Excluded Property and the Hot Housing Market

Under the Family Law Act, certain property is excluded from the division of what family lawyers call ‘family property’. That’s right – if you owned a home before the marriage (or before you became common-law spouses), or if your grandparents will their boat to you, for example, that property may remain solely yours. Here’s how the Act reads:

85 (1) The following is excluded from family property:

(a) property acquired by a spouse before the relationship between the spouses began;

(b) inheritances to a spouse;

(b.1) gifts to a spouse from a third party;

(c) a settlement or an award of damages to a spouse as compensation for injury or loss, unless the settlement or award represents compensation for

(i) loss to both spouses, or

(ii) lost income of a spouse;

(d) money paid or payable under an insurance policy, other than a policy respecting property, except any portion that represents compensation for

(i) loss to both spouses, or

(ii) lost income of a spouse;

(e) property referred to in any of paragraphs (a) to (d) that is held in trust for the benefit of a spouse;

(f) a spouse’s beneficial interest in property held in a discretionary trust

(i) to which the spouse did not contribute, and

(ii) that is settled by a person other than the spouse;

(g) property derived from property or the disposition of property referred to in any of paragraphs (a) to (f).

(2) A spouse claiming that property is excluded property is responsible for demonstrating that the property is excluded property.

The intention of the Act when it came into force in 2013 was to clarify and simplify property division for separation and divorce. As you’ll see, though, it’s one thing for legislators to write the law; how that law is interpreted in court is a whole different issue. Let’s look at how this section has been handled in recent BC Supreme Court cases.

Asselin v Roy was the first case to apply these provisions of the Act. Happily, it confirmed the ideas of Excluded Property as intended by the Act: that property brought into the relationship by one spouse is ineligible to be divided among the spouses after they break up. The court did, however, uphold the onus of proof on the party claiming that property is excluded, and reminded the parties to be prepared to prove their positions:

[104] Future litigants referencing this decision would be well advised to avoid some of the problems encountered by the parties in this litigation by… detailing the assets and liabilities of each party as of the date of separation.

In Remmem v. Remmem the court dealt with the slightly more difficult idea of “tracing” Excluded Property after it has been converted into a family asset (pursuant to paragraph (g) above). Again, the Court’s decision was consistent with the intentions of the Act: if the proof is there, a party can keep the value of their excluded property, even if it has been turned into something else.

If this sounds simple, then we’re sad to say that it’s not. There are lots of pitfalls along the way to keeping your excluded property, or its value, through a divorce or separation and property division.

For one, the Act states that any increase in value of the Excluded Property during the course of the relationship is considered family property [FLA s.84(2)(g)]:

(2) Without limiting subsection (1), family property includes the following:

(a) a share or an interest in a corporation;

(b) an interest in a partnership, an association, an organization, a business or a venture;

(c) property owing to a spouse

(i) as a refund, including an income tax refund, or

(ii) in return for the provision of a good or service;

(d) money of a spouse in an account with a financial institution;

(e) a spouse’s entitlement under an annuity, a pension plan, a retirement savings plan or an income plan;

(f) property, other than property to which subsection (3) applies, that a spouse disposes of after the relationship between the spouses began, but over which the spouse retains authority, to be exercised alone or with another person, to require its return or to direct its use or further disposition in any way;

(g) the amount by which the value of excluded property has increased since the later of the date

(i) the relationship between the spouses began, or

(ii) the excluded property was acquired.

In the hot Clayton Heights housing market, your home may have increased in value substantially since you brought it into your relationship; this new equity is eligible for property division because it might be family property.

Recent decisions have further complicated the Act when it comes to Excluded Property:

V.J.F. v S.K.W. 2015 BCSC 593 applied an old common law principle called the “presumption of advancement,” which means that if you give a gift to your spouse, the Court could assume you meant to kiss it goodbye forever. It is not uncommon to take what used to be your house and transfer it into both names, or for your parents to gift you a down-payment for a new family home, but the decisions in VJF and other similar cases make it unclear whether you will truly get to keep that property, which the Act most likely meant to clearly designate as Excluded Property.

You need to consult a Clayton Heights, Surrey family lawyer when you leave (or even enter into!) a marriage with Excluded Property involved. The lawyers at Pamela J Rowlands Law Corporation can help advise you on how to make sure what’s meant to be yours stays yours. We can help you prove that your property should be excluded, and help you establish the value of that Excluded Property. We can help you draft a cohabitation agreement that will make your intentions clear to a court in the event of a divorce or separation. We’re here to help guide you through the minefield of Property Division.

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