Five Years Into the new Family Law Act: Will You Get To Keep your Excluded Funds?
Its been five years since the Family Law Act (the “Act”) came into force which contains a new property regime for BC. In short, the Act states that you get to keep what you brought into the marriage or common law relationship and you get to keep inheritances, personal injury settlements or gifts, all of which are referred to as “excluded property.” Under the Act, the increase in value of excluded property over the course of the relationship is shared equally 50/50. Given the recent trend of exceptional gains in real estate values in the Lower Mainland, excluded property has become a hotbed for legal argument in separation and divorce cases.
Initial case law after the Act came into force called into question whether BC judges would protect excluded property. Many people, and even some family law lawyers, continue to believe that if excluded funds are placed into the jointly registered family home, which is a very common scenario, the exclusion is lost and the person can no longer argue that they get to keep their contribution. However, although the treatment of the issue is somewhat mixed, the overall pattern in recent case law suggests that excluded property will be protected so long as the below Guidelines are followed.
The Court of Appeal’s recent decision in Shih v. Shih 2017 BCCA 37 provides guidance with regard to what is required to protect your excluded property in your separation or divorce. From the case law and the Act itself, the below principles can be gleaned:
- You need at least some documents showing the amount of the excluded funds – where they came from and where they went. For example, if you put $50,000 in funds you had prior to the cohabitation with your former spouse into the jointly registered family home, bank statements showing the $50,000 in your own sole account prior and bank statements and home purchase documents showing the $50,000 going into the family home ought to be provided.
- Your testimony at Discovery and on the Witness Stand at Trial is very important – If the judge believes you and you are able to testify credibly that you put the money in, where the money came from and where it went, then you are more likely to keep your excluded property.
- Other Witnesses are Important – if there are other people who witnessed you putting the excluded funds into the family home firsthand, their testimony at trial can be helpful. For example, say your parents gifted you the $50,000 predating the cohabitation between the parties, your parents would testify to this fact at trial.
- Mathematical Certainty is Not Required – the Court of Appeal in Shih was very clear that all documents proving the excluded funds to a mathematical certainty need not be provided. The reality is that many such documents will be historical and often too dated to obtain years later. The Court was also clear that even an informed estimate supported by some documents could be sufficient to prove the excluded property.
- Proof on a Balance of Probabilities – the Court of Appeal in Shih was clear that the usual civil standard of proof is applicable. With further regard to proof the Court stated: “in order for a party to establish excluded property, he or she must do so with clear and cogent evidence. If documentary evidence is not available, the party bearing the onus of proof will need to testify as to their recollection of the transactions in dispute.”
- The Onus is on the Person Seeking to Keep the Excluded Property – if you want to keep your excluded property, it is your job to prove the excluded property in your case by introducing the types of evidence outlined in this article.
- Excluded Property can be any asset so long as it still exists upon separation in some form and it was not spent away during the relationship, for example, on debt. Also, if excluded property is in the form of stocks or RRSPs, it is recommended to include evidence of the applicable income tax rates so the court can calculate the net after tax value. In Shih the husband failed to prove part of his exclusion in part because he failed to introduce evidence of his applicable tax rate.
- Your intention in transferring property to your former spouse is important – if you testify that you transferred it to him as a gift, because you wanted him to have it, that will negate the exclusion and make it less likely that you are entitled to keep the excluded property. Therefore, a gift out of the goodness of your heart is not excluded property.
- Valuations and Appraisals are important – Under the Family Law Act it’s the current value that is divided and with our rapidly growing real estate values this particular concept can be troubling for clients as the difference of a year can mean thousands of dollars. Excluded property often means historic and current day appraisals and valuations need to be obtained. Real estate appraisals can easily be obtained in a quick and cost effective manner. Business valuations are usually more onerous and expensive.
Excluded property issues continue to be contentious and specific to each particular case. In my view, it’s important for clients and members of the legal community to start embracing the concept more fully and to prepare themselves with the documentation and the testimony needed to win excluded property arguments in court.