Property division and the Family Law Act (BC)

The Family Law Act (BC) has two forms of property: “family property” and “excluded property”.

Section 84(1) of the Family Law Act (BC) defines “family property” and section 85(1) lists property that is “excluded property”.

In general terms, “family property” consists of property acquired after cohabitation and includes the rise in value of the same save and except “excluded property”.

The property division sections of the Family Law Act (BC) applies to married persons, which includes persons in a marriage-like relationship greater than 2 years. The test of what constitutes a marriage like relationship can be found at: Richardson Estate (Re), 2014 BCSC 2162 (CanLII) at paragraph 22.

Section 81 of the Family Law Act (BC) basically states that both spouses are equally entitled to an undivided half interest in all “family property” as a tenant in common and both spouses are equally responsible for all “family debt” irrespective of how the debt was accumulated subject to an agreement between the spouses or court order.

The date of separation creates the value of the undivided half interest and level of family debt.

The date of separation is closely tied to the spouse’s intention of when to end the relationship and physical separation is not determinative but only one factor.

Only the Supreme Court of British Columbia has jurisdiction to make orders with respect to property division.

Property division under the Family Law Act (BC) is starting to come into focus as decided by various cases that are the subject of this blog.

THE STATUTORY REGIME

A. The relevant provisions of the Family Law Act, S.B.C. 2011, c. 25 (the “Act”) are as follows:

Equal entitlement and responsibility

81 Subject to an agreement or order that provides otherwise and except as set out in this Part and Part 6 [Pension Division],

(a) spouses are both entitled to family property and responsible for family debt, regardless of their respective use or contribution, and

(b) on separation, each spouse has a right to an undivided half interest in all family property as a tenant in common, and is equally responsible for family debt.

…

Interpretation

83(4) In this Part, “property” includes a beneficial interest in property unless a contrary intention appears.

Family property

84 (1) Subject to section 85 [excluded property], family property is all real property and personal property as follows:

(a) on the date the spouses separate,

(i) property that is owned by at least one spouse, or

(ii) a beneficial interest of at least one spouse in property;

(b) after separation,

(i) property acquired by at least one spouse if the property is derived from property referred to in paragraph (a) (i) or from a beneficial interest referred to in paragraph (a) (ii), or from the disposition of either, or

(ii) a beneficial interest acquired by at least one spouse in property if the beneficial interest is derived from property referred to in paragraph (a) (i) or from a beneficial interest referred to in paragraph (a) (ii), or from the disposition of either.

(2) Without limiting subsection (1), family property includes the following:

(a) a share or an interest in a corporation;

(b) an interest in a partnership, an association, an organization, a business or a venture;

(i) as a refund, including an income tax refund, or

(ii) in return for the provision of a good or service;

(d) money of a spouse in an account with a financial institution;

(e) a spouse’s entitlement under an annuity, a pension, a retirement savings plan or an income plan;

(f) property, other than property to which subsection (3) applies, that a spouse disposes of after the relationship between the spouses began, but over which the spouse retains authority, to be exercised alone or with another person, to require its return or to direct its use or further disposition in any way;

(g) the amount by which the value of excluded property has increased since the later of the date

(i) the relationship between the spouses began, or

(ii) the excluded property was acquired.

(2.1) For the purposes of subsection (2) (g), any increase in value of a beneficial interest in property held in a discretionary trust does not include the value of any property received from the trust.

(3) Despite subsection (1) of this section and subject to section 85 (1) (e), family property includes that part of trust property contributed by a spouse to a trust in which

(a) the spouse is a beneficiary, and has a vested interest in that part of the trust property that is not subject to divestment,

(b) the spouse has a power to transfer to himself or herself that part of the trust property, or

(c) the spouse has a power to terminate the trust and, on termination, that part of the trust property reverts to the spouse.

