How Does BC Excluded Property Work?
Our new BC Family Law Act uses a family property and excluded property model that involves less judicial discretion particularly when identifying and dividing family property or excluded property. Lorne MacLean, QC heads our wealth and asset protection and BC excluded property legal department. Our firm is BC’s largest and we have 4 offices across BC to assist you.
BC Family property includes all real and personal property owned by one or both spouses at the date of separation unless the asset in question is excluded, in which case only the increase in the value of the asset during the relationship is divisible.
BC excluded property includes:
- property acquired before or after the relationship;
- gifts or inheritances;
- damage awards and insurance proceeds with some exceptions; and
- some kinds of trust property.
What Happens If I Buy Something New With Excluded Property?
Under our former act the use to which what we now call “excluded property” was put and whether it was registered in joint names had a huge impact on whether it was shareable or not. Under section 85 of the Family Law Act, excluded property also includes property that can be traced to other property meaning where monies or assets are sold or converted to buy a new asset the starting amount of excluded property is still excluded.
What If BC Excluded Property Drops in Value?
Only the gain on excluded property is shared in BC but what happens if the excluded property drops in value? Is the starting or ending value excluded? Can the shortfall be deducted from other property upon separation?
In the August 2014 decision of Remmem v Remmem, the second case on excluded property decided in BC, the judge held that your exclusion is limited to the depreciated value of the assets whose value has declined.
[28] There is one decision in British Columbia considering the application of s. 85 to property that has depreciated since the time it was brought into the relationship. In Asselin v. Roy, 2013 BCSC 1681, Harvey J. concluded the value of excluded family property which has depreciated could not be recovered from other family property. In Asselin at para. 222, he rejected the claimant’s argument that she should receive a credit for an investment made in real property which had depreciated in value at the time of the separation:
In my view, s. 85 doesn’t provide for a tracing of otherwise excluded funds beyond the asset which was acquired through the disposition of her inheritance. Just as the claimant is entitled to no consideration for monies expended by her from the inheritance on matters such as travel or other disposables, if there is no equity or insufficient equity in 80 St. Ninian to repay her original investment, she cannot look to other family property to make up the difference.
[29] …I have fully considered the arguments presented by counsel but whether I treat this issue as determined by Asselin or not, I would arrive at the same conclusion: where excluded property has depreciated in value since one party brought it into the relationship, that party has no ability to look to other family property to make up the loss in value.
What If My Excluded Property Was Put Into Jointly Owned Property?
The legal elephant in the room for BC family lawyers was what happens when excluded property is used to acquire property in the spouses’ joint names such as a house, a bank account, or an investment account or used to pay off joint debt. Worse still, what if for asset protection or tax planning reasons excluded property is used by the spouse who received it to buy an asset solely in the other spouse’s name? Tax planners and investment advisors routinely recommend putting assets in joint names to income split or to avoid probate taxes. This simple act might have dire consequences for the spouse who received the excluded property.
Lorne MacLean, QC handles cases where the excluded property can total in the tens of millions of dollars. The joint ownership issue was the subject of much debate until recently. In both these cases the registration in joint names was found to have no impact on reducing the exclusion to the spouse who obtained the excluded property. Use and intent were found to be irrelevant under our new family and excluded property division regime. The Remmem and Asselin case represent early decisions and we will need to see if there are appeals to higher courts on this critical issue. Here is what the court in Remmen held:
[48] This issue considers whether the transfer of excluded property into joint property reduces the value of the exclusion for the spouse that brought the property into the relationship. I have concluded that the purchase of property in joint names using the proceeds of excluded property does not reduce the value of the exclusion. The property provisions of the FLA are intended to be a complete code so that there is no need to examine the intention of the parties at the time of a transfer of excluded property to joint tenancy. To come to the opposite conclusion would bring uncertainty and a level of inequality into a property division structure that was intended to treat married and unmarried spouses equally and to provide for a greater level of certainty.
[51] These issues would have two significant consequences. First, the apparent simplicity and certainty of the property division scheme would be lost. Exclusion would depend not only on whether property was owned prior to the commencement of the relationship or brought in by way of inheritance in the course of the relationship, but on other circumstances. The new scheme is easier to apply if subsequent transactions only have to be examined to see if property is derived from the excluded property. If the court also has to look at subsequent transactions to determine if property was gifted, it would have to consider the parties’ intentions in transactions which may have taken place many years before trial. This would be a difficult exercise which would require considerably more court time. Further, the amount of the exclusion would be different for married and unmarried spouses, a result that does not appear to have been intended by the legislation. The amount of the exclusion might also be different for married spouses in similar situations, depending on the conclusions arrived at as to application of the presumption of advancement.
[52] When I consider these difficulties, I conclude that the tracing provisions in the FLA, at least when applied to the circumstances in this case, are to be applied without considering or applying the presumption of advancement between married spouses. In other words, none of the excluded property – the fair market value of the Greaves Road property in October 1990 – was gifted to Ms. Remmem when the Middle Point property was placed in joint names. Mr. Remmem remains entitled to the full value of the exclusion of $65,000.
If you have questions on a BC Excluded Property and BC family property division dispute it pays to speak with Lorne MacLean, QC. Contact him now so you can begin to resolve matters and move forward with your life.
