Dividing Property Under the FLA: Where We're At

The Family Law Act has been law in British Columbia for just over two years now, and we're starting to accumulate a good number of court decisions interpreting the parts of the act dealing with the division of property and debt. Since I've just spoken about these cases for the Trial Lawyers' Association of British Columbia and the Continuing Legal Education Society, I thought I'd provide a short summary of where we've gotten to.

The first case dealing with property under the new act was Asselin v Roy, a 2013 decision of Mr. Justice Harvey. This was a helpful case, as the judge had to address property that was brought into the parties' relationship, property bought during the relationship with inheritances, property bought during the relationship using the property brought into the relationship, and property bought during the relationship using property brought into the relationship plus new money earned during the relationship. This is important because:

1. property brought into the relationship is supposed to be excluded from the property the spouses  share after separation;
2. inheritances received during the relationship are supposed to be excluded from shared property; 
3. spouses are presumed to share in property bought during the relationship; and,
4. spouses are also supposed to share in the increase in value of excluded property during their relationship.

The judge decided that the equity in property brought into the relationship (the sale value minus the amount of any mortgages that had to be paid off from the sale proceeds) is what is excluded from sharing, and that all increases in value above the equity when the relationship started is to be shared. If that property is sold and the proceeds used to buy a new property, the person who bought the first property into the relationship is entitled to get the equity in the first property out of the new property. Inheritances are excluded from sharing between spouses, and a spouse who puts money from an inheritance into buying a property is entitled to get that money out of the property. However, the judge also decided that if a property excluded from sharing goes down in value during the relationship, the spouse who owns the property isn't entitled to get a credit for the decrease from shared property.

Perhaps most importantly, the judge also decided that the new act is intended to:

"[105] ... create more certainty for litigants in the division of their assets. The broad discretion formerly available under the [old legislation] has been replaced with a more formulaic approach to both the identification and division of family property ..."

Oh, would that the new act was indeed more certain.

The next important case was Remmem v Remmem, a 2014 decision of Mr. Justice Butler that I've written about elsewhere. Like in Asselin, the judge had to deal with property that was brought into the relationship and went down in value, property that brought into the relationship and sold and used to buy new properties, and property bought during the relationship with money earned during the relationship, as well as one spouse's excluded property that is put into the names of both spouses.

Justice Butler reached the same conclusion about property going down in value as Justice Harvey: if property excluded from sharing goes down in value, the spouse who owns the excluded property has to eat the loss and cannot make up the lost value from shared property. Good. This approach is consistent with what the Family Law Act appears to want the court to do, and it's good to have two decisions making the same decision on the issue.

On the excluded property that was transferred into both spouses' names, the judge decided that the transfer didn't affect the amount of the exclusion that the spouse who formerly owned the property would be entitled to. This was a really important point because of a principle of the old common law called the "presumption of advancement" that normally would have characterized the transfer as a gift between spouses essentially erasing the exclusion that the former owner would have been entitled to.

The common law, the rules made by judges when there is no legislation that requires a specific result, is full of odd quirks that aren't part of legislated laws and are sometimes counterintuitive, like the presumption of advancement, the presumption of gift and the presumption of resulting trust. The main problem with these presumptions is that they're not only not part of the legislated law, the legislated law doesn't even refer to them! As a result, both the rules of the common law and the rules of the legislation might apply to a problem, but someone who doesn't know about the common law would have no idea just reading the legislation that there is a whole other collection of uncodified laws that also needs to be considered. This, I humbly suggest, is a real problem from an access to justice perspective.

In the case of the presumption of advancement, Justice Butler observed that the presumption only applies to married spouses, and applying the presumption would:

1. create a differential treatment of married and unmarried spouses contrary to what the act intends, and the presumption is at odds with the overall scheme of the act;
2. defeat the owning spouse of the excluded equity he or she would normally be entitled to; and,
3. rob the act of the simplicity and certainty of it's plan for the division of property.

Accordingly, the judge decided that the plan for the division of property set out in the act was a "complete code" such that the presumption of advancement, and presumably the other presumptions of the common law, no longer applied to the division of property between spouses.