Excluded property

85 (1) The following is excluded from family property:

(a) property acquired by a spouse before the relationship between the spouses began;

(b) inheritances to a spouse;

(b.1) gifts to a spouse from a third party;

(c) a settlement or an award of damages to a spouse as compensation for injury or loss, unless the settlement or award represents compensation for

(i) loss to both spouses, or

(ii) lost income of a spouse;

(d) money paid or payable under an insurance policy, other than a policy respecting property, except any portion that represents compensation for

(i) loss to both spouses, or

(ii) lost income of a spouse;

(e) property referred to in any of paragraphs (a) to (d) that is held in trust for the benefit of a spouse;

(f) a spouse’s beneficial interest in property held in a discretionary trust

(i) to which the spouse did not contribute, and

(ii) that is settled by a person other than the spouse;

(g) property derived from property or the disposition of property referred to in any of paragraphs (a) to (f).

(2) A spouse claiming that property is excluded property is responsible for demonstrating that the property is excluded property.

Family debt

86 Family debt includes all financial obligations incurred by a spouse

(a) during the period beginning when the relationship between the spouses begins and ending when the spouses separate, and

(b) after the date of separation, if incurred for the purpose of maintaining family property.

Valuing family property and family debt

87 Unless an agreement or order provides otherwise and except in relation to a benefit under a pension plan,

(a) the value of family property must be based on its fair market value, and

(b) the value of family property and family debt must be determined as of the date

(i) an agreement dividing the family property and family debt is made, or

(ii) of the hearing before the court respecting the division of property and family debt.

…..

Unequal division by order

95 (1) The Supreme Court may order an unequal division of family property or family debt, or both, if it would be significantly unfair to

(a) equally divide family property or family debt, or both, or

(b) divide benefits as required under Part 6 [Pension Division].

(2) For the purposes of subsection (1), the Supreme Court may consider one or more of the following:

(a) the duration of the relationship between the spouses;

(b) the terms of any agreement between the spouses, other than an agreement described in section 93 (1) [setting aside agreements respecting property division];

(d) whether family debt was incurred in the normal course of the relationship between the spouses;

(e) if the amount of family debt exceeds the value of family property, the ability of each spouse to pay a share of the family debt;

(f) whether a spouse, after the date of separation, caused a significant decrease or increase in the value of family property or family debt beyond market trends;

(g) the fact that a spouse, other than a spouse acting in good faith,

(i) substantially reduced the value of family property, or

(ii) disposed of, transferred or converted property that is or would have been family property, or exchanged property that is or would have been family property into another form, causing the other spouse’s interest in the property or family property to be defeated or adversely affected;

(h) a tax liability that may be incurred by a spouse as a result of a transfer or sale of property or as a result of an order;

(i) any other factor, other than the consideration referred to in subsection (3), that may lead to significant unfairness.

(3) The Supreme Court may consider also the extent to which the financial means and earning capacity of a spouse have been affected by the responsibilities and other circumstances of the relationship between the spouses if, on making a determination respecting spousal support, the objectives of spousal support under section 161 [objectives of spousal support] have not been met.

Division of excluded property

96 The Supreme Court must not order a division of excluded property unless

(a) family property or family debt located outside British Columbia cannot practically be divided, or

(b) it would be significantly unfair not to divide excluded property on consideration of

(i) the duration of the relationship between the spouses, and

(ii) a spouse’s direct contribution to the preservation, maintenance, improvement, operation or management of excluded property.

THE CASE LAW

What follows is a summary of the case law on property division under the Family Law Act (BC).

In the case of Asselin v Roy, 2013 BCSC 1681, the issue was the division of the parties’ assets, including a number of properties in Nova Scotia and family debt. This case dealt with property that was purchased during the spouses relationship; property that was brought into the relationship; property purchased during the relationship with property brought into the relationship; how to deal with income earned during the relationship to purchase property; and property that was purchased with inheritances.

In Asselin, the court stated the following:

[101] Under the FRA, the claimant wasn’t a spouse for the purpose of property division. To prove an entitlement to any of the assets solely in the name of the respondent, the claimant would have had to prove an equitable entitlement based upon the principles of constructive or resulting trust.

[102] Under the Act, the parties are spouses as a result of their having resided together in a relationship akin to a marital relationship for a period in excess of two years; s. 3 (1) (b). As such, “Part V- Property Division” of the Act applies.

