10 October 2016

October 2016 Update on Excluded Property in British Columbia


In 2016 our Court of Appeal handed down two decisions which have changed the way family lawyers advise their clients about excluded property.  The Family Law Act defines Excluded Property in section 85, as property that is excluded from Family Property and includes:

 (a) property acquired by a spouse before the relationship between the spouses began;

(b) inheritances to a spouse;

(b.1) gifts to a spouse from a third party;

(c) a settlement or an award of damages to a spouse as compensation for injury or loss, unless the settlement or award represents compensation for

(i) loss to both spouses, or

(ii) lost income of a spouse;

(d) money paid or payable under an insurance policy, other than a policy respecting property, except any portion that represents compensation for

(i) loss to both spouses, or

(ii) lost income of a spouse;

(e) property referred to in any of paragraphs (a) to (d) that is held in trust for the benefit of a spouse;

(f) a spouse's beneficial interest in property held in a discretionary trust

(i) to which the spouse did not contribute, and

(ii) that is settled by a person other than the spouse;

(g) property derived from property or the disposition of property referred to in any of paragraphs (a) to (f).

(2) A spouse claiming that property is excluded property is responsible for demonstrating that the property is excluded property.

 

 

On plain reading of the Family Law Act, it would appear that a person, who received an inheritance and could prove it, was entitled to claim it as Excluded Property.  Not so, the Court of Appeal tells us.  These cases tell us that the provisions of the Family Law Act cannot be considered in isolation, that FLA is not in itself a complete code, and that we must look at the intentions of the parties at the time the inheritance was received or the property was transferred. 

 

In Cabezas v. Maxim, 2016 BCCA 82, the parties met in 2005 and began living together in 2006.  In 2007 they purchased property together and Mr. Maxim paid a $56,000 down payment.  The balance of the purchase was funded through a mortgage of $256,000.  The parties struggled financially so Mr. Maxim’s parents paid a total of $187,349 to discharge the mortgage, without any written agreement or loan document.  After separation in 2013 and following the sale of the family residence, Mr. Maxim argued that the net sale proceeds of $196,070 were his excluded property.  Mr. Maxim’s mother testified at trial that she intended the money to be given only to her son as an advance on his inheritance, and not to the couple together.  In the absence of any contemporaneous evidence suggesting the payments were loans, as well as the manner in which she gave  money to her other  children, the trial judge concluded that the funds were given as a gift intended to benefit both parties (at para. 67).  The judge found that the mother’s intention to provide the funds as an advance on her son’s inheritance were found to have been made after the gifts had been made, therefore they were not excluded property. 

 

Mr. Maxim appealed the trial decision and on February 23, 2016 the B.C. Court of Appeal handed down this first decision which confirms that the Family Law Act is not a complete code, meaning that the common law principles can still be considered in each case.  Madam Justice Garson, at paragraph 38 clearly states that the common law provides interpretative context to the Family Law Act. 

 

 

On April 28, 2016 the Court of Appeal handed down the decision in V.J.F. v. S.K.W., 2016 BCCA 186.  At paragraph 72 Madam Justice Newberry, citing the Cabezas and Maxim case, says that case “provides additional support for the conclusion that common law precepts continue to apply at the earlier categorization stage.”  The Court found that the 2 million dollar inheritance received by the husband, and used to purchase a property solely in the name of the wife was properly characterized by the trial judge as family property, subject to equal division. 

This clarifies that the common law and equitable principles as they relate to property have not been eliminated by the Family Law Act. 

 

So, what do we know now? 

These cases tell us that the Excluded Property provisions of the Family Law Act are not a complete code and in advising our clients we need to look at the intention of the parties and or their parents or relatives at the time the gifts or inheritances were given or property was received or transferred.  It isn’t enough at separation for a person to say,

hey I know I put all of my inheritance down on the mortgage on our joint property for twenty years of our marriage but I really meant to keep it all to myself if we separated…”

 

there needs to be evidence of intention at the time these decisions were made. 

In 2015, and certainly before these Court of Appeal decisions, lawyers may have been telling their clients that the Excluded Property Provisions of The Family Law Act would protect their gifts and inheritances in any circumstance, but those assurances can no longer be given. 

 

So, what can you do?

  1. Draft a marriage agreement or a cohabitation agreement and clarify your intentions.
  2. Make sure you have documentation at the time your property/gift/inheritance is received or transferred.
  3. Sign a Declaration of Trust if you intend that your spouse will hold property in trust for you.
  4. Be aware of the inference of joint right of survivorship that arises with joint bank accounts and property held in joint tenancy.
  5. Talk to a family law lawyer about your options. 


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2016 Cases that have applied the V.J.F and Cabezas decisions:





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