Basic Principles of Property and Debt in Family Law

As we discussed in the overview Property and Debt in Family Law Matters section of this chapter, the Family Law Act says that spouses who are married or who lived together in a marriage-like relationship for at least two years are presumed to:

• keep for themselves any property they brought into the relationship (the excluded property),
• be individually responsible for the debt they brought into the relationship (excluded debt is not a defined term in the Act, but judges sometimes call it that),
• share in the property they acquired during their relationship, plus the value increase of any excluded property during that time (the family property), and
• share responsibility for the debt accumulated during the relationship, including increases to any excluded debt during the relationship (the family debt),

This all sounds pretty straightforward, but there are lots of details that can make the division of property and debt complicated.

This section talks about how property and debt are divided between spouses under the Family Law Act, how they used to be divided under the Family Relations Act, and how these two methods or regimes are different. It explains what property is shareable family property, and what property is excluded from division. It also looks at the role marriage agreements and cohabitation agreements can play in controlling the impact of the Family Law Act.

Introduction

The basic plan for the division of property and debt under the provincial Family Law Act is pretty straightforward. You keep what you bring into the relationship, and you split what you get as well as any value that has accumulated in excluded property (i.e. increase in value of excluded property) during the relationship. Of course it's a lot more complicated than this, but that's the basic concept the Family Law Act is built on.

Part 5 of the Family Law Act deals with the division of property and debt, and provides the definitions of:

• family property (s.84) and family debt (s.86) — presumed to be shared between spouses, and
• excluded property (s.85) — presumed to remain the sole property of the spouse who owns it.

Part 6 of the Family Law Act talks about the division of pensions between spouses and says which portion of a pension is supposed to be shared and which parts remain the property of the pension member.

This section looks into the nooks and crannies of Part 5 of the act in some detail, but it doesn't say much about pensions because the division of pensions can be extremely complicated. For information about that, you should speak to a family law lawyer. A pension can be a very valuable asset. It is important to include it when dividing property.

Do you have standing and the right to make a claim under the Family Law Act?

In legal terms, standing refers to the right to bring a claim before a judge. Under the Family Law Act, spouses can ask the Supreme Court to divide property and debt upon separation.

Here's the bare essentials for the purposes of the sections of the Act that deal with property division:

• If you are married, then you are a spouse. You have standing.
• If you are unmarried, but have lived together in a marriage-like relationship for at least two years, then you are a spouse. You have standing.
• If you are unmarried, but have not lived together in a marriage-like relationship for at least two two years, then you are not a spouse. You do not have standing.

Here's the formal language from section 3:

(1) A person is a spouse for the purposes of this Act if the person

(a) is married to another person, or

(b) has lived with another person in a marriage-like relationship, and

(i) has done so for a continuous period of at least 2 years, or

(ii) except in Parts 5 [Property Division] and 6 [Pension Division], has a child with the other person.

(2) A spouse includes a former spouse.

Note that subsection 3(1)(b)(i) adds a twist. It creates different definitions of spouse (and therefore different requirements for standing) depending on which part of the Family Law Act the claim is made under. For other parts of the Act, if you lived in a marriage-like relationship and had a child together, it doesn't matter how long you lived together. For the property and pension division-related sections in Parts 5 and 6 of the Act, you can disregard this subsection. Just having a child together won't give you standing.

Again, unless you're married, living together for less than two years means you do not have standing to make claims for property division under the Family Law Act.

Common law claims for people in shorter relationships

If you were in a domestic relationship with someone for less than two years, you might have potential equitable claims that you can raise. Examples of equitable claims include unjust enrichment and constructive trust claims, and resulting trust claims. Common law couples used to make unjust enrichment and constructive trust claims, and resulting trust claims all the time before the Family Law Act granted them property division rights.

The challenge is that equitable claims are much more complicated, require a lot of evidence, and are harder to succeed with. This is especially true for short-term relationships, and it must be said that the history of facts required to build a strong case for unjust enrichment in a domestic relationship usually takes time to ripen. Unless a significant event occurred during the brief relationship (like a home was purchased by the couple, but one of them gained much for almost nothing, while the other lost a lot for no good reason), claims to another person's property based on having run some errands, done some chores, or gratuitously performed some favours for 18 months will be hard to substantiate.

Common law claims that apply to unmarried people who have lived together for less than two years spouses are discussed in this chapter under the Property and Debt in Family Law Matters section.