[103] The ‘triggering event’ is the date of separation, late May 2011. That is to say, on the separation date, the character of the assets is determined as either family property or excluded property.

[104] Future litigants referencing this decision would be well advised to avoid some of the problems encountered by the parties in this litigation by preparing a Scott Schedule detailing the assets and liabilities of each party as of the date of separation.

[105] One of the apparent objectives of the Act is to create more certainty for litigants in the division of their assets. The broad judicial discretion formerly available under the FRA has been replaced with a more formulaic approach to both the identification and division of family property.

[106] To implement the objectives, more mathematical certainty from a clear evidentiary record is required. Where inheritances are said to come into play, estate documents should be produced. Where exclusion of property is sought, on whatever basis, documents showing the value of property as at the time cohabitation commenced and at the date of separation will be critical in the assessment which the court is to perform. Where one party suggests, as is the case here, that excluded property has changed character into another asset, documents should be provided to allow the court to trace the transaction back to the property said to be excluded.

In the case of Wells v. Campbell, 2015 BCSC 3 (CanLII), the court stated:

[12] The parties agree, for the purposes of property division issues, that the value of the Hornby Property at the time the relationship began was $185,000. A joint valuation report was obtained by the parties supporting this value. The cost of the report will be shared equally by the parties.

[13] The current appraised value for Hornby Property is $850,000. It is presently listed for sale at $899,000. It has been at a price as high as $1.3 million. Conduct of sale is joint. There has been little interest in the property. Neither party is able to purchase the interest of the other. Mr. Wells seeks an order approving the listing price to be reduced to $849,000.

In the case of Wells, the court stated further:

[19] The key issue is whether Ms. Campbell is entitled to an equal division in the entirety of the Hornby Property or only that portion which has appreciated in value since the relationship began (the “Appreciated Value”). As mentioned, the value of the Hornby Property at the start of the relationship was $185,000 (the “Start of Relationship Value” or “SRV”).

The court concluded at paragraph 32 of Wells as follows:

[32] I find that Mr. Wells at the time he transferred the Hornby Property into joint tenancy he did so as a gift to Ms. Campbell. At that time, the relationship was intact and there was no evidence to suggest that it was failing. The transfer of an interest in the Hornby Property was a perfected inter vivos gift and the gift cannot be revoked: see for example the comment of Madam Justice Newbury in Bergen v. Bergen, 2013 BCCA 492 (CanLII) at para. 41. Ms. Campbell as a result obtained legal and equitable interest in the property. I do not read the Act as altering the law of inter vivos gifts. Accordingly, I cannot see how Ms. Campbell can be denied the entirety of her interest in the property, subject to the division of family property under s. 95(1).

Further at paragraph 43-45 of Wells, the court stated:

[43] It seems that the 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.

[44] Given my finding that the transfer of the interest to Ms. Campbell was perfected, I cannot see how a portion of her interest, i.e., her share in the Start of Relationship Value, can be considered excluded property. She in the holder of a legal and equitable interest in the property. Had the policy makers intended to alter the well-established concept of a joint tenancy and/or the presumption of advancement, they have done so explicitly as has been done in other jurisdictions. I do not accept that s. 85(1)(a) negates an intended disposition of an interest in land from one spouse to another. I note again that intention is a consideration under s. 83(1) of the Act; and that a gift between spouses is not included as an excluded property under s. 85(1). Further, the tracing provisions can still operate under different scenarios.

[45] Mr. Wells has not met the burden of establishing that the SRV is excluded property as required under s. 85(2). In my view, the entirety of the Hornby Property is family property based on the facts of this case. If a greater portion is sought by Mr. Wells, the route to do so by arguing that it would be significantly unfair under s. 95(1).

What constitutes “significantly unfair” as set out in section 95(1) of the Family Law Act (BC)? In the case of Jaszczewska v. Kostanski, 2015 BCSC 727 (CanLII), the court set out a nice summary of cases on this issue as follows:

[140] Jurisprudence has only begun to develop about the meaning of “significantly unfair” and what factors, other than the enumerated factors, may be relevant in deciding whether equal division of family property would lead to significant unfairness. So far as I have been able to determine, there have not yet been any Court of Appeal decisions interpreting s. 95.

