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BC’S FAMILY LAW ACT CHANGING TO CLARIFY RULES FOR PROPERTY DIVISION ON SEPARATION

A model of a house is seen with the keys on a table.

Division of family property is one of the most contentious—and confusing—aspects of BC family law. It’s difficult for separating spouses to know which assets are family property that must be shared and which assets are exempt from equal distribution. 

 

That is especially true when a spouse puts a gift or inheritance toward family property, or when spouses register assets like houses, cars, or bank accounts in joint names or solely in one spouse’s name even though that spouse didn’t contribute any money. Recent changes to BC’s Family Law Act (“FLA”) are expected to provide much needed clarity on these issues. Let’s have a look at the new rules.

 

What is family property?

Family property is everything you or your spouse own separately or together on the date you separate. When spouses separate, all family property will be divided 50/50, unless they have an agreement that divides things differently or a judge orders otherwise. BC courts can order unequal division of property or debt in certain cases.

 

What is excluded property?

Excluded property doesn’t have to be split 50/50. It includes assets you or your spouse owned before you lived together. This includes property one spouse owned before the relationship started, gifts from third parties, and inheritances received during the relationship.

 

However, if the value of any excluded increases over the course of the relationship, the increase in value is considered family property and must be divided equally. For example, if you owned a house worth of $900,000 before your spouse moved in, and it has a net value of $1.2 million when you separate, the original $900,000 value of the home is yours. You and your spouse will equally divide the $300,000 increase in equity.

 

Presumption resulting trust and presumption of advancement: Property division

 

When ownership of property is disputed, there are certain presumptions the court can apply to help determine who owns what. The “presumption of advancement” and the “presumption of resulting trust” are two such presumptions that have been used to divide marital assets in British Columbia family law cases.

 

The “presumption of advancement” applies when one spouse transfers property to the other spouse (e.g., one spouse registers ownership of property in both their names, even though the other spouse did contribute any money to purchase the property; or a spouse adds their spouse’s name to a bank account or other investment). The court will presume that the spouse who transferred the property intended it to be a gift to the other spouse if there isn’t enough evidence to establish a different intention.

 

Historically, the presumption of advancement applied only to property transferred from husband to wife, based on the old notion that wives are financially depended upon their husbands. It didn’t apply to transfers from a wife to husband, or between same-sex spouses or common-law spouses. The presumption has become outdated and can produce unfair outcomes.

 

The "presumption of resulting trust" has also been used by the courts when dividing marital assets in divorce. It applies where property is purchased or owned by one spouse, but title is placed in the name of the other spouse. Unless there is evidence otherwise, the purchaser or owner of the property is presumed to be the beneficial owner and the spouse having title is considered to be holding the property in trust for the spouse who purchased or owns the property.

 

BC courts and the Supreme Court of Canada have grappled with the use of those presumptions in family law cases—leading to unpredictable outcomes for family law litigants—and have called on Legislature to clarify the situation.

British Columbia Legislature abolishes use of those presumptions in family cases

 

The BC government has taken steps to modernize the FLA. On May 11, 2023, major changes to the Family Law Act received Royal Assent. Among those changes were the new section 81.1, which clearly states that the presumption of advancement and presumption of resulting trust no longer apply to BC family law cases. The new section 81.1 reads as follows:

 

          Certain presumptions not to be applied

          81.1 (1) The rule of law applying a presumption of advancement must not be applied in questions respecting the ownership of property as between spouses.

          (2) The rule of law applying a presumption of resulting trust must not be applied in questions respecting the ownership of property as between spouses.

 

British Columbia Legislature also clarifies excluded property rules

 

As discussed above, excluded property doesn’t have to be split 50/50 but any increase in value does. The question of ownership and division of assets on separation is fairly straightforward when one spouse keeps property owned prior to the relationship in his or her name alone throughout the marriage. Same too when a spouse keeps a gift or inheritance in a separate bank account that is not used to buy family property.

 

The situation gets decidedly more complex when title to property owned before the relationship began is transferred from one spouse to both spouses’ names, or to only the other spouse’s name, or when one spouse uses a gift or inheritance to buy property that is put in both spouses’ names. A common example of the latter is when a spouse uses a gift from their parents to put a down payment on a house.

 

Does the spouse get their property or money back, or is the “excluded property” characterization lost for good, making the whole value of the property subject to equal division? There was a lot of confusion in this area that the new changes to the FLA are expected to resolve. Section 85 of the Family Law Act will now include the following subsection:

 

 85 (3) If property is excluded from family property under subsection (1), the exclusion applies despite any transfer of legal or beneficial ownership of the property from a spouse to the other spouse.

 

This new subsection makes it clear that property will not lose its exclusion and become family property subject to equal division. Instead, the gift, inheritance, or transfer of excluded property will be traced back and remain the excluded property of the paying/originally owning spouse.

 

Do you need advice on how to divide family property?

 

Whether you are thinking about separating or have already separated from your spouse, property issues need to be resolved. Dealing with property division can be stressful. The team at Valerie M. Little Law Corporation can make the process easier by providing valuable information, advice and support to assist you. Keep in mind that the rules in the Family Law Act are the default. You and your spouse can agree to something different by negotiating a Separation Agreement.

 

Our family law firm has helped countless clients with division of property and related legal issues that arise at the end of their relationship. Valerie M. Little Law Corporation is centrally located in New Westminster and serves all of Burnaby, Maple Ridge, Coquitlam, Port Coquitlam, Vancouver, North Vancouver, West Vancouver, Port Moody, Richmond, Surrey, Cloverdale, Delta, Langley, Squamish and Whistler. To schedule your confidential appointment, call 604-526-3333 or email us. We are here to help.

 

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