New amendments to the British Columbia Family Law Act may provide clarity on a hotly contested issue arising upon separation – if a spouse has excluded property, should that spouse get their money back in the event of separation, even if that property was put into joint names (or the name of the other spouse)?
The Family Law Act provides that family property is presumptively divided equally between spouses. The Family Law Act also designates classes of excluded property that are not family property and are not subject to division upon separation. The most common types of excluded property are
- property acquired by a spouse before the relationship began;
- inheritances to a spouse;
- gifts from third parties;
- settlement awards to a spouse as compensation for injury; and
- property derived from excluded property.
Assuming that excluded property stayed in the sole name of the spouse who brought it into the relationship (Spouse A), after separation, Spouse B is usually only entitled to one-half of the growth in value of the excluded property during the relationship.
What happens if Spouse A put their excluded property in joint names with Spouse B – for example, using Spouse A's inheritance monies to buy a house in joint tenancy with Spouse B?
The law on this matter has been in a state of flux in recent years. A large body of case law says that Spouse A lost the exclusion and it is divided with Spouse B because they gifted that excluded property to the family. However, in some cases, the exclusion is maintained. The loss (or not) of an exclusion is an issue that has been hotly contested and the subject of many judicial decisions. Many lawyers have called for more certainty on the matter.
The recently proposed amendments under Bill 17, announced on March 27, 2023, would clarify the intended effect of the Family Law Act. Bill 17 would include the following in section 85, which sets out the categories of excluded property:
Section 85 is amended by adding the following subsection:
(3) If property is excluded from family property under subsection (1), the exclusion applies despite any transfer of legal or beneficial ownership of the property from a spouse to the other spouse.
The proposed change will affect many British Columbia couples. For example, it is not uncommon for the parents of one spouse to gift a portion of a down payment for a home to the spouse or for one spouse to contribute to the down payment of a home through an inheritance. Under the proposed changes, rather than that portion of the gift or inheritance losing its exclusion and becoming family property, upon separation, that gift would be traced back to the excluded property of the contributing spouse.
The proposed amendment carries significant implications for the overarching policy consideration of fairness that courts consider in family law matters. It remains to be seen whether such a provision would completely preclude arguments that property should be shared equally where it would be significantly unfair not to do so. In the meantime, spouses should continue to tread cautiously when transferring excluded property to joint names.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.