[141] The parties provided the Court with several authorities, including Lovich v. Lovich, 2006 ABQB 736 (CanLII); L.G.P. v. C.F.B., 2014 BCSC 750; Bressette v. Henderson, 2013 BCSC 1661 (CanLII); Ibbotson v. Fung, 2013 BCCA 171 (CanLII) (on the issue of “joint family venture”); and Asselin v. Roy, 2013 BCSC 1681 (CanLII). I have also considered Piderman v. Piderman, 2015 BCSC 475 (CanLII); Walburger v. Lindsay, 2015 BCSC 341 (CanLII); Prasad v. Prasad, 2015 BCSC 207 (CanLII); N.U. v. G.S.B., 2015 BCSC 70; A.L.M. v. N.J.O., 2015 BCSC 70; Wells v. Campbell, 2015 BCSC 3; V.J.F. v. S.K.W., 2015 BCSC 2136; A.A.P. v. G.T.F., 2015 BCSC 662; B.M.P. v. S.L.B., 2015 BCSC 448; and Bilawchuk v. Bilawchuk, 2014 BCSC 2067 (CanLII); and Nearing v. Sauer, 2015 BCSC 58 (CanLII).

….

[162] In enacting the Family Law Act and adopting a new regime for allocating family property, the Legislature, in my view, intended that the exceptions to equal division would not become the norm. In almost any spousal relationship the nature of the contributions made may be unequal in some sense, but in providing for the equal division of family property (after taking into account excluded property or a contribution to value derived from excluded property), the Legislature intended the general rule to prevail unless very persuasive reasons can be shown for a different result.

[163] Had the Legislature intended unequal contribution to be a significant factor justifying unequal division of family property under s. 95, surely the Legislature would have specifically said so. Section 65(1) of the Family Relations Act, R.S.B.C. 1996, c. 128, specifically invited the court to consider circumstances relating to acquisition, preservation, maintenance or improvement of family assets in relation to an application for unequal division of family property. These factors are not included in the enumerated factors in section 95 of the FLA.

….

[165] In Piderman v. Piderman, the court dismissed the wife’s application for unequal division. In Walburger v. Lindsay, Justice Fitzpatrick accepted unequal contribution as one of several factors justifying unequal division. She also attributed some significance to the fact that the parties’ relationship had begun and ended before the FLA came into effect and that the parties had a “pre-FLA” mindset during their relationship. Ultimately, Justice Fitzpatrick allocated the entire increase in value of one property to the husband, but refused unequal division of any other family property.

[166] In L.G. v. R.G., 2013 BCSC 983, as para. 71, Justice N. Brown stated:

In my view, the term “significantly unfair” in s. 95(1) of the FL essentially is a caution against a departure from the default of equal division in an attempt to achieve “perfect fairness”. Only when an equal division brings consequences sufficiently weighty to render an equal division unjust or unreasonable should a judge depart from the default equal division.

[167] Similar statements were made in Remmem v. Remmem. In that case, at para. 44, Justice Butler noted:

…The Concise Oxford English Dictionary defines “significant” as “extensive or something weighty, meaningful, or compelling. In other words, the Legislature has raised the bar for a finding of unfairness to justify an unequal distribution. It is necessary to find that the unfairness is compelling or meaningful having regard to the factors set out in s. 95(2).

[168] In Slavenova v. Ranguelov, 2015 BCSC 79 (CanLII), 2015, BCSC 79, at para. 60, the court said:

The “significant unfairness” contemplated by s. 95 requires much more than differing financial contributions in a relationship. Exactly equal contribution is more likely exceptional than commonplace. The new regime under the FLA recognizes that partners will come to a relationship in differing circumstances and accounts for those in the concepts of “family property” and “excluded property”. The starting point in the division of property analysis already applies significant exclusions.

[169] In Nearing v. Sauer, Justice Fleming stated at para. 141:

Section 95(2) does not appear to allow for the wide ranging examination of each spouse’s contribution to the accumulation of family assets and their respective capacities that occurred pursuant to s. 65(1)(f).