Period of entitlement

Period of entitlement refers to the time frame during which spouses have a valid claim to divide up family property or family debts. Sorting out when this period starts, and when it ends, is critical. In simple terms, the entitlement period starts when individuals either get married, or start living together in a marriage-like relationship, whichever is earlier. The period ends when they separate.

Starting date

The start date for the period of entitlement is the date the spouses' relationship begins. This is obviously important because that's when you determine the value of all the assets, and all the debts, that the individuals brought into the relationship. The source for this is found in the definition of excluded property at section 85:

(1) The following is excluded from family property:

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

The start date with respect to the accumulation of family debt is stated more simply in section 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

End date

The end date for the entitlement period is found in the definition of family property, and is presumed to be "the date the spouses separate". The source for this is section 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, property

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

(ii) in which at least one spouse has a beneficial interest

As you can see, the date when "the relationship between the spouses began" and the date "the spouses separate" are very important. These are the dates that mark the end of acquiring excluded property and personal debt, the start of acquiring shareable family property and family debt, and the end of acquiring family property and family debt.

Date of cohabitation and the date of marriage

Section 3(3) of the Family Law Act tells us when a relationship between spouses begins:

(3) A relationship between spouses begins on the earlier of the following:

(a) the date on which they began to live together in a marriage-like relationship;

(b) the date of their marriage.

For married spouses, their relationship starts on the earlier of the date they began to live together in a marriage-like relationship or got married. For unmarried spouses, once the parties have lived together for two years, their relationship as spouses is considered to have started on the date they began to live together.

The date of a couple's marriage is pretty obvious. It isn't always so obvious when a couple "begins" to live together in a marriage-like relationship. The judge in a 2003 case from the Saskatchewan Court of Queen's Bench, Yakiwchuk v. Oaks, 2003 SKQB 124, (and a case that has been followed here in BC) expressed the problem this way:

"With married couples, the relationship is easy to establish. The marriage ceremony is a public declaration of their commitment and intent. Relationships outside marriage are much more difficult to ascertain. Rarely is there any type of 'public' declaration of intent. Often people begin cohabiting with little forethought or planning. Their motivation is often nothing more than wanting to 'be together'. Some individuals have chosen to enter relationships outside marriage because they did not want the legal obligations imposed by that status. Some individuals have simply given no thought as to how their relationship would operate. Often the date when the cohabitation actually began is blurred because people 'ease into' situations, spending more and more time together. Agreements between people verifying when their relationship began and how it will operate often do not exist."

Hands up, anyone who has ever begun to "cohabit with little forethought or planning?"

In this day and age, relationships are no longer defined by financial dependence, sexual relationships, or the mingling of property and finances alone. A judge cannot simply go through a checklist to conclude that a marriage-like relationship exists, and if a judge tries to use a simple checklist (as some have), then their decision is at the risk of an appeal. According to numerous Court of Appeal cases in this province, a judge has to determine when (or if) a marriage-like relationship began by looking holistically at a bunch of contextual factors. A judge must decide whether or not a relationship is marriage-like from an objective perspective.

L.T.F. v R.B.F, 2023 BCSC 834, is a recent case where the court summarizes leading cases and various factors to bear in mind when trying to determine the starting date of a relationship. Read the section on Unmarried Spouses in the chapter on Family Relationships, under the heading Qualifying as an unmarried spouse, to learn more about when marriage-like relationships begin.

The date of separation

Separation usually needs three things:

1. Intention: one spouse decides that the relationship cannot continue
2. Communication: the spouse says the relationship cannot continue
3. Action: the spouse then takes steps to end the partnership-like qualities of the relationship, usually by:
   • stopping sleeping together,
   • stopping doing chores for the other person,
   • stopping going out together as a couple, and so on.

Section 3(4) offers some guidance on when a spousal relationship ends.

(4) For the purposes of this Act,

(a) Spouses may be separated despite continuing to live in the same residence, and

(b) the court may consider, as evidence of separation,

(i) communication, by one spouse to the other spouse, of an intention to separate permanently, and

(ii) an action, taken by a spouse, that demonstrates the spouse's intention to separate permanently.

It's easy to imagine that the date of separation could be argued about, especially if the spouses reconciled for a bit or if a spouse's commitment to ending the marriage-like aspects of a relationship wavered from time to time. See McDowell v Andrews, 2018 BCSC 2216, for an example of a relationship where the beginning and the end were hard to pin down, as was the marriage-like and non-marriage-like phases of it.