This conclusion is really appealing to me, and I think that Justice Butler's reasoning is fully in line with the overall design of the Family Law Act. It really would be helpful for everyone, lawyers and spouses alike, if the act were a complete code. Avoiding those old common law principles would lend a great deal of certainty to the division of property between spouses; fewer spouses would have unreasonable expectations as to what they are and aren't entitled to; lawyers would be able to more accurately predict the outcome for their clients and more cases would settle out of court as a result; and, people without lawyers wouldn't have to go spelunking until the bowels of the common law just in case theres some dusty old rule there that applies to them that the legislation doesn't even mention.

However, this was not the conclusion reached by the Chief Justice in Cabezas v Maxim. In this case, the spouses lived in a property that was purchased with help from one spouse's parents, who also contributed to the mortgage from time to time. According to the case law, when the parents of a married person give the person money to buy the family home, without an agreement in place, the court is required to presume that the money was a gift to the person receiving it which, through the presumption of advancement, also becomes a gift to the person's spouse. The Family Law Act, of course, says that gifts received by a spouse during the relationship are the property of the spouse and are excluded from sharing with the other spouse.

The Chief nonetheless applied the presumption of advancement, holding that:

"[68] ... This presumption of advancement is limited in scope, and does not apply to all gifts or inheritances received by a spouse from his or her parents. Generally, such gifts are excluded property under s. 85(1)(b) of the Act ... However, where a parent chooses to provide funds to a child for the purchase or maintenance of the family residence ... those funds are presumed to be a gift to both the child and his or her spouse. Absent evidence rebutting this presumption, the funds ... are family property under s. 84 of the Act."

The presumption of gift was applied by Mr Justice Masuhara in Wells v Campbell, in the context of a property brought into the relationship by one spouse and later transferred into the names of both spouses. The judge said that:

"[32] I find that [the claimant] at the time he transferred the [property] into joint tenancy he did so as a gift to [the respondent]. ... The transfer of an interest in the [property] was a perfected inter vivos gift and the gift cannot be revoked. I do not read the Act as altering the law of inter vivos gifts. Accordingly I cannot see how [the respondent] can be denied the entirety of her interest in the property ..."

Commenting on Remmem, Justice Masuhara said that:

"[38] ... I am not persuaded that [the problems identified by Justice Butler] lead to the conclusion that the Act displaces or extinguishes the presumption of advancement, or the effect of an inter vivos gift resulting in a joint tenancy. There is no explicit extinguishment in the Act [of these presumptions], as has been done in other jurisdictions ..."

Mr. Justice Walker reached the same decision as the Chief and Justice Masuhara more recently, in the 2015 case of V.J.F. v S.K.W. Justice Walker addressed the issues raised by Justice Butler, applied the reasoning of Justice Masuhara, and further observed that the Family Law Act seems to preserve the rules of the old common law:

"[63] ... in s. 104(2), the FLA provides that common law and equitable rights are retained. That section provides:

104(2) The rights under [the part of the act dealing with the division of property] are in addition to and not in substitution for rights under equity or any other law.

"[64] In looking through the reasons for judgment, I cannot find where s. 104(2) was raised before Justice Butler in Remmem. ... 

"[67] ... I am of the option that it cannot be said that the FLA does not contain any provision that permits for the presumption of advancement."

With much regret, I do believe that Justice Walker is correct, much though I wish this were not the case. With the greatest respect for the drafters of the Family Law Act, in my view it would be better for British Columbian families if s. 104(2) were repealed; leaving the act open to the vagaries and uncertainty of the common law does a disservice to all.

The other issue that's been working its way through the courts is what "significant unfairness" means. This is important as the act says that:

1. shared family property should be divided equally between spouses unless an equal division would be "significantly unfair;" and,
2. a spouse's excluded property should not be divided between spouses unless it would be "significantly unfair" not to do so.

There's only one other law in BC that uses this phrase, and I'm afraid it's the Strata Property Act, which uses the term in the context of the actions taken by a strata property council against a strata property owner, which I don't think is really analogous to the relationship between spouses under the Family Law Act.

In L.G. v R.G., a 2013 case of Mr. Justice Brown, the court referred to a thesaurus for the idea that "significant" means something that is "important, of consequence, of moment, weighty, material, impressive, serious, vital, critical." Looking at some of the Strata Property Act cases, the court noted that "significant" has been held to mean something that is "burdensome, harsh, wrongful, lacking in probity or fair dealing," and that:

"[70] ... the use of the word 'significant' before 'unfairness' indicates to the Court that it should not interfere with the actions of a strata council unless the actions result in something more than mere prejudice or trifling unfairness."

