family property, unless shown to be unrelated to family efforts or funds.
5. Fairness Over Form: Courts will not allow formalities or incomplete records to circumvent a fair result. The judge must balance each spouse’s interests in light of their contributions and the evidence presented.

The Result on Excluded Property According to BCCA

The Court declined to uphold the trial judge’s blanket characterization of the Galiano cabin and related funds as wholly family property. It explained:

[54] There was evidence to show that a substantial portion of the purchase price for the Galiano cabin was directly traceable to the husband’s inheritance. This supports the finding that at least part of the asset should remain excluded property.

[55] On the other hand, there was also evidence that the parties routinely used a joint account for ongoing upkeep and enhancements. The judge did not err in finding that these expenditures contributed to the cabin’s increased value, rendering a portion of that increase family property. The precise division of excluded versus family property must reflect both the traceable inheritance and the extent of commingling through family funds.

Conclusion

Ultimately, the Court of Appeal varied the trial judge’s order to recognize the husband’s right to exclude a portion of the cabin’s value, while treating the remainder—particularly the growth in its value due to family contributions—as divisible property. This balanced approach, in the Court’s view, fulfilled the overarching mandate of the Family Law Act to achieve a fair division of property considering the legitimate interests of both spouses.

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.

The contents of this page were updated in 2025 to bring the law up to date with the recent legislative changes. 

Author: Leena Yousefi, family lawyer, founder and mediator at YLaw.