DIVIDING FAMILY PROPERTY IN BC
Division of property is governed by the Family Law Act with the presumption that family property is to be divided equally between the parties with some exceptions. One such exception is excluded property. Section 85 of the Family Law Act allows for property to be excluded from property division except for the increase in value. Excluded property can be created in three ways: 1. Property owned before the relationship began; 2. Property gifted to one spouse alone during the relationship; and 3. Property inherited during the relationship by one spouse alone. Nothing will be divided if the property has gone down in value during the relationship. However, the increase in value will be divided should the value of the property appreciate during the relationship. The legislature’s goal of creating excluded property is that each party will keep their own property and share only that property was from the relationship.
How does one prove that their property is excluded? The Court of Appeal recently held in Shih v. Shih that civil standard of proof on a balance of probabilities is the standard to determine if property is excluded and that there is no requirement to prove that one owned the excluded property to a standard of precision or mathematical certainty. However, the onus to prove that property is excluded is on the person making the claim. The person coming to court claiming that property is excluded under the Act must do so with clear and cogent evidence, but this does not need to include documentary evidence, although, of course, such evidence is very helpful both to the court and the person making the claim. The person claiming excluded property will also be required to prove the value of the excluded property at the time of acquisition or the beginning of the relationship, whichever is the relevant moment in time.
Excluded property can be traced to new properties, but once again, there must be proof that the funds from the sale of one piece of property were used to purchase another. Excluded property can also lose its status as excluded property if one spouse gifts it to another which can be accomplished merely by registering the property into the other spouse’s name, as was found in V.J.F. v. S.W.A., a decision of the BC Court of Appeal.
A GIFT TO ONE PERSON OR TWO
One of the biggest problems facing spouses contesting the division of property is proving whether a gift was a gift to one spouse or both spouses. This is particularly difficult around gifts of cash to purchase real estate or gifts of real estate itself. The BC Court of Appeal recently held in Cabezas v. Maxim that there is a presumption that real estate (or funds gifted towards the purchase or maintenance of real estate) gifted to one spouse is a gift to both spouses, unless the presumption is rebutted with evidence that the person making the gift only intended at the time of the gift to give the gift to only one spouse.
GET LEGAL ADVICE
It is important that one should know one’s legal rights and obligations regarding property division when entering a relationship or deciding to make a gift of excluded property to their spouse during the relationship. Transferring property into the name of their spouse, regardless of the donor’s intention, will forever change the status of excluded property – something to consider in today’s real estate market where individual properties may be worth millions of dollars, such as in the V.J.F. case.
AVOIDING FUTURE PROBLEMS – GIFT GIVING
If you are a parent considering making a gift of valuable property to your son or daughter and you intend to only make that gift to your child and not their spouse then a lot of confusion can be eliminated by providing a notarized gift letter to the recipient stating the name of the recipient of the gift and why you are making the gift (i.e. early inheritance). In the absence of such a letter, it may be difficult for the recipient of the gift to prove that it was only a gift to them.
AVOIDING FUTURE PROBLEMS – MARRIAGE AND COHABITATION AGREEMENTS
Marriage or cohabitation agreement are very useful tools to avoid future litigation. A marriage agreement is entered into either at the start of or during a marriage, where as a cohabitation agreement is entered into while the parties are living together. It is important to remember that people who are cohabitating for more than two years have the exact same legal rights and obligations regarding spousal support and property division as married people. Cohabitation and marriage agreements typically set out the presence of any excluded, how that property is to be treated upon separation, and whether there are any restrictions or waiver of spousal support.
When parties are cohabitating or getting married, an agreement setting out the terms of property division, should the relationship end, can reduce the need for future litigation. The agreement should identify the excluded property of each party and very importantly, identify the value of the property at the time the relationship began. If excluded property is acquired during the relationship, then the property schedules attached to the agreement should be amended to reflect the newly acquired property and its value at the time of acquisition. It is up to you and your spouse as to whether you wish to agree to follow the Family Law Act’s requirement to only share the increase in value or come to some other arrangement.
Recording the value of excluded property in a marriage agreement establishes an easy record for the parties to reference should it become necessary in the future to determine the increase in value of any excluded property.
For more information on marriage agreements, separation agreements, and property division, please contact the John Nelson Law Corporation for a private consult.