With respect, I don't think that the threshold intended by the Family Law Act is something as modest as unfairness that is "more than mere prejudice or trifling unfairness." It seems to me that the act means to raise a much higher burden to unequal divisions of family property, or the division of excluded property, than this.

In Remmem, Justice Butler took an approach closer to the dictionary definitions and held that "significant unfairness" means something that is "weighty, meaningful, or compelling," and that:

"[44] ... the legislature has raised the bar for a finding of unfairness to justify and unequal distribution. It is necessary to find that the unfairness is compelling or meaningful having regard to the factors set out in s. 95(2) ..."

The court also helpfully provided a three-part test to decide when the equal division of shared family property might be significantly unfair:

1. determine the family property to be divided, excluding any property qualifying as excluded property;
2. equally divide the family property; and,
3. determine whether the equal division is significantly unfair, taking into account the overall result of the equal division including the excluded property each spouse is keeping.

This approach was followed by Madam Justice Fitzpatrick, in the 2015 case of Walburger v Lindsay.

To summarize the general trend of the case law to date, then, when property is brought into a relationship, the equity in the property on the date the relationship begins is the excluded property of the spouse who owns it. However, when that property decreases in value during the relationship, the decreases value is the excluded property and the owning spouse can't look to the shared family property to make up the loss. The family property to be shared by the spouses is the property brought with new money during the relationship plus any increase in the value of excluded property occurring during the relationship. Family property also includes the value of new property bought with the proceeds of sale of excluded property, less the amount of the excluded property that was contributed to the purchase of the new property.

In general, gifts from third parties and inheritances that are received by a spouse during the relationship are excluded property, except when one of the common law presumptions applies to make the gift or inheritance the property of both spouses. Likewise, a spouse who transfers excluded property into the names of both spouses may also be considered to have lost his or her excluded interest in the property.

And this, more or less, is where we're at.

Bill Amending Family Law Act Tabled

On 3 March 2014, Minister of Justice Suzanne Anton tabled Bill 14, which, if passed, will become the Justice Statutes Amendment Act, 2014. The bill contains a number of amendments to the legislation on family law matters in British Columbia: the Adult Guardianship Act, the new Family Law Act, the Family Maintenance Enforcement Act, the Interjurisdictional Support Orders Act, the Public Guardian and Trustee Act and the new Wills, Estates and Succession Act when it comes into force. In this post, I will briefly outline the amendments to the Family Law Act.

Trust Property

Sections 11, 12 and 13 of the bill are designed to clear up certain problems relating to the status of trust property. The amendments make it clear that a spouse's beneficial interest in property, as well as property bought using the spouse's beneficial interest, is presumed to be family property to be divided between the spouses. However, if the beneficial interest concerns property held in a discretionary trust (a trust in which the distribution of property and to whom it will distributed is decided by the trustee, not the beneficiaries or the person who created the trust) and the spouse did not contribute to or create the trust, the beneficial interest is excluded from the pool of family assets to be divided.

Gifts

Section 13 of the bill would amend the act to make it clear that the only gifts that are excluded from the pool of family property to be divided are gifts from third parties. This is really important, because the way the Family Law Act currently reads, gifts between spouses are excluded from the pool of family property, and spouses often make decisions about how property is owned for tax reasons, to protect the property from creditors and to plan the distribution of their estates

Foreign Property

Sections 14, 15, 16 and 17 of the bill go some way toward cleaning up the extraordinarily incomprehensible provisions of the Family Law Act on property located outside of British Columbia that is, or might be, family property. These provisions are found in Division 6 of Part 5 and are horrifically complicated, and as a result I won't say more about it. I have written a paper on the foreign property provisions of the act which may be available from the Continuing Legal Education Society of BC.

Protection Orders

Sections 18 and 29 of the bill, would add the Criminal Code definitions of "firearm" and "weapon" to the definitions for Part 8 of the Family Law Act, the part that deals with protections orders, and clarify that a protection order can not only prohibit someone from possessing firearms and weapons, but also the licences, certificates, authorizations and whatnot relating to the firearms and weapons. A protection order can also prohibit someone from possessing "a specified object."

