As Lorne N. MacLean, QC top rated loss of excluded property lawyer warned in earlier blogs, placing property into your spouse’s sole or joint name that you have inherited, were gifted personally or that you brought into the marriage can have very nasty consequences on marriage or a relationship breakdown. For the past 2 years our skilled loss of excluded property lawyer team members warned our high net worth clients that the law was still developing on what happens when a property that is excluded from sharing gets registered in the other spouse’s name.
When you face a huge fight over whether an asset is family or excluded property you need to hire a top loss of excluded property lawyer from an award winning law firm. Call MacLean Law toll free at 1 877 602 9900 and hire experienced loss of excluded property lawyer who will help you resolve matters and move forward if you have a loss of excluded property issue.
The British Columbia Supreme Court decisions were coming down fast and furious in favour of the excluded property remaining excluded despite registration of the property, either jointly or solely, in the name of the other spouse. One line of cases include Remmem v. Remmem 2014 BCSC 1552 (CanLII) and P.G. v. D.G. 2015 BCSC 1454, which suggested that a gift made by one spouse to the other that can be traced back to excluded property retains its status as excluded property within the meaning of s. 85.
Lorne N MacLean ,founder of MacLean Law and seasoned loss of excluded property lawyer, wants our wealthy clients and others going through relationship breakdown to know our Court of Appeal has now delivered a blockbuster decision that says the exact opposite. Once you have gifted or transferred excluded property to your spouse, it will no longer be excluded property for the purposes of equal division upon separation or divorce.
For our high net worth and ultra-high net worth Family Law clients, we cannot emphasize enough the danger this case represents for wealth preservation and asset protection. This is because executives and entrepreneurs often put property jointly or solely into the names of their spouses to protect themselves from creditors. It now seems that doing so will help one of the biggest creditors of all upon marriage breakdown: the transferor’s spouse.
In J.F. v. S.K.W 2016 BCCA 186, the main issue related to excluded property gifted by one spouse to the other during the marriage. In this case, a third party made a $2 million gift to the husband, which was subsequently used to buy property that was put solely in the name of the wife for creditor protection. The property was then sold.
After selling the property, the marriage broke down and the husband claimed that the $2 million of sale proceeds remained his excluded property, or at least “excluded property” under the Family Law Act because the proceeds were “property derived from … the disposition of property referred to” in s. 85(b.1) of the Act – that is, property derived from the disposition of the gift received by the third party. The wife’s position was that because the $2 million was used to buy property that was essentially gifted to her, the sales proceeds from such property was now family property.
The court discussed the pertinent sections of the Act at paragraphs 8 and 9:
[8] The definition of “family property” in s. 84 has been said to establish a “communal pot” (see P.G. v. D.G. at paras. 83-4) from which only excluded property is removed. The definition in s. 84(1)(a) is very broad, reaching all property owned or beneficially owned by “at least one spouse” on the date of separation. … Section 84(3) confirms the inclusion of various forms of property as well as:
(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.
[9] Section 85(1) defines “excluded property” to include inter alia property acquired by a spouse before the spouses’ relationship began, property inherited by a spouse, and gifts received by a spouse from a third party (para. (b.1)…
Another issue that was raised in this case was whether the common law doctrine of the presumption of advancement between spouses was effectively eliminated by the Act, or whether it remains unaffected. The presumption of advancement is a legal presumption that assists courts in determining the intention of a giftor in the context of certain relationships, such as between husband and wife. The presumption assumes that where one spouse transfers property to the other spouse, it is to be an outright gift. The onus is on the giftor spouse to prove otherwise.
After considering the Act and common law principles, the Court of Appeal held that the gift was no longer excluded property under s. 85 of the Family Law Act, but rather family property that should be evenly divided. Once the husband had gifted the property to his wife, the exclusion was lost. He “derived” no property or consideration from the disposition and thus, s. 85(1)(g) was not applicable. The court stated that the excluded property regime is not a “complete code” that “descends as between the spouses” upon separation, but rather builds upon existing common law and equitable principles, preserving concepts such as gifts and the presumption of advancement. At paragraphs 74 to 77 to court stated:
[74] … the new FLA scheme does not constitute a “complete code” that “descends as between the spouses” and eliminates common law and equitable principles relating to property. Rather, the scheme builds on those principles, preserving concepts such as gifts and trusts, and evidentiary presumptions such as the presumption of advancement between spouses. Thus I find that the gift of (slightly less than) $2 million made by Mr. F. to Ms. W. became her property and was “property owned by at least one spouse” under s. 84, as opposed to “property derived from the disposition of [excluded] property” within the meaning of s. 85. At the time the definitions are applied – the date of separation – the fact Mr. F. had originally received the $2 million as a gift was no longer relevant. He lost the exclusion when he voluntarily and unreservedly directed that the West 33rd property be transferred to Ms. W. and ‘derived’ no property from that disposition. [emphasis added]
[75] I do not interpret the FLA as reversing the gift or requiring that it be ignored because of the spouses’ separation. ….
[76] Contrary to the suggestion made in P.G., moreover, the $2 million gift received by Ms. W. does “fall back into the communal pot” on separation and is divisible as family property in the normal way. The spouses are presumptively entitled to equal shares as tenants in common. The fact s. 95 does not list the same set of factors previously listed in s. 65 of the FRA is, with respect, a choice made by the Legislature. (See Ward v. Ward 2012 ONCA 462 (CanLII) at para. 25.) The FLA is not to be interpreted by means of a comparison of the fairness of its provisions with those of the FRA.
Regarding the presumption of advancement, the court held at paragraph 77:
[77] In the absence of a clear statement abolishing the presumption of advancement, I also conclude that it continues to apply under the FLA (although I would not necessarily refer to it as a “right” within the meaning of s. 104). Had the Legislature intended to abolish the presumption, it would have been an easy thing to so state, as other provinces have done. It would also be an easy matter to provide, or perhaps clarify, that the presumption applies to common law as well as formal marriages and even that it should apply to gifts from a wife to her husband, not just the reverse. ….
What does this mean for MacLean Law’s high net worth and ultra-high net worth Family law clients?
If you receive a gift or inheritance from a third party, be warned that if you put the property in your spouses name, even if it is just for the purpose of creditor protection and even if you intend to retain the property as your own, upon separation, the property will no longer be excluded property and will be family property and subject to equal division. If you have a difficult excluded property question call us at 1 877 602 9900 or request a consultation. Lorne MacLean, Q.C. is ready to answer your questions and face any challenges you have to protect your property in the event of a marriage breakdown.
You need a top loss of excluded property lawyer
Call MacLean Law family property division lawyers today toll free on 1 877 602 9900 in Vancouver, Surrey, Fort St. John or Kelowna – we can help protect your assets and make sure they remain excluded property upon separation or divorce! Hire a loss of excluded property lawyer from MacLean Law who knows the strategies to prevent an unpleasant result concerning excluded property.
