The top Vancouver Family Property Lawyers have been arguing excluded property cases since the new Family Property provisions of our Family Law Act came into effect in March of 2013. There are two types of property in marriage or relationship property division cases. Our Vancouver Family Property Lawyers argue for division of both “family property” and gains or division of “excluded property”. Skilled Vancouver Family Property Lawyers will argue intention does or does not matter regarding how the property became registered in joint names. There is a huge danger at present for spouses entering into a new relationship or who expect to receive gifts, inheritances and other third party assets. Consult one of the top Vancouver Family Property Lawyers at MacLean Law and in particular Lorne MacLean, QC now if you are entering or leaving a relationship or are about to receive a windfall.
Free Vancouver Family Property Lawyers WARNING
Do not place property acquired before the relationship or acquired from other than joint efforts of the spouses in both names unless you want to share the property equally!
MacLean Law’s Vancouver Family Property Lawyers know the problem created for excluded property if someone places excluded property into a joint account or registers land in joint names. Some cases say your exclusion from division of the starting value of this “excluded property” is still safe but another group of cases days “tough luck! the whole value of the excluded property and not just the gain on it during the relationship is up for equal division or “grabs”.
Our Vancouver Family Property Lawyers have argued this issue on multi million dollar cases where the stakes are huge and we have settled a number of cases on favourable terms on this issue. There is still uncertainty as no Appeal court decision has been handed down that will provide guidance to British Columbians.
A recent BC Supreme Court decision held that registering property in joint names does not effect or cause a loss of the excluded property rules that share only the gain from the starting value of this special type of family property. Here is what Madam Justce Fenlon says the law on joint assets from excluded property is:
[67] Having considered these conflicting cases I conclude that I should follow the approach taken in Remmem for a number of reasons. First, Wells and V.J.F. focussed on the continued existence of the presumption of advancement — neither case addressed s. 85(1)(g), the tracing provision which expressly provides for the exclusion of property derived from excluded property or the disposition of excluded property.
[68] In Wells, it appears the effect of s. 85(1)(g) was not raised. The subsection is not listed in the summary of the relevant provisions of the FLA at para. 17, and is not referred to at all in the analysis. In V.J.F., s. 85(1)(g) is referred to in the summary of the claimant’s position at para. 39, but it is not referred to in the discussion of excluded property at paras. 53-55 of the analysis. As set out in Re Hansard Spruce Mills, [1954] 4 D.L.R. 590 (B.C.S.C.), given that a relevant statutory provision was not addressed, I am not bound to follow these decisions.
[69] In considering the effect of s. 85(g), I am mindful that the provisions of a statute are to be read in their entire context, in their grammatical and ordinary sense, harmoniously with the scheme of the Act, the object of the Act and the intention of the legislature: Rizzo & Rizzo Shoes Ltd. (Re), [1998] 1 S.C.R. 27, at para. 21; Loyola High School v. Quebec (Attorney General), 2015 SCC 12 at para. 50.
[70] Section 85(1)(g) of the FLA is broadly worded. The section excludes property “derived from property or the disposition of property” acquired by a spouse before the relationship between the parties began.
[71] In Minister of National Revenue v. Hollinger North Shore Exploration Co., Ltd., [1963] S.C.R. 131, the Supreme Court of Canada considered the meaning of the word “derived” and held that in the relevant context – the interpretation of exemptions in the Income Tax Act, R.S.C. 1952, c. 148 – it was broader than “received” and equivalent to “arising or accruing” from (at 134).
[72] The Interpretation Act, R.S.B.C. 1996, c. 238, s. 29, defines “dispose” as follows:
“dispose” means to transfer by any method and includes assign, give, sell, grant, charge, convey, bequeath, devise, lease, divest, release and agree to do any of those things;
[73] In Cominco American Inc. v. Duval (1993), 89 B.C.L.R. (2d) 83 (S.C.) Huddart J. held that a definition in the Interpretation Act applies unless a contrary intention appears in the legislation in issue (at para. 4). No such contrary intention appears in the FLA.[74] The Court in Wells referred to the registration of the Hornby Island property in joint tenancy as a “transfer”. It also referred to the registration in joint tenancy as a “gift to Ms. Campbell” (at para. 32). To do either of these actions is to “dispose” of property as that word is defined in the Interpretation Act.
