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:
(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
(d)
money paid or payable under an insurance policy, other than a policy respecting
property, except any portion that represents compensation for
(e)
property referred to in any of paragraphs (a) to (d) that is held in trust for
the benefit of a 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?
- Draft a marriage agreement or a cohabitation agreement and clarify your intentions.
- Make sure you have documentation at the time your property/gift/inheritance is received or transferred.
- Sign a Declaration of Trust if you intend that your spouse will hold property in trust for you.
- Be aware of the inference of joint right of survivorship that arises with joint bank accounts and property held in joint tenancy.
- Talk to a family law lawyer about your options.
written by
2016
Cases that have applied the V.J.F and Cabezas decisions:
