Vancouver High Net Worth Property Lawyers Explain The Presumption of Advancement Seems to have been Extinguished by the BC Family Law Act
The Vancouver high net worth property lawyers at MacLean Law routinely deal with division of excluded property and family property in the tens of millions. Lorne MacLean, QC recently earned accolades as Chair of the PBLI family law similar “The Grey Divorce” and he published the very popular 2015 paper on division of excluded property and family property as well as on how to divide or protect your high net worth property holdings. Our Vancouver High Net Worth Property Lawyers recommend a number of strategies to preserve and protect the valuable assets and companies of our clients. Meet with us and request a copy of the popular publication from us.
The top Vancouver high net worth property lawyers at MacLean Law have watched with interest the legal “civil war”that has been going on in BC over what happens to excluded property that was brought into marriage by one spouse or gifted to or inherited by one of them alone during the marriage, which is then later placed in joint names or solely in the name of their spouse. More cases are now saying it does not matter how an excluded property is registered after it has been received by one spouse by gift or inheritance or owned solely by one spouse before the relationship started. Our experienced Vancouver high net worth property lawyers know this issue impacts thousands of separating spouses who need our Vancouver high net worth property lawyers help in protecting or dividing their hard earned high net worth wealth.
Today, 5 cases say the exclusion (no sharing of the starting value of excluded property) is unchanged by a subsequent registration of the property in joint names or the other spouse’s name alone. Only 2 BC cases say if you change ownership of excluded property you cannot claim the benefit of an exemption from sharing the starting value. Our BC Court of Appeal is ready to decide this issue in the next three months. Vancouver high net worth property lawyers can advise you how to deal with property at the start and end of a relationship. Don’t register property you brought into a relationship, that you inherited or were gifted solely without talking to Lorne MacLean,QC and the highly rated Vancouver high net worth property lawyers at MacLean Law.
In J.B. v. S.C the Court gave a very thorough primer on the conflicting lines of authorities and the policy reasons for keeping the exclusion for excluded property even after property ownership is changed by the recipient spouse as follows:
[70] There are conflicting authorities in this court as to whether or not the Family Law Act alters the presumption of advancement between married spouses.
[71] The conflicting line of authorities is discussed and analysed in detail by Madam Justice Fenlon in P.G. v. D.G, 2015 BCSC 1454.
[72] In Remmem v. Remmem, 2014 BCSC 1552, the husband used the proceeds of excluded property to purchase property in joint tenancy with his wife. The trial judge concluded that the purchase of property held in joint names using the proceeds of excluded property did not reduce the value of the exclusion. He concluded at para. 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.
[73] The opposite conclusion was reached by the trial judge in Wells v. Campbell, 2015 BCSC 3. In that case, the husband owned a home before the parties married and transferred that home into joint tenancy with his wife five years before the parties separated. At para. 32 of the decision, the trial judge decided that the home was transferred as a “perfected inter vivos gift” that could not be revoked. He determined that the Family Law Act did not alter the law of inter vivos gifts, so the presumption of advancement still applied.
[74] The issue of whether excluded property lost its status as excluded property once it was transferred to a spouse was considered by Justice Walker in V.J.F. v. S.K.W., 2015 BCSC 593. In that case, the husband used an inheritance of $2 million which was excluded property to purchase and register a house solely in his wife’s name.
[75] The court did analyse the intention at the time of the registration and found that it was part of a legitimate creditor‑proofing exercise (at para. 23).
[76] Relying on Remmem, the husband argued that the $2 million inheritance was excluded and traceable into the property held by the wife. The wife relied on Wells, arguing that once the title to the house was registered, the presumption of advancement applied.
[77] The trial judge in V.J.F. endorsed Wells. At para. 69, he noted that Wells had confined Remmem to its facts and stated:
In this case, when excluded property owned by one spouse was comingled with funds derived from family property to purchase an asset that is placed solely in the name of the other spouse in order to immunize it from potential creditors, the exclusion is lost because the disposing spouse gifted it to the other. [Emphasis added.]
[78] Justice Walker notes at para. 63 that s. 104(2) of the Family Law Act provides that any rights granted under the Act are in addition to and not in substitution for rights under equity or any other law. He concludes, as a result of that section, that the legislators did not intend to annul the presumption of advancement.
[79] At para. 67 of P.G. Madam Justice Fenlon considered the conflicting cases and added this to the analysis:
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.
[80] She noted that the presumption of advancement extinguishes the right the Family Law Act recognises to allow a spouse to retain excluded property even if it is mingled with the property of the other spouse. The presumption of advancement is therefore inconsistent with the objects of the Family Law Act.
[81] Her ladyship quotes the objects of the Family Law Act from 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>.
[82] The reason for introducing an excluded property regime was described as follows (at p. 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 subject 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…
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.
[Emphasis added.]
[83] Finally, Justice Fenlon distinguishes Wells and V.J.F. because they do not refer to the overall scheme of the Family Law Act on marriage breakdown. During the marriage the presumption of advancement applies, for example, in the case of the husband’s death, but on marriage breakdown, a new property rights regime takes over:
[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.
[84] Most recently, in Andermatt v. Tahmasebpour, 2015 BCSC 1743, Mr. Justice Pearlman considered Remmem, Wells, V.J.F., and P.G. In Andermatt, Pearlman J. decided that he should follow Remmem and P.G., because P.G. was the most recent jurisprudence to give full and careful consideration to all of the authorities, and he agreed with Fenlon J. that the approach in Remmem was most consistent with the objectives of the Family Law Act.
