Tracing Excluded Property and Pro Rata Family Property Division is tricky, and more so in the multimillion cases that MacLean Law is involved in. We have a case where the excluded property is $150,000,000 and the family property is $20,000,000. In this rarefied atmosphere, the stakes are high and there is no margin for error. Hire high net worth family lawyers who handle these cases daily.
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MacLean Law lawyers are often involved in multimillion dollar excluded property and family property interests disputes and how calculations are made can mean a swing of millions of dollars.. So many lawyers and family law clients forget to analyze how decreases in value the of excluded property can impact family property too. In Mills v. O’Connor, BCCA the 2025 BCCA the decision held:
The judge committed a reviewable error in finding there was no family property available for division. She also made a reviewable error in her tracing analysis resulting in a substantial overvaluation of the appellant’s excluded property. The judge’s approach followed a “first-in, first-out” approach to tracing the value of the excluded property through a series of substitute assets involving increases in the value of that excluded property. The proper approach under the Family Law Act, S.B.C. 2011 c. 25, should recognize that, by operation of the Act, the increase in value of the excluded property is family property intermingled with excluded property, and the exclusion must be traced as through an intermingling of funds on a pro rata basis. In light of these errors, this court varies the valuation of the appellant’s excluded property and makes an award for the division of the family property, which includes a reapportionment in the cross-appellant’s favour.
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MacLean Law recently argued that the proper approach to Tracing Excluded Property and Pro Rata Family Property Division involves an analysis about how excluded property cannot be favoured over family property. Tracing Excluded Property and Pro Rata Family Property Division cases are novel.
Mills v O’Connor dealt with the issue of tracing when there is an intermingling of family property gain with excluded property and concludes that the pro rata ex post facto approach is the most appropriate under the FLA as follows:
[90] LIBR may be an appropriate and fair rule to apply to the tracing of excluded property in rare circumstances. However, as a general rule, the relative—and important—simplicity of the FLA’s approach to excluded property indicates to me that a pro rata ex post facto approach is appropriate: on this point, see C.P. v. K.W.A., 2018 BCSC 332 at paras. 95–100; C.M. v. N.L., 2020 BCSC 3 at paras. 173–174; and Liapis v. Keshow, 2021 BCSC 502 at paras. 273–276.
[96] The presumption of equal sharing is foundational to the approach to property division taken in the FLA and is consistent with a principled understanding of spousal relationships as equal partnerships. In my view, it would not be consistent with the FLA’s default provision of equal sharing (as set out in s. 81), nor with this more principled view of the spousal relationship, to prefer an excluded property claim in carrying out the tracing analysis in the absence of evidence supporting such an approach. It is certainly true that the FLA’s excluded property provisions indicate legislative intent that spouses, within certain limits, be entitled to keep what is ‘theirs’: Venables at para. 86. But this does not imply the further conclusion that where a court is asked to determine what has been done with an intermixture of excluded and family property, the presumption of equal sharing and responsibility must yield to a spouse’s excluded property claim. In my view, neither principle need yield to the other; a pro rata approach to tracing reconciles the demands of both.
[97] It is important to note that the exercise of tracing a spouse’s excluded property interest through a co-mingling of excluded and family property only stands to reduce an exclusion compared to its original value where there has been a depreciation in the value of the intermixture. All appreciations in the value of excluded property are family property: FLA s. 84(2)(g). However, where an intermixture of family and excluded property has depreciated (that is, where—as in the present case—the intermixture has a value as of the time of trial less than the aggregate value of the total contributions as of the time they were made), “the party claiming an exclusion may not be able to claim the full value”: Zellweger at para. 47, citing C.P. at para. 99. As I observed above, in the absence of evidence, the FLA discloses no basis to presume that a loss in value (be it a withdrawal from an account, a decrease in the value of securities or real property due to market fluctuations, etc.) should be attributed to family rather than excluded property, or vice versa.
[98] It is true that there is no ‘one size fits all’ approach to tracing in the family property context. However, in my view, it would be an error of law to adopt an approach to tracing that ignores the FLA’s clear instructions that increases in the value of excluded property are to be considered family property and, as such, presumptively divided equally (s. 84(2)(g)); that spouses are equally entitled to family property and equally responsible for the payment of family debt (s. 81); and that a party claiming that property is excluded is responsible for demonstrating that: s. 85(2).
[99] In summary, I conclude that it is appropriate, and in keeping with the requirements of the FLA, generally to approach the exercise of tracing excluded property through a co-mingling of family and excluded property on a pro rata basis. However, I also acknowledge that different methods of tracing may be appropriate, on occasion, in order to arrive at a division of property that is fairest in the particular circumstances of a case.
[100] The judge’s tracing analysis in the case at bar is part and parcel of her error in failing to apprehend the full extent of family property available for division. As I have discussed, substantial family property in excess of the value corresponding to Mr. Mills’ claimed exclusion existed at the time of separation. This additional family property corresponds to the increase in value of the Bellevue Property, which increase is to be treated as family property and presumptively divided equally between the parties.
[101] This increase in value can be understood as a type of “contribution” analogous to a contribution to a mixed fund: the excludable value attributable to the Bellevue Property was co-mingled with additional family property, and this total value was then used, through the sale of the Bellevue Property, to build the Monck Park Property. Other increases in value—also non-excludable family property—are reflected in the insurance proceeds and in the sale proceeds of the Monck Park bare land.
[102] It remains to be considered whether tracing should be assessed pro rata based on the ex post facto or LIBR approach. The judge’s reasons offer no guidance on this point, nor does the FLA itself. In her factum, Ms. O’Connor appears to suggest that the ex post facto approach is appropriate. I agree. To conduct a LIBR-based analysis in the circumstances of this case would necessitate a detailed consideration of essentially every transaction the parties conducted, over the course of many years, involving family property bearing a traceable connection to the original value of Mr. Mills’ excluded property. There is nothing in the record to suggest that this would be possible, let alone practical from a logistical and cost-based standpoint: T.D. at para. 37. More importantly, as I noted above, the FLA does not generally call for a valuation of family property that is sensitive to fluctuations in value and transactions occurring during the spousal relationship: Zellweger at para. 48. In respect of Mr. Mills’ excluded property claim, the relevant dates are the date of Mr. Mills’ inheritance and the date of trial, that is, when family property was to be valued: Zellweger at para. 48. This is consistent with the pro rata ex post facto approach, which considers the proportionate contributions against the total amount remaining for distribution.
[103] However, to conduct a pro rata ex post facto analysis properly and completely, it is necessary to consider other contributions that might diminish the proportion of an intermixture that can be traced to a particular contribution. This is to be distinguished from the application of LIBR in that the timing, or order, of the contributions is immaterial; what matters is simply how many contributions there were, for how much, and what remains for division at the relevant time.
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