Commencing March 18, 2013, Section 95 of the new BC Family Law Act allows for “Unequal Division of Family Property by Court Order.” This was also possible under the old Family Relations Act, however the new law changes the threshold for dividing family property unequally from whether it would be “unfair” not to do so to whether it would be “significantly unfair” not to do so. This is supposed to create a higher threshold and make the test for unequal division stricter, however a working definition of what constitutes equal division that is “significantly unfair” has yet to be seen. The division of trust interests is also in a state of confusion as the trust portions of the new act are confused and will be amended but it is unclear if they will be fixed by the March 18, 2013 commencement date for the new Act.
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New BC Family Property Division Rules
If you are separated or getting a divorce in British Columbia one the first questions you might ask is “what is the law for the division of property?”
Unfortunately the answer is not always simple, despite the new legislation that is coming into force in British Columbia and that is meant to simplify exactly this question.
In British Columbia, the new Family Law Act will come into force on March 18, 2013, replacing the old Family Relations Act. The government is promoting the fact that “the new Family Law Act reforms property division so that certain property, such as pre-relationship property and inheritances generally will not be divided up.”
The government claims that the entire Property Division process will become simplified and more efficient. But that may not actually be the case.
The new Family Law Act says that Family property now includes all property owned by one or both spouses at the date of separation, however certain property and assets are excluded – but not necessarily excluded 100% (as we explain in more detail below).
The exclusions include:
- property that belonged to only one party before the relationship;
- property acquired exclusively by one party after the relationship;
- gifts and/or inheritances – regardless of when they are received;
- certain court settlements and insurance proceeds, with some exceptions; and
- some kinds of trust property.
So why aren’t these items excluded 100%? The simple answer is that the “original” value is excluded, but any increase in the property or asset’s value that occurred during the relationship normally will be divided equally between the parties. But again, not always.
To be fair, the process is somewhat simplified due to the fact that how the property was used is no longer relevant. (The old Family Relations Act took into account whether or not the property of asset was “ordinarily used for a family purpose,” which frequently resulted in unpredictable results as Courts wrestled with the definition of “ordinary use for a family purpose.”)
The government has stated that this new legislation “resembles the approach taken under the Alberta Matrimonial Property Act.” Unfortunately this may actually raise some new concerns.
The recent Alberta decision of Horne v. Horne, 334 D.L.R. (4th) 468, dealt with a wife’s contingent interest in her father’s estate; an interest that had not actually crystallized at the time of the trial.
Prior to the parties’ marriage they had signed a prenuptial agreement that made no mention of the wife’s contingent interest in a trust established pursuant to her father’s will. The terms of the trust entitled the wife to a 25% interest in the residue of the trust upon the death of her mother. The wife’s mother remained alive at the time of trial.
The trial judge found the wife’s contingent interest in the trust was exempt from distribution as to its value on the date of marriage, but that the increase in its value during marriage was potentially divisible. Despite this seemingly simple answer, several very complicated questions arose during the Appeal.
First, does the wife actually have a 25% share of anything tangible? This question is difficult to answer because, as the wife’s lawyer pointed out, the current value of the wife’s 25% share is based entirely on the future value of the asset when the mother dies. This number is unknown. Further, it was possible that the mother might use up 100% of the trust before passing on, meaning that the wife would be entitled to 25% of nothing.
So, how can one determine the “original value”, the “current value” and the “increase in value” of a contingent interest in a trust that only has it’s actual value upon some uncertain date in the future?
As the Court noted:
[10] Ms. Horne owned her contingent interest at the time of marriage; her father had died and the provisions of his will had taken effect prior to that time. Her mother was alive, aged 84 at the time of trial. Mr. Horne conceded that Ms. Horne had no present ability to pay an equalization payment to him that would be reflective of any share in the contingent interest. He proposed a “wait and see” approach whereby he would receive his share, albeit based on values as of the date of trial, only when Ms. Horne’s interest crystallized and she was paid out.
