Recent changes to the Family Law Act may make property division a bit more straightforward, at least when it comes to the question of inherited property in divorce. Let’s have a look at the law that applies to the issue of division of inherited property in divorce in BC.
General rules for debt and property division during divorce
“Family property” is everything you or your spouse own separately or together on the date you
separate. British Columbia’s Family Law Act states that when spouses separate, all family property is divided 50/50, unless the spouses have an agreement that says otherwise or a judge orders otherwise.
Examples of family property include the family home, vehicles, RRSPs, investments, bank
accounts, insurance policies, pensions, and business interests. Property that is registered in the
name of only one spouse may still qualify as family property and may still be equally divided.
Separating spouses must also divide accrued family debt. That includes all financial obligations
incurred by either spouse during the relationship, including mortgages, loans, lines of credit,
credit card debt, and income taxes. Both spouses are typically equally responsible for paying off
family debt even if the debt is only in the name of one spouse.
Excluded property not subject to division—but increase in value is
Excluded property, on the other hand, does not have to be split 50/50. Section 85 of the Family
Law Act sets out a list of excluded property which includes assets you or your spouse owned
before your relationship began, gifts to one spouse from a third party and inheritances received
by one spouse during the relationship.
While excluded property does not need to be divided equally on divorce, the increase in value
of any excluded property accumulated during the relationship is considered family property
and must be divided equally. For example, if you owned a house with a net 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 alone. You and your spouse will equally divide the
$300,000 in increased equity.
Division of inherited property in divorce in BC
If the spouse receiving an inheritance kept it in a separate bank account, the assets division
rules apply, and only the increase in value of that excluded property is subject to equal division.
The situation is much more complex when inherited money or property is comingled with
family property such as for example when one spouse uses his or her inheritance to buy a
house in joint names with their spouse or to pay down the existing mortgage on their jointly
owned home.
When an inheritance is used to purchase family property or pay down family debt, is it still
treated as excluded property on separation? That has been an area of major dispute. There are
many BC court decisions where judges ruled that the spouse who so used their inheritance
intended to make a gift to their spouse so the exclusion was lost. But there are also cases
where judges trace the gift back to the inheritance thus preserving its character as excluded
property on separation.
Changes to BC family law clarifies division of assets in divorce
The conflict in the court decisions made for a lot of confusion and little predictability for
separating spouses. In 2023, the BC legislature enacted changes to the Family Law Act which
should provide some clarity and consistency going forward.
The first major change is the addition of section 81.1 to the Family Law Act, which states that
the common law rule known as the “presumption of advancement” should no longer be applied to questions respecting the ownership of property between spouses. The presumption of advancement is this: When a spouse transfers property to the other spouse, it is presumed that the spouse who made the transfer intended to gift the property to the other spouse unless there is evidence to prove otherwise.
The presumption was applied in family law cases where there was not enough evidence to prove a different intention when the inheritance was blended with family property. The addition of section 81.1 to the Family Law Act makes it clear that the presumption must no longer be applied respecting questions concerning ownership of property.
The second major change is to section 85 of the Family Law Act; specifically, the addition of
section 85(3): (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.
The new provision indicates that an inheritance retains its excluded character on separation
even if it was used to purchase family property or mixed with other family property. The
change to the law should make it easier for the spouse who received the inheritance to
maintain his or her position that the inheritance remains excluded property, even if it was
transferred to joint names, used to buy jointly registered family property or used to pay down
family debt.
Division of excluded property is still possible
While the above-noted changes are hoped to provide much needed clarity, it remains to be
seen how BC judges will apply the new provisions in family law cases. It must also be noted that
when the changes to the Family Law Act were made official in 2023, the law was also amended
to include section 96, which adds factors that a court must consider when deciding whether to
order a division of excluded property.
Section 96 states that it is still open to the court to order division of excluded property but only
in certain situations. For example, if it would be significantly unfair not to do so in light of the
terms of any agreement between the spouses respecting the excluded property or the other
spouse’s direct contribution to the preservation, maintenance, improvement, operation or
management of the excluded property.
Want to know more about division of inherited property in divorce in BC?
The take home point is that a spouse should continue to be cautious when transferring an
inheritance into joint names with their spouse or using an inheritance for family purposes. It is
highly recommended that you speak with a family lawyer if you expect to receive an
inheritance or are considering using your inheritance to buy family property. Your intention can
be properly documented and your interest in the inheritance protected.
If you are going through a separation from your spouse and you are concerned about an
inheritance you received during the marriage, give our divorce lawyer a call to discuss your
rights and options. Dealing with the various legal aspects of a divorce or separation can be
stressful. Fortunately, the team at Valerie M. Little Law Corporation can make the process
easier by providing valuable information, advice and support to assist you. Valerie’s family law
firm has helped countless clients with property division and related legal issues following the
termination of their relationship.
Valerie M. Little Law Corporation is centrally located in New Westminster and serves all of
Burnaby, Port Moody, Maple Ridge, Coquitlam, Port Coquitlam, Vancouver, North Vancouver,
West Vancouver, Squamish, Whistler, Richmond, Surrey, Cloverdale, Delta and Langley.
To schedule your confidential appointment, call 604-526-3333 or email her today.