When the Family Law Act (FLA), came into force on March 18, 2013, it introduced a notable change – the concept of excluded family property in BC. This change effected a new property right regime for separating spouses: if one spouse owned an asset prior to living with the other person, or if a spouse received a inheritance or gift from a third party either before or during the relationship, then those assets, gifts or inheritances are that person’s excluded property in BC, if the relationship breaks down. A spouse’s excluded family property in BC will not be divided with the other spouse – the only divisible portion will be the increase in value of that asset.
Why Do We have Excluded Family Property in BC?
Prior to the concept of excluded family property in BC, all property accumulated by either spouse was divisible 50/50 upon the breakdown of a marriage if it was used for a “family purpose“. That meant that even if you had acquired assets prior to meeting your spouse, those assets could be spilt 50/50 when the relationship ended. Seems unfair? The legislator’s thought so also.
The new concept of excluded family property in BC is meant to even the score – now if you bring excluded family property in BC into the relationship, ie. your receive a gift or inheritance during the relationship, then that asset will remain yours when the relationship ends. The only thing that will be spilt is the increase in value of that asset.
What Exactly is “Excluded Property in BC”?
Excluded property is listed in s 85(2) of the Family Law Act and includes:
- property acquired by a spouse before the relationship began;
- inheritances to one spouse;
- gifts to a spouse from a third party;
- a settlement or damage award, unless it’s compensation for a loss to both spouses or compensation for the lost income of either spouse;
- and money paid under an insurance policy, as long as the policy doesn’t insure property, and unless it’s compensation for a loss to both spouses or compensation for the lost income of either spouse.
How Excluded Property in BC Works
To illustrate how excluded property in BC works, consider one type of excluded property in BC: property one spouse brought into the marriage. If, for example, you owned a house worth $1 million dollars at the start of a relationship, the law of excluded property in BC says you should be credited with $1 million dollars at the end of the relationship. However, if the house at the end of the relationship is now worth $1.5 million, your ex-spouse will be entitled to half of the increase in value, or $250,000, unless you and your spouse have a marriage agreement or cohabitation agreement contracting out of the law. This is one reasons why we highly encourage our client’s to have a family law lawyer draft a marriage or cohabitation agreement prior to living together…
How to Prove Excluded Family Property in BC
In Shih v Shih, 2017 BCCA 37 the BC Court of Appeal found that the onus of proving excluded family property in BC lies with the person wanting to claim the exclusion. Here is what the Court of Appeal said on proving excluded family property in BC:
“…in order for a party to establish excluded property, he or she must do so with clear and cogent evidence. If documentary evidence is not available, the party bearing the onus of proof will need to testify as to their recollection of the transactions in dispute. That evidence will be scrutinized for credibility.”
What if I’ve “Mixed” My Excluded Family Property in BC With My Ex-Spouse?
If you want to claim excluded property in BC and get back what you started with, you will have to be able to trace your excluded property in order to prove that it came from an excluded assets. That can get difficult (but not impossible) when the funds have been “co-mingled” with other funds in the course of the relationship.
For example, if you owned a property in Vancouver at the start of your relationship worth $400,000, you know you should have a $400,000 excluded property in BC credit at the end of the relationship. But, what happens if that Vancouver property was sold and your $400,000 excluded property in BC credit was used to buy a $1 million condo in Whistler? Well, provided you can trace your $400,000 into your Whistler condo, you can claim that the first $400,000 of the Whistler property is your excluded property in BC. We know from Shih v Shih that you will bear the onus of proving the exclusion. To do so, you should be able to produce documents (i.e. bank transfers, etc) that prove that the $400,000 was originally excluded property in BC.
What’s the lesson here? Keep track of your paperwork, or better yet contact a family law lawyer (like us) to draft an awesome excluded property agreement which saves you a lot of headaches down the track. (We do these all the time).
What if I’ve Transferred My Excluded Family Property in BC to My Ex-Spouse?
The law is slightly more confusing if you’ve transferred your excluded property in BC to your spouse, for example by transferring a house that you originally owned into your now ex-spouse’s name. This was the case in V.J.F. v. S.K.W., 2016 BCCA 186 (CanLII), and it didn’t go very well for the husband trying to prove his excluded asset.
In V.J.F., the husband received a $2 million inheritance (excluded property in BC) and then used this inheritance to build a new family home, which he put into the name of his wife to protect the property from creditors. The Court of Appeal held that the money was in fact a gift from the husband to the wife and as a result the family home was no longer excluded property but instead divisible 50/50 between the now ex-spouses…Yikes.
Excluded property in BC can be a confusing and costly area, so we recommend that you invest in a cohabitation or excluded property agreement if you are unsure what law will apply as these agreements protect your excluded property in BC during a divorce or separation. Contact us now on (604) 620 – 8682 to learn more.