In order to avoid spending money on lawyers arguing about this issue, you might consider documenting the date of separation in some way, perhaps by sending a letter or an email to your spouse stating your intention to separate. Do remember to keep a copy.

Time limits for making property division claims

Section 198(2) of the Family Law Act imposes time limits for bringing claims for the division of property and debt. Understanding these limits is crucial for both married and unmarried spouses:

• Married spouses: Claims must be made within two years of the date of the divorce or an annulment of the marriage.
• Unmarried spouses: Claims must be made within two years of the date of separation.

Paused time limits

Under section 198(5) the two year time limit is paused if parties are engaged in family dispute resolution with a qualified family dispute resolution professional as defined in section 1 of the Act.

If you are involved in mediation, arbitration, or a collaborative dispute resolution process in an effort to resolve property division issues then the time limits for making a claim are probably on pause.

Make sure that if you're using someone to help resolve your issues without going to court, that the person meets the definition of a family dispute resolution professional under the Family Law Act and part 3 of the accompanying Family Law Act Regulation, otherwise time limits will not be paused.

Section 198(3) presents another important exception to the standard two-year time limit for property division claims following separation or divorce. This exception applies where a spouse seeks to set aside or replace an existing agreement and they have grounds to do so because a specific wrong was done:

• A spouse can apply to set aside or replace an agreement within two years from the date they first discovered, or reasonably ought to have discovered, grounds for making the application.
• Valid grounds for such an application may include situations like nondisclosure of significant assets, fraud, or undue influence at the time of making the agreement.

This exception allows for flexibility in cases where a spouse was coerced or deceived in a way that would have influenced their decision at the time of the agreement.

Example scenarios where time limits could be paused:

• Anju and Kishore, an unmarried couple, separated on January 1, 2022. They started mediation with a certified family dispute resolution professional on December 1, 2023. The two-year time limit for Anju to bring a property division claim pauses on December 1, 2023, extending beyond the original deadline of January 1, 2024.
• Mei and Luis, married, were granted a divorce on June 15, 2021. They began collaborative negotiation on June 1, 2023. Mei's time to file a property division claim, which would have ended on June 15, 2023, is extended due to their participation in the dispute resolution process.
• Fatima and Jamal, who divorced in 2020, had an agreement regarding property division. In 2023, more than two years after the divorce, Fatima discovered that Jamal had failed to disclose significant assets during their negotiations. She applies to set aside the agreement under section 198(3) of the Act within two years of discovering this non-disclosure. This application is valid as it is based on grounds of nondisclosure of significant property, which is a recognized reason for setting aside an agreement under the Act. This exception recognizes the importance of fair and informed consent in family law agreements and provides a remedy for situations where this standard may have been compromised.

For more detailed information, consider seeking legal advice or consulting the full text of the Family Law Act.

The philosophy behind the Family Law Act and its scheme for dividing property

The scheme for dividing property under the Family Law Act is technically described as a deferred partnership of acquests regime. The deferred partnership of acquests regime focuses on property accumulated during the relationship, with both spouses having a presumed equal interest in such property that's only realized upon (and is therefore "deferred" until) separation. It emphasizes the timing and manner of acquisition of family property rather than how the property was used. Property acquired before the relationship or through certain means (like inheritance) is typically excluded, and known as "excluded property."

BC's old Family Relations Act, which was retired in 2013, used a deferred community of property regime. The deferred community of property differs from the deferred partnership of acquests regime by focusing on how property was used. If property was "ordinarily used for a family purpose" it was considered for division, regardless of when or how it was acquired. This meant that the ownership of property was less significant than how it was utilized within the family context. Consequently, most assets owned by the spouses, irrespective of their individual contributions or the name on the title, were often subject to equal division upon separation.

The Family Relations Act and the Family Law Act

Under the Family Relations Act, married spouses shared in all property that was "ordinarily used for a family purpose." This meant that you didn't need to look at who owned something on paper, how something was acquired, or whether property was acquired before or during the relationship. What mattered was how the property was used. For most couples, everything they had wound up being ordinarily used for a family purpose in one way or another.

Under the Family Law Act, use is irrelevant. In fact that's exactly what section 81(a) says:

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

What matters now, under the deferred partnership of acquests regime, is when property was acquired and how property was acquired:

• On the date of separation, each spouse is only presumed to have an interest in the assets that accumulated during their relationship (but not assets that can be traced to the other spouse's excluded property).
• Property bought before the spouses' relationship began is presumed to be excluded property.
• Property acquired during the relationship, but which was bought using money that can be traced to excluded property, is also presumed to be excluded property.

