Recent case law arising from the interpretation of the Family Law Act (the “FLA”) in British Columbia reveals two distinct positions on whether deemed excluded property from the commencement of a martial relationship remains excluded after being transferred into joint tenancy or after being used for a family purpose.  Essentially, there is a differing opinion on whether the presumption of advancement in the context of family law is alive and well in British Columbia.

 

In order to fully assess the law on this issue it is imperative that certain terms be identified. The FLA has broadly defined family property as any asset or interest in an asset that the spouses own, including entitlements, disposals of property, and the amount of which an excluded asset has increased in the duration of the relationship.

 

Excluded property, on the other hand, is property that was acquired by a spouse prior to the beginning of the relationship, an inheritance or gift from a third party, a settlement or award, an insurance policy payout, trust property, or property derived from excluded property.

 

Property held in joint tenancy must be held by more than one person in equal portions with identical interests. When one of the owners dies, their portion automatically reverts to the surviving joint tenant.  It technically passes immediately prior to death so that it does not make up part of the deceased’s estate.

 

The presumption of advancement suggests that property transferred from one related individual to another (such as a parent to child and spouse to spouse), is a gift and would therefore defeat any presumption of a resulting trust.  The transfer presumes that the related individual intended to make an absolute gift of both the legal interest and the beneficial interest of the property.

 

Remmem v Remmem, 2014 BCSC 1552, was one of the first cases to examine excluded property under the FLA in BC.  The issue was the application of the FLA with respect to property brought into the relationship by Mr. Remmem, and whether a party would be entitled to the full value of the excluded property, or if they would be entitled to the depreciated value.

 

His position was that Part 5 of the FLA entitled him to exclude property brought into the relationship and that he would be entitled to the full value of his excluded property based on the appraisals at the start of the relationship, not the current depreciated value.  His wife argued that the depreciation in value of the excluded property means that he can only exclude its present value from division, and not the amount it was worth at the commencement of the relationship. She further noted that since the excluded property was placed into joint tenancy, that Mr. Remmem had gifted her one-half of his interest in those proceeds to her.

 

The Court found that when excluded property has depreciated in value during the relationship, that party has no ability to look to other family property to make up the loss in value. The legislation requires exclusion of property, not the exclusion of the value of the property. Therefore, no part of the depreciated property is subject to division.

 

Moreover, when the property is placed in joint names after using the proceeds of excluded property, the value of the exclusion is not reduced. The Court commented that the property provisions of the FLA are intended to be “a complete code so that there is no need to examine the intention of the parties at the time of a transfer of excluded property to joint tenancy. To come to the opposite conclusion would bring uncertainty and a level of inequality into a property division structure that was intended to treat married and unmarried spouses equally and to provide for a greater level of certainty” (para 48).

 

Wells v Campbell, 2015 BCSC 3, took a different position on excluded property put into joint names.  The issue was the division of the family home between the spouses. They lived their entire relationship in the same home, which was solely owned by the husband prior to the relationship. However, Mr. Wells, after several health problems, transferred his interest into joint tenancy with Ms. Campbell.

 

The court discussed whether Ms. Campbell was entitled to an equal division in the entirety of the property or only that portion which had appreciated in value since the relationship began.

 

The overriding fact for the judge was that Mr. Wells transferred the property into joint tenancy with Ms. Campbell.  A joint tenant in a property holds an undivided equal share in all of that property.  Once severed, they would hold an undivided half interest as a tenant in common.  There was no contrary intention by Mr. Wells, and he had legal advice prior to the transfer, so it was therefore determined that he transferred it as an irrevocable inter vivos gift.

 

Therefore, it was concluded that other than appreciation, property is viewed distinct from value.  The depreciation in value is not considered family property, and, where a property is held by the spouses as joint tenants, that fact is proof, in the absence of evidence to the contrary, that the spouses are intended to own the property as joint tenants.

 

Consequently, the rule established in this case was that excluded property relates only 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. , The gift between spouses is not included as excluded property.

 

VJF v SKW, 2015 BCSC 593 affirmed Wells, supra. The issue revolved around the characterization of a $2 million payment to the husband; whether it was a gift or an inheritance, and whether it should be considered as excluded property under the FLA at the time of payment and afterwards.  Essentially this was questioning whether the FLA prohibits one spouse gifting property to another.

 

The husband was given $2 million from his former boss before death, in order to compensate the husband for his work and for any potential liability that might arise after the boss’ death.  It was found to be an inheritance given to the husband during the boss’ lifetime.  Therefore, the Court found that at the time of the distribution to the husband, the $2 million payment was excluded property under the FLA.

 

However, almost immediately after the $2 million was received, the husband transferred part of it to his wife to pay for property and construction, and then used some of the inheritance to pay off existing mortgages on family property and other family debt.  For all intents and purposes, the husband had caused the inheritance to be completely comingled with family assets.

