Division of Assets
The statutory provisions governing the division of property between married and unmarried spouses are set out in Parts 5 and 6 of the FLA. The DA does not provide for the division of property. Only the BC Supreme Court has jurisdiction to make orders for division of property.
Part 5 of the FLA deals with the division of property, including real property, personal property and financial assets. Part 6 deals with the division of pensions. The FLA specifically addresses the allocation of debts.
Couples who are unmarried and have cohabited for less than two years, whether or not they have a child, are specifically excluded from the operation of Parts 5 and 6 of the FLA. If property claims arise between these parties, the law applicable to the division of property between multiple owners will apply to jointly-owned property, and the principles of equity and trust law may apply in respect of property owned only by one party.
The division of some assets, such as recreational property, rental property, corporate interests and investment accounts, may give rise to significant tax issues. Always ensure that your client has obtained the appropriate tax advice before assets are divided.
Division of Assets Under Part 5 of the FLA
The FLA deals with two kinds of assets:
The FLA imposes an entirely new regime for the division of property. Generally, property brought into the relationship by a spouse, plus certain property acquired during the relationship such as inheritances, court awards and insurance proceeds, described as “excluded property,” will presumptively remain the property of the owning spouse. Property acquired during the relationship, described as “family property,” will presumptively be divided equally between spouses, along with the growth in value of each spouses’ excluded property.
Excluded property generally includes the following:
- pre and post relationship property;
- gifts and inheritances to one spouse;
- settlements or damage awards, except that part meant to compensate both spouses or to replace wages;
- non-property-related insurance proceeds, except that part meant to compensate both spouses or replace wages; and
- some kinds of trust property.
Family Property is all real property and personal property other than excluded property. As set out in s. 84, it includes property acquired by either spouse after the date of cohabitation and includes the increase in value of excluded property after the date of cohabitation.
Pursuant to s. 84(2) and (3), family property specifically includes the following:
- a share or interest in a corporation, partnership, association, organization, business or venture;
- property owing to a spouse as a refund (including an income tax refund) or in return for the provision of a good or service;
- bank accounts;
- annuities, pensions, retirement savings plans or income plan;
- certain trust property.
Family debt is defined at s. 86 of the FLA. It includes all financial obligations incurred by a spouse during the course of their relationship, from the date of cohabitation to the date of separation. Debts incurred after the date of separation are not family debts, unless they are incurred for the purpose of maintaining family property. Family debts are subject to equal division pursuant to s. 81 of the FLA. This section means that the purpose of the debt during the relationship is irrelevant, except where one spouse can prove that equal division of the family debt would be significantly unfair under s. 95 of the FLA.
Triggering Event and Valuation
There is now only one triggering event set out by the FLA at s. 81, namely the separation date. At separation, each spouse has the right to an undivided half interest in all family property as a tenant in common and is equally responsible for family debt.
The FLA contains a specific provision regarding valuation of assets. Section 87 of the FLA sets out that the value of family property must be based on its fair market value and that the value must be determined as of the date an agreement dividing the property and debt is made, or the date of trial.
Reapportionment of family property is considered at s. 95 of the FLA. The section changes the threshold from whether it would be “unfair” not to do so to whether it would be “significantly unfair” not to do so. This is a higher threshold, but has not yet been considered by the court. Section 95(2) sets out a number of factors that the court may consider. The list is not an exhaustive list and s.95(2)(i) allows the court to consider any other fact that may lead to significant unfairness. This means that, while the threshold for unequal division is higher, the factors that can be considered are extensive. It is expected that more guidance will be provided by the court with regard to the threshold and the factors to be considered.
Pursuant to s. 198(2) of the FLA, proceedings for the division of property or allocation of debt must be brought within two years of a date of divorce or nullity for married spouses or within two years of the date of separation for unmarried spouses.
The section also suspends the running of limitation periods during the any period in which persons are engaged in family dispute resolution with a family dispute resolution professional, as defined in the Act.