Consolidation of Multiple Proceedings

Section 20 of the bill makes it clear that the court can join two or more proceedings together. This will be most useful when there is a proceeding between two parents about parenting time, for example, and a relative starts a separate proceeding seeking contact with the same child. Since any order made in the second proceeding would impact on the order made in the first proceeding, a party could apply for an order that both proceedings be joined and dealt with together.

Needs of the Child Assessments

Sections 21 and 23 of the bill, would amend the Family Law Act provisions on needs of the child assessments, formerly called custody and access reports, so that only particular people with particular training and experience — to be established by regulation — are able to conduct needs of the child assessments.

Supreme Court Publishes First Decision Dividing Property Under the FLA

Mr. Justice Harvey of the Supreme Court has just released his decision in Asselin v. Roy, a case in which the parties, a couple in a long term unmarried relationship, agreed to use the new Family Law Act to determine how their property and debt would be split between them. Frankly, I'm surprised that we've had a decision on this topic so soon, but the judgment is welcome nonetheless.

Much toner will be spilt chewing over the nuances of this decision, and, on the assumption that sharper minds than mine will have a better analysis than I, I will provide a summary overview only.

Background Facts

The parties began to live together, in British Columbia, in 1987 and separated in 2011. The respondent brought a number of assets into the relationship, namely the family home in BC, a property in Nova Scotia, a pension and an RRSP account. The claimant owned nothing.

In 1990, the parties signed a cohabitation agreement at the suggestion of the respondent. Given that both parties were leaving marriages when their relationship began, the suggestion was sensible. The agreement said that each of them would remain the sole owner of the property he or she owned, and that the only property they would share would be property bought in their joint names. Each of them agreed to waive his or her interest in the other person's property.

The respondent hired a lawyer to draft the agreement, and the parties signed it in the lawyer's office. At the trial, the claimant said that she had not seen the agreement before signing it, that didn't know why they were going to the lawyer's office until they got there and that she didn't have legal advice about the meaning and consequences of the agreement before signing it.

As time passed, the first family home was sold and used to buy a second family home, which was also registered in the sole name of the respondent. The claimant, who was then working as a teacher's assistant, contributed her salary and gifts from her parents toward the second family home, the purchase of furniture and various renovation projects. The respondent, who I'm sure also contributed to these expenses, used his salary and other income, and sizeable inheritance from his mother's estate to invest in real estate in Nova Scotia and cover all of the operating costs of the family homes. The claimant contributed more toward family expenses as her income improved. The parties maintained separate bank accounts throughout almost all of their relationship.

By the time the trial rolled around the respondent owned five properties in Nova Scotia, including the one he'd owned at the beginning of the parties' relationship, the second family home, investments, a violin collection, and other personal property including cash and a car. The parties jointly owned two other properties in Nova Scotia. The claimant owned some investments and an RRSP account she purchase with an inheritance from her mother, some other RRSPs and other personal property including cash and a car.

Apart from the mortgages secured against his various properties, the respondent owed credit card debt of $60,000 at the date of separation. The claimant held no debt, apart from her liability for certain mortgages.

Jurisdiction Under the New Act

As mentioned, at the beginning of the trial the parties elected to have the Family Law Act apply to determine the division of property and debt between them. (Technically, this could not have been an election under the transition rules set out in s. 252(2) as the property division rules of the old Family Relations Act never applied to unmarried spouses. It would have had to have been something like an agreed amendment of the parties' claims to plead relief under the new act.)

The parties's other election was that the court would also have the authority to make decisions about the property in Nova Scotia, under, I presume, s. 106(2)(b) which allows litigants to agree that the court has jurisdiction over property located outside the province and apply our local law to the division of that property under ss. 108(5) and 107(a).

Regardless of how the court assumed jurisdiction to apply the Family Law Act to the trial, it did. The court next determined that the parties were "spouses" as defined by s. 3(1)(b) of the act, having lived together in a marriage-like relationship for more than two years, and concluded that the property division rules applied to the parties.