And…
[24] …that the contingent interest arguably should [be] considered as akin to a pension right owned but not yet “in pay” prior to marriage. In such a case, the increment in value of the pension credits that continue to accumulate during marriage is typically distributed equally between the spouses.
But, this is all further complicated by the fact that if the wife pre-deceases the mother then the 25% interest evaporates and 100% of the asset remains to be divided according to the mother’s own Will.
The Albert Court of Appeal stated that:
[27] Indeed, there are other factors that differentiate the contingent interest from a pension. The first is its contingent nature. If Mrs. Horne predeceases her mother she will receive nothing… typically pension is not entirely lost on the death of the pensioner.
[28] The second factor that clearly distinguishes the contingent interest from a pension is Mrs. Horne’s, [the wife’s], ability to renounce it [according to the terms of the trust] in favour of her children. She has not renounced to this point, so that possibility is merely a second contingency to layer over the first, the possibility she may not survive her mother. However, if she did so, her children would receive it in its entirety; there would be nothing in which Mr. Horne could share. She might do so for
reasons totally independent of a wish to defeat Mr. Horne’s claim, for example to pass an estate benefit on to her children a generation before they might otherwise expect to benefit from her own estate.
Then, despite the fact that the trial judge decided to automatically include the wife’s interest in the trust as “family property” this automatic inclusion was also debated upon appeal. Perhaps it was never “family property” to begin with. Our BC Court of Appeal has held a discretionary trust interest in De Lasalle ton not be a family asset.
As the Court noted:
[30] Mr. Horne argued that the absence of contribution by either party to the trust property should bear little weight on his entitlement to division because no such contribution was possible. However, this factor equally supports the suggestion that the property should not be divided because of its very nature, because it could not be “brought into the matrimonial regime”.
[31] The Alberta Court of Appeal, in Mazurenko applied s. 8 of the MPA to find that the nature of the receipt of exempt property was a consideration in determining division. Justice Stevenson (as he then was) at para. 23 stated “… we must ask ourselves whether or not the exempt property was brought into the matrimonial regime; did it come in to be used for [the spouses] mutual benefit and account?” In that case he found the exempt property, farmland, had been brought into the regime as it was farmed, improved, maintained, enjoyed and dealt with as part of the family farm.
[32] Here neither party improved, maintained, enjoyed or dealt with the contingent interest because it was not possible to do so, given the nature of the contingency. It was not, therefore, “brought into the matrimonial regime”.
[Emphasis added.]
Thus, even though the new Family Law Act is intended to remove the question of whether or not the property or asset was “ordinarily used for a family purpose,” several Alberta decisions, including this one, point out that frequently a Court must still determine “whether or not the exempt property was brought into the matrimonial regime; did it come in to be used for [the spouses] mutual benefit and account?” – bringing back, in a round about way, the old difficult question of whether or not the property or asset is family property to begin with.
Finally, even if one can definitively answer each of the foregoing questions, the Court still has discretion to not divide the increase in value equally between the parties.
Section 95 of the new Family Law Act allows for “Unequal Division by Court Order.” This was also possible under the old Family Relations Act, however the new law changes the threshold for dividing family property unequally from whether it would be “unfair” not to do so to whether it would be “significantly unfair” not to do so. This is supposed to create a higher threshold and make the test for unequal division stricter, however a working definition of what constitutes equal division that is “significantly unfair” has yet to be seen.
It is also worth noting that the new property division scheme will apply to all married spouses, as well as to unmarried spouses who have lived in a marriage-like relationship for at least two years.
Given the complexity of these issues it is important to fully discuss your particular situation with a lawyer who fully understands the changes that are coming and what they will mean for you. Lorne MacLean, Q.C., and the lawyers at MacLean Family Law are here to help.
If you think you have a family law issue that should be discussed with one of our lawyers, please feel free to contact us now.