[75] Section 85(1)(g) does not restrict tracing to an asset held solely by the spouse who owned the original excluded asset. Recognizing the presumption of advancement when applying Part 5 of the FLA would generally “extinguish” the right of a spouse who has brought property into the relationship to retain it on separation whenever the pre-owned property is mingled with property held by the other spouse. The implications of this are far-reaching. Arguably an inheritance deposited into a joint bank account, a gift from a parent to one spouse used to pay down the mortgage on a home held as joint tenants, or an award of damages for pain and suffering used by a spouse as a down payment on a house placed in both names or placed in the other spouse’s RRSP would be subject to the presumption of advancement. It would follow that the spouse who was the original owner of these assets, which are expressly defined as excluded property under s. 85(1) of the FLA, would not be able to claim them as excluded property at the end of the relationship, unless he or she could marshal evidence to rebut the presumption of advancement at the time the transfer occurred.
[76] The second reason I prefer the approach in Remmem is that it is consistent with the objects of the FLA. In the British Columbia Ministry of Attorney General’s White Paper on Family Relations Act Reform: Proposals for a new Family Law Act, (2010), online: <http://www.ag.gov.bc.ca/legislation/shareddocs/fra/Family-Law-White-Paper.pdf> the reason for introducing an excluded property regime was described as follows (at 81):
The most compelling reasons for moving to an excluded property regime are to make the law simpler, clearer, easier to apply, and easier to understand for the people who are subjected to it. The model seems to better fit with people’s expectations about what is fair. They “keep what is theirs,” (such as pre-relationship property and gifts and inheritances given to them as individuals) but share the property and debt that accrued during their relationship. Where one spouse enters the relationship with more assets than the other, providing that spouses share the increase in the value of the excluded property promotes a fair outcome. For example, assume one spouse enters the relationship with a house and a mortgage. During the relationship, the spouses pay down the mortgage and invest in renovations to the house. Upon separation, the spouse who brought the house into the relationship retains the value the house had at the beginning of the relationship, and the associated mortgage. The spouses share in the increased equity flowing from renovations and mortgage payments over the duration of the relationship.
Changing to an excluded property scheme removes the broad judicial discretion from the asset identification stage and leaves some discretion at the distribution stage. This change is designed to make it easier to identify property subject to division and, therefore, reduce the potential for disagreement.
[77]Canadian courts have referred to White Papers as aids in interpreting statutory provisions: see e.g. Canada v. Kieboom, [1992] 3 F.C. 488 at 498 (C.A.). Subsections 85(1)(a) and (g) of the FLAdid not change from First Reading in the Legislature: Bill 16, Family Law Act, 4th Sess, 39th Parl, British Columbia, 2011, cl 85(1)(a),(g) <http://www.leg.bc.ca/39th4th/1st_read/gov16-1.htm#section85>.
[78] Third, the reasoning in Wells and V.J.F. focusses on the legal effect of a transfer of property during the marriage without reference to the overall scheme of the FLA on marriage breakdown. In my view, general property law, including the presumption of advancement, applies during the parties’ marriage. While the relationship continues, a transfer of real property from the husband’s sole name into joint tenancy gives the wife an undivided interest in that property. If the husband dies, the entire property vests in the wife and does not fall into the husband’s estate. If the house is put into the wife’s sole name, it is hers absolutely during the marriage and the husband’s creditors, absent a fraudulent conveyance, cannot pursue it because the husband has no interest in that property.
[79]On marriage breakdown, however, a new property rights regime descends as between the spouses, just as it did under the former FRA. The rights of third parties vis-à-vis the property held by the spouses remain unaffected (s. 82), but between the spouses, all changes. Whether property is held solely in the wife’s name, solely in the husband’s name, or jointly, it is all subject to the scheme of division created by Part 5 of the FLA (s. 84(1)). Some of that property is to be excluded under s. 85(1) and all the rest is presumptively to be divided equally regardless of whose name it is in at the date of separation.
