What Is Excluded Property?
Is your spouse entitled to any of the market-driven increase in value of your home, even if you bought it prior to the relationship? Will your spouse have the right to claim a portion of your inheritance? Is the down payment made to help your child purchase their first property vulnerable to a claim from their common law partner? These tough questions relate to what is known as excluded property, and answers have not always come easily in British Columbia.
The Family Law Act (the “Act”) came into force in March of 2013, and it fundamentally changed the way courts divide property following the breakdown of a marriage or common law relationship in BC. For the most part, the Act has made division of property at the end of a relationship more predictable. As stated in V.J.F. v. S.K.W., 2016 BCCA, the basic principle intended to be applied to the property of partners on separation is, “they keep what is theirs.”
The Act relates to 3 kinds of property: excluded property, family property, and family debt.
- Excluded property includes, in principle, every asset owned by a partner at the beginning of a relationship, as well as any inheritances, personal gifts, and certain court awards, settlements and insurance payments received during the relationship. Excluded property also includes debts acquired before a relationship begins. Excluded property is not divided at the end of the relationship.
- Family property includes, in principle, all assets acquired by either partner during the relationship, apart from the excluded property listed above. Family debt works the same way. Family property is divided equally at the end of the relationship.
How Does the Court Deal with Excluded Property?
While defining excluded and family property appears straightforward, things can get complicated in a hurry. For example, family property includes the increase in value of an excluded asset during the relationship. Say you buy an apartment, and a year later you begin living with a partner. Provided that partner becomes your spouse (through marriage or common law), the increase in value of your apartment from the date your spouse moved in will likely be viewed by the courts as family property, to be divided equally upon separation: Bressette v. Henderson, 2013 BCSC.
Complicating things further, the case law in BC is not clear on what happens to excluded property when it is mixed with family property or used for a family purpose. One line of cases beginning with Remmem v. Remmem, 2014 BCSC supports the position that excluded property will remain excluded, even if placed in both spouses’ names, so long as it can be traced. The recent decision in V.J.F. v. S.K.W., 2016 BCCA clarifies that excluded property becomes family property when placed in the sole name of your spouse. It is best to conclude therefore that excluded property may become family property when it is placed in the names of both spouses and used for a family purpose. For example, if inherited money is used to purchase a family asset in joint names, such as a home or a vehicle, then the amount of inheritance used for that purchase may become family property. The down payment made on a child’s first apartment could also lose its excluded character and become family property, if for example that apartment is sold and the proceeds are then used to buy another property for the child and their spouse.
Finally, the Supreme Court may order a division of excluded property where it would be significantly unfair not to do so, or where family property held outside BC cannot be practically divided. The court will look at the duration of the relationship between the parties, as well as the manner in which the excluded property has been treated by the spouse claiming exclusion. Significant unfairness is a high standard to meet and reapportionment will require something “objectively unjust, unreasonable or unfair in some important or substantial sense”: Dheenshaw v. Gill, 2017 BCSC.
How Can I Protect My Excluded Property?
When determining whether excluded property has become family property, courts will examine the intentions and conduct of the parties. Couples can agree to exclude their personal financial assets that would otherwise have been included in the definition of family property: Jaszczewska v. Kostanski, 2015 BCSC 727. If there is a clear documented intention that excluded property was meant to retain its excluded character, then the courts will generally accept this position. This includes a signed cohabitation, marriage, or separation agreement.
Remember that the party claiming that property is excluded has the burden of proving their argument. Because this area of law can be particularly challenging, it is very important to seek the advice of a family lawyer when making financial decisions involving your excluded property. Davidson Fraese Family Lawyers can help you create the appropriate agreement for your specific circumstances.