Excluded Property Regime Introduced
When the Family Law Act came into force in 2014, it introduced an excluded property regime to British Columbia’s family law. Specifically, section 85 of the Family Law Act established two categories of property at separation of married or un-married spouses: excluded property and family property. The difference between the two classes is that on the breakdown of a relationship the parties are presumptively entitled to division of the value of family property in equal shares, while excluded property is not divisible between the parties. Some of the recognized categories of excluded property include, but are not limited to, property owned by either spouse prior to the relationship and gifts or inheritances exclusively received by one spouse during the relationship. However, the distinction between family and excluded property becomes less clear when excluded property is transferred into the other party’s name, either jointly or solely, during the relationship. Subsequently, case law has interpreted the meaning and effect of section 85 in the context of these situations. Unfortunately, the case law has served to confuse the matter. Two distinct interpretations of section 85 of the Family Law Act emerged in the case law following its introduction. The first interpretation considers the Family Law Act to be a “complete code” to property division and holds that excluded property remains excluded from equal division upon dissolution of a relationship despite the transfer of excluded property into the other party’s name during the relationship. In essence, this interpretation urges the courts to look only at the rules and provisions contained within the Family Law Act when determining entitlement to property. The second interpretation holds that certain common law and equitable property concepts continue to apply under the Family Law Act and consideration of these concepts must be had.
Despite the well-reasoned cases supporting both interpretations, it appears the second interpretation of section 85 of the Family Law Act governs. In the recent decision of V.J.F. v. S.K.W., the British Columbia Court of Appeal upheld the decision reached at trial where a $2 million gift from a third party to the husband (the “Gift”), which was subsequently put in the sole name of the wife for creditor protection, was found to not be excluded property under section 85 of the Family Law Act. Instead, the Gift was found to be family property as defined by section 81 of the Family Law Act that was subject to the presumption of equal division. In reaching this conclusion, the Court ultimately decided that the excluded property regime in the Family Law Act is not a “complete code” governing property division upon separation. Instead, the Court held that the Family Law Act built upon existing common law and equitable principles, such as the presumption of advancement, and that these principles continue to apply.
The significance of the V.J.F. decision is the Court’s discussion regarding gifts between parties. However, it should be noted that the facts in V.J.F. are unique since the husband transferred the Gift solely into the wife’s name for the purpose of creditor protection. While V.J.F. clearly decided that the excluded property placed solely in the name of the other spouse became a family asset, the analysis depends entirely on the facts in each case. It remains to be seen how the Court will consider excluded property placed in joint names during a relationship, however, if V.J.F. provides any insight, consideration of the intention of the parties at the time of transfer will be paramount.