Does the presumption of advancement apply to common‑law spouses?
[85] The question of whether the presumption of advancement applies to common law spouses is unclear, and is in need of appellate consideration. In Chaung v. Wong, 2012 BCSC 233 at paras. 12-16, Madam Justice Maisonville canvassed a number of cases to show the uncertainty in this area of the law and concluded that the law is still unsettled.
[86] Professor Donovan Waters suggests that on a principled basis, the presumption of advancement should apply equally to married and common law spouses (Donovan W.M. Waters, Mark R. Gillen, & Lionel D. Smith, Waters’ Law of Trusts in Canada, 4th ed. (Toronto: Carswell, 2012) (“Waters”) at 413). However, Waters also says that the possibility of this development has been overtaken by the overall decline in the use of the presumption of advancement after the Second World War, which was followed by statutory abolitions in many jurisdictions (e.g., Family Law Act, R.S.O. 1990, c. F.3, s. 14).
Conclusion on presumption of advancement
[87] In my view, if the presumption of advancement is going to continue to apply to spouses in British Columbia, it should apply equally to common law spouses. The Family Law Act recognizes that married and unmarried spouses have similar responsibilities and obligations to one another, and I see no principled basis for restricting the application of the presumption of advancement to married spouses only. This accords with the view that Mr. Justice Affleck expressed at para. 14 of McNamara v. Rolston, 2013 BCSC 2115, where he said:
[14] The respondent refers to substantial changes in society to the way that marriage and property rights are understood. She argues that although the two were viewed as attached in the past, this is no longer the case. In my opinion, the doctrine of presumption of advancement remains a part of the law of this province but insofar as it applies to marriage, it is no longer confined to those who are formally married to each other. It may be applied in appropriate circumstances to what are frequently called “common law relationships” or to “marriage-like relationships”, the latter being a basis for the definition of “spouse” found in the Family Law Act, S.B.C. 2011, c. 25. [Emphasis added.]
[88] In my opinion, the line of authority established by Remmem, P.G., and Andermatt should be followed and the presumption of advancement should not be applied to the division of property under theFamily Law Act after matrimonial breakdown. I agree with Fenlon J. and Pearlman J. that the application of the presumption of advancement carries consequences that would frustrate the purposes of theFamily Law Act, and is not consistent with the objectives of that legislation. Those are to make the law simpler, clearer, easier to apply to an easier to understand for the people who are subjected to it. (Family Law White Paper on Family Relations Act Reform: Proposals for a New Family Law Act, (2010) at paragraph 76).
[89] The inconsistency between the presumption of advancement and the property division scheme under the Family Law Act is apparent both in that it extinguishes rights under the tracing provisions of s. 85(1)(g), and that it creates the possibility that married and unmarried spouses will be treated differently, as the law is currently unsettled as to whether the presumption of advancement applies to common law spouses.
[90] If I am wrong, and the presumption of advancement continues to apply under the property division scheme in the Family Law Act, there is evidence that the claimant did not intend to gift the Harold Road property to the respondent, thus rebutting the presumption. The respondent’s parent’s company paid the purchase price for that property and put it in her name. Mr. Cragg denies that he did this to shield the property from liability. He said he did it to facilitate the claimant and the respondent obtaining a construction mortgage. I assume he meant that if the property was registered in the name of the company then the parties could not obtain a construction mortgage because neither had a legal interest in the property.
[91] The claimant remembers something about the HSBC mortgage agent recommending registering the property in the respondent’s name to avoid liability but I find that conversation did not influence the parties because the property was already in the respondent’s name.
[92] The respondent was of the view that once the subdivision occurred and there was a defined lot, the parties would register the lot in their joint names. The claimant does not respond to this statement and I am not convinced that even if he did agree to do that, it would have extinguished his excluded property. The claimant was very clear, at least after separation, that the other properties were “his” properties. The claimant agrees to divide any increase in value but has been clear about protecting his excluded property. During the marriage there was no contrary intention expressed. I find that the parties did not talk about excluded and non‑excluded property and there is no evidence of the claimant saying that he was investing the money for the two of them.
[93] Even the respondent’s parents did not accept a presumption of advancement in favour of their daughter. After the parties separated they (or their company) commenced an action against the young couple to protect the company from a presumption of advancement of the five‑acre property to their daughter. I have not seen the pleadings but I am advised by both counsel that they commenced an action to ensure that the subdivision “deal” would still take place.
[94] It was the respondent’s parents who advanced funds, so if any presumption of advancement existed it would be directed at them. I am not certain whether it would be available because they purchased the property through their corporation. In any event, they did not intend to gift the five‑acre lot to their daughter.
[95] When the claimant paid the respondent’s parent’s company $150,000, I find that he was buying into a family venture. There was no discussion about who would own the lot. He was very cognisant of what his contributions were and what hers were. I find that he did not do anything that would change the character of the excluded property.
[96] If the respondent’s parents did not recognize the transfer of the five‑acre lot into the respondent’s name as a gift, I find that it would be inequitable to assert such a presumption on the common‑law spouse. If intention is relevant at all and I suspect, relying on P.G., that it is not, then this evidence convinces me that no one anticipated that this investment was a gift. I suspect they did not turn their minds to it.
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