The Law

The court described the purpose of the Family Law Act as creating "more certainty for litigants in the division of their assets," and observed that "the broad judicial discretion formerly available under the FRA has been replaced with a more formulaic approach to both the identification and division of family property." The court then reviewed the founding assumptions of the new act about the division of property:

1. under s. 81(a), all property qualifying as "family property" is to be divided equally, and responsibility for all debt qualifying as "family debt" is top be allocated equally;
2. under s. 95, family property and family debt can be divided unequally, but only if an equal division would result in "significant unfairness;"
3. under s. 84, "family property" is all property owned by either or both spouses on the date of separation, and the amount by which any property excluded from the pool of family property has grown in value during the relationship; and,
4. under s. 81(b), the date of separation is the date on which property is characterized as either family property or excluded property.

Comparing this new regime to the old act, the court said this:

"[160] ... Unlike the former legislation governing property division, there is no requirement under the Act to establish entitlement to an asset before its characterization as ‘family property’. There is no requirement of ordinary usage or contribution to the asset; rather the court merely has to determine that such property existed on the date of separation and at least one spouse owned it or had a beneficial interest in it."

Certainly, this seems much simply than the regime under the Family Relations Act, which required proof that property was "ordinarily used for a family purpose" to be a shared, "family asset." However, 

"[106] To implement the objectives [of the legislation], more mathematical certainty from a clear evidentiary record is required. Where inheritances are said to come into play, estate documents should be produced. Where exclusion of property is sought, on whatever basis, documents showing the value of property as at the time cohabitation commenced and at the date of separation will be critical in the assessment which the court is to perform. Where one party suggests, as is the case here, that excluded property has changed character into another asset, documents should be provided to allow the court to trace the transaction back to the property said to be excluded."

The point the court is making here is that the focus of the act has shifted from "ordinary use for a family purpose" to the dates that the spousal relationship began and ended, and, particularly in terms of excluded property, the value of property on the dates that the relationship began and ended.

The Agreement

The first issue for the court was whether the cohabitation agreement was binding on the parties. The respondent unsurprisingly took the view that the agreement was fair, except with respect to the family home. The claimant, on the other hand, argued that the agreement "was both unfairly constituted and significantly unfair in substance — in other words, the agreement was unfairly reached and, if the agreement was followed, the result would be unfair as well.

The court reviewed s. 93 of the new act, which sets out the reasons why the court can set aside an agreement about the division of property and debt, and summarized its effect as follows, with the particularly important bits in bold:

"[124] Seemingly, the proclamation and bringing into force of the Act heralds a new age for property division in the province of British Columbia. The tenor of the new Act appears to favour a less interventionist approach than its predecessor, the FRA. 

"[125] Section 93 contemplates a two-pronged inquiry as to the enforceability of an agreement. The first inquiry is directed at the formation of the agreement; the second stage, its effect. 

"[126] Even if the court determines the agreement was unfairly reached, there is still discretion to decline to set aside or vary the agreement if the result would not be substantially different from that which is contained in the agreement. s. 93(4) 

"[127] If an agreement was fairly reached, having regard the enumerated factors in s. 93 (3), the court must go on to consider whether the agreement is significantly unfair having regard to the enumerated criteria in s. 93(5). 

"[128] Judicial discretion has been modified, particularly as it relates to the assessment and enforceability of agreements. Under the previous legislation, a finding of unfairness based on one of an enumerated factors in s. 65(1) was sufficient to allow the court to, in effect, rewrite the parties’ Agreement to achieve the fairness found lacking in the original version. 

"[129] Critics of the legislation argued the threshold for judicial intervention was low, resulting in uncertainty which, in turn, encouraged litigation. 

"[130] Certainty is no doubt a desirable objective and parties should be encouraged, where mutually desired, to establish regimes of property entitlement which deviate from the statutory scheme. 

"[131] However, certainty should not trump either procedural or operational fairness as defined in s. 93."

Cutting to the chase, the court ultimately found the cohabitation agreement to unenforceable for want of procedural fairness, for four reasons:

1. the claimant did not have legal advice before signing the agreement;
2. the respondent's financial disclosure in the agreement was incomplete as he failed to provide values for the assets he owned at the time; and,
3. the claimant therefore did not have the "necessary information to fully consider her position" in deciding whether to sign the agreement.

Having concluded that the agreement was procedurally unfair, the court then proceeded to divide the parties' property and debt.