[170] In some of these cases the court did consider unequal contribution, among other factors, to warrant unequal division. In other cases, unequal contribution was considered insufficient to establish “significant unfairness.

In the case of V.J.F. v. S.K.W., 2015 BCSC 593 (CanLII), the court stated the following what constitutes “significantly unfair”:

[79] In Remmem, Butler J. considered the meaning of “significantly unfair”. Although his comments were made in the context of an unequal division of family property per s. 95 of the FLA, I find them instructive for the approach to be taken to s. 96 (even though the factors to be considered are different in s. 96). He stated at para. 44:

The FLA provisions granting the court a discretion to order other than an equal division are very different from the provisions in the previous legislative scheme. Pursuant to s. 65(1) of the Family Relations Act, R.S.B.C. 1996, c. 128 (the “FRA”), courts had a discretion to divide family property in unequal shares if the court found that the division of property (pursuant to agreement or the provisions of the FRA) would be unfair having regard to the factors set out in that section. The first and obvious difference between the discretion given under the FRA and the discretion given in Part 5 of the FLA is that in order to exercise the discretion, it is no longer sufficient to find that a division of property is merely “unfair”. There must be a finding that the division of property pursuant to the statutory scheme is “significantly” unfair. The Concise Oxford English Dictionary defines “significant” as “extensive or important enough to merit attention.” Significantly is understood to mean more than a regular impact — something weighty, meaningful, or compelling. In other words, the legislature has raised the bar for a finding of unfairness to justify an unequal distribution. It is necessary to find that the unfairness is compelling or meaningful having regard to the factors set out in s. 95(2).

[80] In L.G. v. R.G., 2013 BCSC 983, at para. 71, Mr. Justice Brown described the phrase “significantly unfair” as found in s. 95(1) of the FLA as “essentially … a caution against a departure from the default of equal division in an attempt to achieve ‘perfect fairness’”. It is, he said, “Only when an equal division brings consequences sufficiently weighty to render an equal division unjust or unreasonable should a judge order depart [sic] from the default equal provision.”

[81] A determination of significant unfairness turns on the individual facts of each case. In the absence of a definition of the term in the FLA, I found it useful to draw on cases defining the phrase in other contexts where no specific definition is found in the applicable statute. In 459831 B.C. Ltd. v. Strata Plan BCS 1589, 2012 BCCA 44 (CanLII), in dealing with the Strata Property Act, S.B.C. 1998, c. 43, the Court of Appeal said at para. 15 that the “characterization of an action as significantly unfair is not a matter of discretion but is an inquiry requiring consideration of the facts before the court and what legally constitutes unfair action.” The Court referred to the definitions given to the phrase in other strata property and unrelated oppression cases such as Reid v. Strata Plan LMS 2503, 2001 BCSC 1578 (CanLII), Blue-Red Holdings Ltd. v. Strata Plan VR 857, [1994] B.C.J. No. 2293 (S.C.), BCE Inc. v. 1976 Debentureholders, 2008 SCC 69 – “unfairly prejudicial”, “burdensome, harsh, wrongful,” and “lacking in probity and fair dealing” – and, as I read the reasons for judgment, concluded that significantly unfair must be something more than “mere prejudice and trifling unfairness”.

[82] The Court adopted a two-part test that included an objective assessment of the reasonable expectations of the petitioner. That test was not advanced by the parties in this case. In my opinion, the factors set out in s. 96(b)(i) and (ii) of the FLA point to considerations that are different than reasonable expectations.

[83] The FLA has not set the bar so high that finding significant unfairness is next to impossible. For example, in Cabezas v. Maxim, 2014 BCSC 767 (CanLII), the Court found that significant unfairness would result from the unequal division of the claimant’s purported excluded property given the respondent’s contributions to the maintenance of the property, her decision to undertake liability on the mortgage, her greater contribution towards expenses, and the length of their cohabitation of 6.5 years, which is some three years less than the marriage between Mr. F. and Ms. W.