Case Law under the FLA
There is limited case law regarding the division of family property and excluded property under the Family Law Act. The case that does address the issue is Asselin v. Roy 2013 BCSC 1681. Mr. Justice Harvey addresses family property, excluded property and the idea of tracing the excluded property. The discussion of excluded property begins at paragraph 187. The case emphasizes the importance of the burden on the person seeking to have property excluded. The case stands for the proposition that if there is no evidence of the continued existence of the alleged excluded property, it will not be excluded. This case is worth reviewing as a starting point along with the statutory sections. This section will be updated as more cases are decided.
A more recent case, Remmem v. Remmem 2014 BCSC 1552, dealt with the issue of excluded property and depreciation. The court considered the proper approach to the exclusion of property which has depreciated since one spouse brought it into the relationship. The court found that it is the asset itself that is excluded as opposed to the value of the asset at the time the relationship began. As such, where the excluded property has depreciated, the depreciated asset is excluded. The spouse cannot look to other property to make up for the difference between the value at the commencement of the relationship and the depreciated value of the property at the time of separation. Importantly, the court found that transferring excluded property into joint names does not cause the property to lose its character as excluded property. The court also considered the definition of significantly unfair under s. 95 of the Family Law Act and found as follows at paragraph 44: "Significantly is understood to mean more than a regular impact — something weighty, meaningful, or compelling." This case discusses many aspects of the Family Law Act and considers both excluded property and reapportionment and is worth reviewing as one of the cases that includes a comprehensive discussion of property division.
There are now conflicting lines of authority that will have to be resolved at the BC Court of Appeal level regarding the issue of whether transferring excluded property into joint names causes the property to lose its character as excluded property. In Wells v. Campbell 2015 BCSC 3, the husband brought a home at Hornby Island into the relationship. The wife, however, came into the relationship with assets of nominal value. In 2008, the husband transferred the Hornby Island property into joint tenancy. The husband sought to have the Hornby Island Property excluded and the wife sought to have it divided equally. The court found that the transfer of the Hornby Island Property into joint names constituted a gift to the wife. This meant that the character of the property as excluded was lost and the Hornby Island property became family property as opposed to excluded property. The court found that excluded property relates to property which was held by a spouse prior to the relationship and in which an interest in title was not transferred to the other during the relationship.
In V.J.F. v. S.K.W. 2015 BCSC 593, the court considered the findings in Remmem and Wells v. Campbell and it follows the reasoning in Wells. The issue in this case related to a $2 million payment the husband received from the estate of his employer after his employer died. The court found that, when the husband received the money, it was excluded property as it was in the form of an inheritance or gift. The money was then used to purchase a property in Vancouver and to pay off debt on family property. The property in Vancouver was registered solely in the name of the wife. The court found that the Family Law Act does not prohibit gifts between spouses and that when excluded property owned by one spouse is comingled with funds derived from family property to purchase an asset that is placed solely into the name of the other spouse in order to immunize it from potential creditors, the exclusion is lost because the disposing spouse gifted it to the other.
The Court of Appeal released its decision in V.J.F. v. S.K.W 2016 BCCA 186 on April 28, 2016. The Court dismissed the husband's appeal and found that the $2 million that the husband had transferred into the wife's name was family property. The court found that the FLA scheme does not constitute a "complete code" that "decends as between the spouses" and eliminate common law and equitable principles relating to property. Rather, the scheme builds on those principles, preserving concepts such as gifts and trusts, and evidentiary presumptions such as the presumption of advancement between spouses. Because the husband tranferred the asset into the wife's name, he derived no property from that disposition, as it required by section 85, and the property became property owned by at least one spouse as contemplated in section 84. There were some distinguishing facts in this case, and it did not address various outstanding questions, including the fact that it appears to create a different regime for married spouses as compared to non-married spouses, as well as what happens when excluded property is placed into joint names. How the case is applied by the BCSC will hopefully provide further guidance in the coming months. As of October 2016, leave to appeal this case to the SCC was denied.
In late 2016, two cases were released that find that placing excluded property into joint names does not cause the property to lose its excluded status as long as it can be traced. This can be distinguished from the approach taken in VJF. The cases are as follows: Lahdekorpi v. Lahdekorpi, 2016 BCSC 2143 and Kalmiakov v. Shylova, 2016 BCSC 2095.