You May Lose your Excluded Property Under the BC Family Law Act! Contact our Vancouver Property Lawyers for Assistance.

Us BC family lawyers all thought BC Family Law Act finally made things fair between spouses, specially when it came to a spouse having assets/money prior to the marriage which the Family Law Act says belongs to him/her once the marriage breaks down. But the very recent BC Court of Appeal of V.J.F v. S.K.W begged to differ, and now the law relating to BC excluded assets is very different than we thought.

What is a Excluded Property in BC?

Excluded property in BC means property you bring in to your relationship or marriage. Also, if during your marriage you receive a gift, inheritance or a personal injury settlement, those all belong to you and are not subject to 50/50 division upon separation, unless you gift them to your spouse or put them under your spouse’s name. However, the appreciation on the excluded asset during the relationship will be most likely divided 50/50 upon separation or divorce.

Excluded property that is put under joint names during the marriage however, is not really excluded as long as you can trace the asset to your contributions prior to the marriage. So if you place a house that you bought before marriage under joint names, as long as you can show the house was purchased with your money prior to marriage, you can exclude the money that you brought in regardless of the fact that the asset was put under joint names later.

Excluded Property Gifted to the Wife

In V.J.F v. S.K.W, the Husband essentially put $2 million dollars under the wife’s name during the marriage because he was a director of various corporations and did not want his creditors to come after his assets. It was understood by both parties that the $2 million dollars was gifted to the husband by a third party which was later put under the wife’s name in order to protect the money from creditors.

Upon separation, the wife argued that the transfer of the $2 million dollars was essentially a gift to her  and therefore at the time of separation, the gift was ‘family property’ and subject to 50/50 division. The husband argued that it was not really a gift because the only reason he transferred the monies to the wife was because he wanted to make sure creditors don’t come after him and take the money from him.

The trial judge decided that although the $2 million dollars was clearly given to the husband by a third party, the fact that the husband put it under the wife’s name essentially meant that he gifted the property to her and no longer could keep the whole thing to himself. He therefore gave each of the spouses half of $2 million: $1 million dollars each.

BC Court of Appeal Rules on Excluded Property and Gifts During Marriage

The BC Court of Appeal reviewed the law in this case and stated as follows:

1. If one spouse puts his excluded property under the name of the other spouse, the transaction constitutes a gift and therefore, the property is no longer excluded and divisible between the parties.
2. In some cases, the gifting spouse can show evidence that the transfer was not really a gift, but a financial arrangement made during the marriage to make things easier for spouses such as estate planning, being approved for mortgage, etc. If the gifting spouse can show through evidence that the transfer was not a gift, then the court MAY decide to revert the asset back to the ‘gifting’ spouse.
3. In this case, the court said the husband could not say to the creditors “Hey, this $2 million is not mine but belongs to my wife” but at the same time tell the family court “this doesn’t belong to my wife. I just did it so my creditors wouldn’t think it’s mine!”

What Happens When You Put an Excluded Asset Under Joint Names?

Us lawyers thought that the same principles as above would apply but they don’t. If you put your excluded asset under joint names, as long as you can trace it to where it came from (i.e. came from your savings prior to marriage, was a gift or inheritance, etc), you can safely argue that the asset belongs to you and not your spouse despite the asset being placed under joint names. This was affirmed in the case of Pearson vs. Graham where the judge stated:

[50] The FLA contains no provisions dealing with the presumption of advancement between spouses which would suggest that the presumption still applied. However, as noted by Mr. Booth, the presumption would raise a number of problems when applied under the scheme of the FLA including:

a) The presumption only applies to married spouses and so gratuitous transfers between married and unmarried spouses would be treated differently [This point is less convincing given the seeming acceptance of the application of the doctrine to marriage-like relationships, though I would note such acceptance seems to be limited to BC: see McNamara v. Rolston, 2013 BCSC 2115 at para. 13; J.B. v. S.C., 2015 BCSC 2136 at para. 87

b) The presumption is at odds with and would thus limit the utility of the tracing provisions. Property . . . . . placed in oint names is clearly derived from excluded property and so it is easy to trace the full amount of the exclusion. Unlike the presumption of advancement, tracing does not depend on the parties’ intentions. The application of the presumption and an examination of whether property was gifted is at odds with the simply concept of tracing.

What You Need to Do During Your Marriage to Keep Excluded Property

1. Do Not Put Your Excluded Property under your wife’s name.
2. If You Put Your Excluded Property under your husband’s name, get an agreement from him stating this property belongs to you and get him to agree to the reason why it is being put under his name.
3. Do Not Use Your Excluded Property to buy a family asset. So if you brought a house in to the marriage and then sold that house and used the money to buy a family home, your wife can argue that you gifted and mingled your excluded property and therefore everything should be divided 50/50.
4. Do Not Use Your Excluded Savings for family purposes. Keep your excluded savings in a different bank account and open another bank account for family expenses. This way you can clearly show the judge at the time of separation you kept your excluded property separate for family law purposes.
5. If you put your excluded asset under joint names, make sure you have enough documents to trace where the downpayment came from and why you should keep what you put in to the joint property from your savings prior to marriage, gifts and inheritance, etc.

Excluded property and how you use it during and after your marriage can mean fortunes gained or lost at the time of separation. Contact our excluded property lawyers at our award-winning firm for a consultation to know your rights better. Call us at 604-974-9529 or email [email protected]