When Can Excluded Property Be Divided in a BC Separation? In today’s blog Colby Brochu explains recent developments in the area.
Property division is one of the most important financial issues in a separation. In British Columbia, the Family Law Act creates a framework for deciding what property is shared between spouses and what property may be kept separate. The key distinction is between family property, which is generally divided, and excluded property, which usually is not.
Understanding that distinction can make a major difference in the outcome of a family law case.
What Is Included Property? Tel: 604 602 9000
The term “included property” is often used to describe property that is included in the pool of assets to be divided between spouses. Under the Family Law Act, this is generally called family property.
Family property usually includes property owned by either or both spouses at the date of separation, such as:
- the family home;
- bank accounts and investments;
- pensions and RRSPs;
- business interests;
- vehicles;
- real estate;
- debts connected to family assets; and
- property acquired during the relationship.
As a starting point, spouses are each entitled to an equal share of family property and are each responsible for an equal share of family debt, unless the court decides that equal division would be significantly unfair.
What Is Excluded Property? Tel: 604 602 9000
Excluded property is property that is generally kept out of the division. It may include:
- property one spouse owned before the relationship began;
- inheritances received by one spouse;
- gifts from someone other than the other spouse;
- certain personal injury settlements or awards;
- certain trust interests; and
- property bought with, or directly traceable to, excluded property.
For example, if one spouse owned a condo before the relationship, the value of that condo at the start of the relationship may be excluded. If that spouse later sold the condo and used the proceeds to buy another property, the exclusion may continue if the funds can be clearly traced.
The Important Catch: Growth in Value May Be Divided Tel: 604 602 9000
Excluded property is not always completely outside the discussion. In BC, the increase in value of excluded property during the relationship is generally family property.
For example, if one spouse owned a house worth $500,000 at the start of the relationship and it was worth $800,000 at separation, the original $500,000 may be excluded, but the $300,000 increase may be divided.
This often becomes a major issue in cases involving real estate, investments, businesses, or inherited assets that have grown in value over time.
The Spouse Claiming Exclusion Must Prove It Tel: 604 602 9000
A spouse who says an asset is excluded property must prove the claim. This usually requires documents showing:
- when the asset was acquired;
- how much it was worth at the relevant date;
- where the funds came from;
- whether the asset was mixed with family property; and
- whether the excluded asset can still be traced.
Good records can be critical. If money from an inheritance was deposited into a joint account, used to renovate the family home, used to purchase property in the spouse’s name, or mixed with other funds, the exclusion may become harder to prove.
When Can Excluded Property Be Divided?
Although excluded property is normally protected, the court may divide excluded property in limited circumstances. The main question is whether it would be significantly unfair not to divide it.
This is a high threshold. The court may look at factors such as:
- the length of the relationship;
- whether the other spouse directly contributed to preserving, maintaining, improving, operating, or managing the excluded property;
- whether family property located outside BC cannot practically be divided; and
- the overall fairness of the property division.
For example, if one spouse owned a business before the relationship, but the other spouse spent years working in that business, improving it, or helping preserve its value, the court may consider whether excluding the entire asset would be significantly unfair.
When Can Excluded Property Be Divided in a BC Separation? Tel: 604 602 9000
Practical Takeaways
- Not all property is automatically divided equally.
- Excluded property must be proven with clear evidence.
- The increase in value of excluded property is often divisible.
- Mixing excluded property with family property can create disputes.
- Long relationships and direct contributions can affect whether excluded property remains protected.
- Early legal advice can help preserve claims and avoid costly mistakes.
Cases Of Actual Division of Excluded Property Not Merely The Gain Tel: 604 602 9000
Our founder Lorne N MacLean, KC points out that the famous BC Court of Appeal decision in VJF as well as the following cases stand as precedents for division of excluded property itself:
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A short relationship does not preclude division where the direct contributions to excluded property are substantial. (Pelling v Pelling, [424]-[430])
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A long relationship combined with sustained domestic, maintenance, or property-related contributions may support division, particularly where unequal division of family property cannot adequately address the unfairness. (Bordignon v Bordignon, [143]-[150], [322])
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Section 96 does not carry the same strong presumption of equal division applicable to family property; the remedy may instead be compensation reflecting the contributions and circumstances. (Pelling v Pelling, [432]-[434])
When Can Excluded Property Be Divided in a BC Separation?- Final Thought
Property division under the Family Law Act can be complex, especially where inheritances, pre-relationship assets, businesses, trusts, or real estate are involved. Hiring lawyers who understand the inclusion and exclusion of property can make a significant difference. Knowledgeable family lawyers can identify what should be protected, what may be divided, what evidence is needed, and how to position clients to get the most out of their case.
This article is intended for general informational purposes only and does not constitute legal advice. If you require legal advice regarding your specific circumstances, please contact MacLean Law to discuss your matter with a member of our family law team.
