Unequal Division of Family Property and the Impact of Inheritances
Property division under the Family Law Act (“FLA”) refers to two key terms: “family property” (s.84) and “excluded property” (s.85). “Family property” is defined broadly and includes all personal and real property that:
- on the date of separation is owned by a spouse or in which a spouse has a beneficial interest (s. 84(1)(a); or
- after the date of separation is owned by a spouse or in which the spouse acquires a post-separation interest but which is derived from family property (s. 84(1)(b)).
Upon separation, each party acquires an undivided one-half interest in all family property. However, this is subject to “excluded property”, which includes all pre-relationship property, and certain categories of property acquired during the relationship, such as inheritances. Such excluded property is not standard family property and is normally not divided equally in the event of separation.
In Cook v. Cook, 2021, BCCA 194, the Court of Appeal recently considered the law on unequal division of family property and the impact of inheritances. The appellant, Mr. Cook, challenged orders unequally dividing the parties’ family property. He argued that the trial judge erred in finding an equal division of family property to be unfair because of a financial disparity arising from an inheritance, an excluded asset under the FLA. The appeal was allowed.
The appellant, Mr. Cook, and the respondent, Mrs. Cook separated after 36 years of marriage. At the time of separation, the parties were in similar positions as retired persons with comparable incomes and had agreed to divide their assets equally. The only source of difference in the parties’ positions was the inheritance received by Mr. Cook. Mr. Cook had previously inherited $425,000 and a one-half interest in a cottage, worth $350,000. After agreeing to compensate Ms. Cook for the increase in value of excluded assets in the interval between the inheritance and the date of separation, the trial judge considered Mr. Cook to have a financial advantage of $557,350 over Ms. Cook.
The trial judge considered the discretion to depart from an equal division of family property to be available where, having regard to the factors set out in s. 95, equal division would be “objectively unjust, unreasonable or unfair in some important or substantial sense.”: Jaszczewska v. Kostanski, 2016 BCCA 286 at para. 42.
Further, he held that it was open to him to make an award of compensatory spousal support on a lump sum basis or to order an unequal division of family property to recognize and account for the economic disadvantages incurred by Ms. Cook. Applying these principles, he held that an equal division of family property would be significantly unfair and resulted in an order where Ms. Cook would receive 70% of the family property.
The trial judge divided family property unequally for two reasons:
- To effect what he considered to be a more fair division of property; and
- To give the respondent a lump sum sufficient to provide her with compensatory spousal support.
Mr. Cook challenged the first basis for the award on the ground that it was an error of law to attempt to redress a disparity in assets arising solely from the value of excluded assets. He challenged the second basis on the ground that there was no basis for a compensatory spousal support order.
Considering these substantive grounds for appeal, the Court of Appeal disagreed with the trial judge’s decision. The Court considered the two factors that the trial judge had considered to be critical, the duration of the relationship and Ms. Cook’s contributions to the household and childbearing, but ultimately decided that they had nothing to do with the inheritance that created the only disparity between the parties. Accordingly, there was no cause to disturb the fundamental principal that the parties should share equally in the fruits of their labour but retain assets held outside the marriage. The Court emphasized that the excluded property regime reflects the reality that many modern relationships do not last a lifetime and the perspective that, since the other, non‑acquiring spouse had nothing to do with the acquisition of the excluded property, it is presumptively fair that the non‑acquiring spouse should not share in the other’s excluded property upon the relationship ending (Venables v. Venables, 2019 BCCA 281). The trial judge’s decision had undermined the certainty created by the FLA regarding the two categories of property.
While overturning the decision, the Court of Appeal highlighted that the discretion afforded to trial judges by the FLA did not permit judges to substitute subjective conceptions of fairness for the regime established by the legislation. The Court held that financial advantage alone, unrelated to the economic characteristics of a spousal relationship, did not justify departing from the standard division of assets directed by the FLA.
The Court of Appeal further held that the evidence did not support the making of orders redistributing assets in order to provide the respondent with a capital sum as compensatory support as there was no evidence that the respondent was disadvantaged by marriage or its dissolution or that the appellant enjoyed advantages as a result of the marriage for which he should compensate the respondent.
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