The Division of Property

This exercise may have proved more troublesome than expected because of the quality and sufficiency of the financial evidence available to the court. The court noted various deficiencies in the information produced concerning: the value of the property existing at the date of cohabitation; the value of the parties' pensions at the date of cohabitation and at present; the value of each party's inheritances when received and at present; the parties' use of their inheritances during the relationship; and, the source of funds used to acquire property during relationship.

The court offered the following criticisms and the sort of evidence that would have been helpful:

"[169] Unfortunately ... neither party prepared a [schedule of assets and values] evidencing the assets or debt in existence as at the triggering event, [the date of separation] and, where appropriate, their value on that date. 

"[170] In the result, absent evidence at trial as to the identity and valuation of assets as at the date in question, I have relied upon the parties’ Form 8 financial disclosure statements in ascertaining the identity of various accounts not discussed in the evidence. If amongst them are accounts which did not exist as at [the date of separation] then such should be deleted from the following list of family assets. 

"[171] As to the value of the assets, those assets which are family property consisting of accounts and financial institutions subject day to day use, such as checking accounts, the valuation should be taken as at the date of separation. 

"[172] For those accounts representing long-term investments, specifically the RRSPs of each party found to be family property; those are to be divided in specie at the time of division unless it can be shown contributions were made post-separation. In such case, the amount of such contribution should be subtracted from the divisible portion of the asset."

Relying on the parties' financial statements and the evidence presented at trial, the court concluded that the excluded property consisted of the equity in the second family home attributable to the respondent's inheritance and the sale proceeds of the first family home, the savings accumulated by the claimant as a result of her own inheritance, and a portion of the equity in two of the Nova Scotia properties attributable to the claimant's inheritance. All other assets, the court concluded, were family property.

The court then addressed the question of whether it would be "significantly unfair" to equally divide the family property as required by s. 81. However, the question of what "significantly unfair" means has not yet been addressed by a court, and with this judgment will remain so:

"[251] ... I conclude that an equal division of the family property as earlier found would not be 'significantly unfair' to either party. 

"[252] In concluding this, I refer to the remarks of Justice Stewart who, in Jacobellis v. Ohio, (1964) 378 U.S. 184, famously stated: 

I shall not today attempt further to define the kinds of material I understand to be embraced within that shorthand description ["hard-core pornography"]; and perhaps I could never succeed in intelligibly doing so. But I know it when I see it, and the motion picture involved in this case is not that.

"[253] I, too, will leave to others to formulate an intelligible definition of 'significantly unfair' as that term is defined in section 95 and elsewhere in the Act. 

"[254] However, 'I know it when I see it' and this, save for my possible reservations concerning pension division, this is not 'it'."

Advice for Future Litigants

The court, it is clear, was vexed with certain aspects of the evidence before it, and offered these comments for other litigants:

"[104] Future litigants referencing this decision would be well advised to avoid some of the problems encountered by the parties in this litigation by preparing a Scott Schedule detailing the assets and liabilities of each party as of the date of separation."

A "Scott Schedule" is a chart that shows each asset and each debt that is at issue in a case and gives certain information about each item, including how it is owned, the date of purchase, the cost to purchase, present value, and each parties position on the item, if known.

It seems to me that the critical information with respect to property would be something like this:

• Date of purchase, purchase price.
• If brought into the relationship, value at the date of cohabitation or marriage, whichever is earlier.
• If bought during the relationship, source of purchase funds and amount of contribution of each party toward purchase.
• Amount and source of any funds contributed by either party to improvement of asset during relationship.
• Value of property, and any associated debt, at date of separation.
• Value of property, and any associated debt, at date of trial.

In the case of inheritances, court awards and gifts:

• Date of acquisition, value when acquired.
• Amount, if any, contributed to excluded property and family property during relationship.
• Value at date of separation.
• Value at date of trial.

In the case of debts:

• If brought into the relationship, balance at the date of cohabitation or marriage, whichever is earlier.
• If incurred during relationship, date incurred, amount incurred and reason incurred.
• Value of any debt proceeds applied to or spent on excluded property and family property during relationship.
• Balance outstanding at date of separation.
• Amount of debt incurred to maintain family property after separation.
• Balance outstanding at date of trial.

Finally, I should thank the brave lawyers who leapt in the deep end of the ocean to argue the first case on the division of property under the Family Law Act. You have helped us spot the sharks.