 

So, it was acknowledged that the presumption of advancement has been reduced in its significance in the new legislative regime, but it has not been extinguished. Affirming Wells, the case points out that the definition of excluded property includes gifts to a spouse from a third party but does not include gifts between spouses.  Therefore, the FLA does not prohibit inter vivos gifts between spouses.  When excluded property owned by one spouse is comingled with funds derived from family property to purchase an asset that is placed solely in the name of the other spouse (in this case, in order to immunize it from potential creditors), the exclusion is lost because the disposing spouse gifted it to the other.  The character of the money changed almost immediately after the husband received it because he made a gift of the funds to his wife to purchase family property.  He didn’t seek to isolate the funds, nor did he seek to obtain any beneficial interest in the property.

 

This case also raises the issue of s. 104(2) of the FLA, which provides that any rights granted under the Act are in addition to and not in substitution for rights under equity or any other law, thereby preserving the presumption of advancement.

 

The issue in PG v DG, 2015 BCSC 1454 was whether the value of a home that the husband owned before the marriage is excluded property after being transferred into joint tenancy.

 

The husband owned property prior to the commencement of their relationship. During the marriage the parties repurposed the home and converted it into a rooming house.  At the time of the renovation work, the property was transferred into joint tenancy between the parties. The rooming house was subsequently sold and the proceeds from that sale were used to purchase a new family residence, also held in joint names.

 

This case rejects the rules found in both Wells, supra, and VJF, supra, and instead affirms Remmem, supra.  It reasoned that Remmem should be followed because Wells focused on the continued existence of the presumption of advancement, and because neither case addressed s. 85(g) of the FLA, the tracing provision which expressly provides for the exclusion of property derived from excluded property or the disposition of excluded property. Remmem is also consistent with the objects of the FLA (referring to the White Paper on the FRA reform):

 

The model seems to better fit with people’s expectations about what is fair.  They “keep what is theirs” (such as pre-relationship property and gifts and inheritances given to them as individuals) but share the property and debt that accrued during their relationship.  Where one spouse enters the relationship with more assets than the other, providing that spouses share the increase in the value of the excluded property promotes a fair outcome.

 

This decision therefore denotes that: whether property is held solely in the wife’s name, solely in the husband’s name, or jointly, it is all subject to the scheme of division created by Part 5 of the FLA.  Some of that property is to be excluded under s. 85(1) and all the rest is presumptively to be divided equally regardless of whose name it is in at the date of separation.  Under this scheme it does not matter that one spouse during the marriage is presumed to have gifted the property, whether excluded or otherwise, to his or her spouse.  There is a whole new regime once the marriage ends.

 

A comprehensive rationale for this judgment is explained as follows:

“In a majority of cases, assets owned by one spouse before the couple comes together will be mingled with property held in both names. The cost of owning a home in many parts of BC practically compels spouses to pool their assets.  Registering the home so acquired in both names as tenants in common reflects the unity of the couple in marriage; placing a home in joint tenancy is a practical tool for estate planning; and placing the home in the name of one spouse is an accepted way to protect a core family asset from business creditors… It is unlikely that when the legislature drafted the new property regime under the FLA it was unaware of the practical reality that many spouses will combine assets during their marriage.”

Finally, in the most recent decision on this matter, Andermatt v Tahmasebpour, 2015 BCSC 1743, the Court further affirmed Remmem, supra, and PG, supra. The issue was whether anexclusion was lost upon the transfer of the real property into joint title, and therefore whether an exclusion could be claimed from the net proceeds of sale of the property.

 

The judge toiled through the previous decisions as discussed, and came to the conclusion that after considering the conflicting decisions, where judgments of the court conflict, a judge who must choose between them should follow the judgment which is later in time if that judgment was pronounced following a full consideration of the earlier judgment.  These judgments were consistent with the objects of the FLA.  Therefore, the pre-existing excluded property was to remain excluded as property held prior to the relationship, and therefore would be deducted from the top of the net sale proceeds of the property, before equally dividing the proceeds.

 

Though there have been conflicting judgments with respect to the presumption of advancement, excluded property, and whether it remains excluded despite a comingling of the property with family property, the prevailing view, as set out in Andermatt, supra, goes against Wells and VJF, and upholds that of Remmem and PG.  The rule is that the overarching principle of excluded property brought into the relationship remains excluded even if the property is subsequently transferred into joint names or used for a family purpose. If the property can be traced from the commencement of the relationship to the subsequent separation of the parties, the entitled party would retain their value in the excluded property.  This view promotes the administration of the ideals of the Family Law Act, and takes into account fairness between spouses and the reality of comingling assets.  Though none of the cases have yet to be heard on appeal, the common law seems to have solidified its position on this issue.