[80]Under this scheme it does not matter that one spouse during the marriage is presumed to have gifted property, whether excluded or otherwise, to his or her spouse. There is a whole new regime once the marriage ends. In my view, this interpretation finds support in s. 85(1)(b.1), which was amended to clarify that only gifts from a third party, as opposed to a spouse, are excluded property. Originally, s. 85(1)(b) of the FLA read:
85 (1) The following is excluded from family property:
(b) gifts or inheritances to a spouse;
[81]The amended ss. 85(1)(b) and (b.1) provides:
85 (1) The following is excluded from family property:
(b) inheritances to a spouse;
(b.1) gifts to a spouse from a third party;
[82]The reason for this amendment was clarified by Hon. S. Anton. in the committee stage for Bill 14, Justice Statutes Amendment Act, 2014 (British Columbia, Legislative Assembly, Hansard, 40th Parl, Sess, Vol 9 No 3 (27 March 2014) at 2531):
Hon. S. Anton: There are two changes here, and I’ll do them one at a time. The first one. Again, we’re not aware of case law, but family law lawyers were concerned with the way the provision was written. There was a possibility that gifts between spouses might be excluded, and the intention is only that a gift from a third party should be excluded.
[83]As a result of this amendment and the property regime under the FLA as a whole, whether a house or a piece of jewellery is given by one spouse to another during the marriage, it all falls back into the communal pot when the marriage ends. Some of the property will then be excluded if a spouse can meet the requirements of s. 85, and the remainder may, in certain cases, be divided unequally under s. 95. Section 96 of the FLA provides that even excluded property may, in certain cases, be divided if justice so requires.
[84]Logically, if the presumption of advancement continues to govern on marriage breakdown, then a gift from one spouse to another would not fall back into the communal pot. If “a gift is an irrevocable gift” for the purpose of determining what can be claimed as excluded property, why would a gift not be an irrevocable gift for the purpose of determining what is family property to be divided at the end of a marriage? The amendment reflected in s. 85(1)(b.1) demonstrates the legislature did not intend that approach to be taken.
[85]The interpretation of s. 85 adopted in Remmem is also, in my view, more consistent with the objectives of the FLA and the reality of most marriages. In a majority of cases, assets owned by one spouse before the couple comes together will be mingled with property held in both names. The cost of owning a home in many parts of British Columbia practically compels spouses to pool their assets. Registering the home so acquired in both names as tenants in common reflects the unity of the couple in marriage; placing a home in joint tenancy is a practical tool for estate planning; and placing the home in the name of one spouse is an accepted way to protect a core family asset from business creditors.
[86]The adoption of an excluded property regime “to better fit with people’s expectations about what is fair… [so] that they keep pre-relationship property and gifts and inheritances given to them as individuals[,] but share property and debt that accrued during their relationship” (White Paper on Family Relations Act Reform, at 81) is effectively negated if the excluded property cannot be traced into assets placed in whole or in part in the name of the other spouse.
[87]It is unlikely that when the legislature drafted the new excluded property regime under the FLA it was unaware of the practical reality that many spouses will combine assets during their marriage.
[88]Finally, I note that failing to give effect to the tracing provision in s. 85(1)(g) when excluded property is placed in the name of the other spouse in whole or in part may result in an unfairness. Section 95 of the FLA replaces s. 65(1) of the FRA and provides for an unequal division of family property in circumstances of “significant unfairness”. However, whereas s. 65(1) of the FRA specifically invited the Court to consider circumstances relating to acquisition and preservation of family assets, those factors are not included in the enumerated factors to be considered in s. 95 of the FLA: see generally Jaszczewska v. Kostanski, 2015 BCSC 727 at para. 144.
[89]In summary on this issue, I conclude that I should follow the approach taken in Remmem. Accordingly, the equity in the Former Family Home of $218,133, derived from the Main Street Property held by Mr. G. at the time of the parties’ marriage, is excluded property under s. 85(1)(g).
Our Vancouver Family Property Lawyers know this area of law is developing and complex. Meet with us to develop a strategy to fairly deal with BC excluded property that winds up in joint names. Call our Vancouver Family Property Lawyers now at 604-602-9000.
