By: Abigail Falk
Mr. Mills and Ms. O’Connor were married for over 20 years. During the marriage, Mr. Mills inherited a house worth $1.85 million and about $150,000 in financial assets. He used this inheritance to build a vacation home, which was later destroyed in a fire. The resulting $2.6 million insurance proceeds and sale proceeds from the inherited property became the focus of their dispute.
Where’s the Money?
Under the Family Law Act of British Columbia, when spouses separate, they usually divide their property equally, so each spouse receives half. Inherited property is considered “excluded property” and generally stays with the spouse who inherited it. However, any increase in value of excluded property during the marriage is considered family property and divided equally. Courts can order unequal division of family property if equal division would be significantly unfair.
Mr. Mills argued that the money held by him and Ms. O’Connor at separation all traced back to his inheritance and should be his own excluded property. Ms. O’Connor argued that the funds should be treated as family property and divided equally because they were intertwined with family assets.
Show the Receipts: The Pro Rata Approach to Tracing
The Court emphasized that when excluded property is mixed with family property, tracing must be done proportionally (or pro rata). This method divides funds based on contributions.
Applying a pro rata approach, the Court traced Mr. Mills and Ms. O’Connor’s property. The Court found that Mr. Mills’ inheritance, initially valued at $1.85 million, grew significantly due to market increases and the insurance payout, to $4.5 million. Mr. Mills’ initial inheritance was only 40.3% of this amount, so Mr. Mills could only claim, at most, 40.3% of the funds in question.
Beyond the Breadwinner: Unpaid Labour Has Value
Ms. O’Connor argued that her contributions—being a homemaker and primary caregiver—enabled Mr. Mills to pursue his career and build wealth. If Mr. Mills retained the full value of his exclusion, and then the remaining family property was divided equally, Ms. O’Connor would only receive $964,566 and Mr. Mills would receive over $2.1 million. The Court agreed with Ms. O’Connor that this would be significantly unfair given her contributions as a homemaker.
The Court ordered that Ms. O’Connor receive $1.2 million, and Mr. Mills receiving $1.8 million including his excluded property.
Moving Ahead
This decision underscores that increases in excluded property value are family property. Courts can use proportional tracing to divide mixed assets and may adjust property division if one spouse’s contributions helped preserve or grow the other’s assets.