Under the old deferred community of property regime of the Family Relations Act:

• Both spouses were presumed to have an interest in all property on the date of separation.

Transition provisions

The Family Law Act became law in British Columbia on 18 March 2013. All of the parts of the act about children and support applied to everyone right away, including people who were in the middle of a court proceeding. However, under section 252(2), married spouses who had started a court proceeding about the division of property or had an agreement about the division of property must continue under the old Family Relations Act as if it hadn't been cancelled, unless the spouses agree otherwise:

(2) Unless the spouses agree otherwise,

(a) a proceeding to enforce, set aside or replace an agreement respecting property division made before the coming into force of this section, or

(b) a proceeding respecting property division started under the former Act

must be started or continued, as applicable, under the former Act as if the former Act had not been repealed.

This rule only applies to married spouses because only married spouses could make property claims under the Family Relations Act; it is not possible for unmarried spouses to "start or continue" a claim under that act.

The division of family property under the Family Relations Act is discussed later on in this section.

Who gets what under the Family Law Act

Property division is covered under Part 5 of the Family Law Act. This chapter has already introduced the general rules around property and debt division:

• family property and family debt are shared, while
• excluded property is not.

A convenient way to think about the presumptions on what you keep versus what you share based on sections 84, 85, and 86 are:

What you keep	What you share
Excluded property you brought into the relationship What you brought into the relationship, but the increased value since then is shared.	Real and personal property owned at separation All real and personal property owned by either spouse (including a beneficial interest) as of the separation date, unless it's excluded property.
Specific excluded property received during the relationship Inheritances Gifts from a third party (if solely to you and not the other spouse) Settlements, awards, or non-property insurance payouts not for lost income.	Specific types of family property (unless excluded) Shares or interests in corporations Interests in partnerships, businesses, or ventures Refunds, including tax refunds, owed to either spouse Money in accounts at financial institutions in either spouse's name Entitlements under pensions, retirement savings, or income plans Property disposed of after the relationship began but still under control or authority
Beneficial interest in a discretionary trust established by someone else Your beneficial interest in a discretionary trust established by someone else, without your contribution.	Assets derived from the sale or conversion of family property after separation Any assets derived from the sale or conversion of family property done after separation.
Assets derived from the sale or conversion of excluded property Any assets derived from the sale or conversion of any of the other kinds of excluded property.	Increase in value of excluded property The increase in value of any excluded property since it was brought into the relationship or since it was acquired, whichever is later.
Debt brought into the relationship Any debt that you brought into the relationship, but the increase in debt since then is shared.	Certain cases of trust property contributions In cases where either spouse contributed to a trust, particularly if: The contributing spouse is a beneficiary with a vested interest in the trust The contributing spouse has the power to transfer trust property to themselves or terminate the trust, resulting in the property reverting to them.
	Increases in debt brought into the relationship The interest that accrues on any debts either spouse brought into the relationship, calculated from the beginning of the relationship until separation.

General outline for Part 5 of the Act

Part 5 deals with:

• the definitions of family property, excluded property, and family debt,
• the rules for how the division of property and debt are to be accomplished, and the exceptions to those rules,
• orders for the division of property and debt, including when the court can divide family property unequally or divide excluded property, and
• agreements for the division of property and when the court may set those agreements aside.

For a discussion about pets (specifically companion animals), and how these animals are now treated as a special kind of property in Part 5 of the Act since amendments took effect on January 14, 2024, see the Dividing Property and Debt in Family Law Matters section of this chapter.

Family property and family debt

Family property is defined at section 84(1) of the Family Law Act. It basically says that family property is:

• all the property owned by either or both spouses on the date of their separation,
• minus excluded property.

Family property also includes property that is bought after separation, but using money that was derived from and can be traced back to family property. For example if a spouse uses money from a joint bank account to buy a new car after separation, the new car will still be family property.

Section 84(2) gets into the specifics of the sorts of things that might be family property:

(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;

(c) property owing to a spouse

(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.

(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 themselves 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.

Boiling this all down somewhat, family property includes:

• a spouse's business, regardless of the nature of the business interest,
• money owed to a spouse,
• bank accounts, savings accounts, investment accounts and pension accounts,
• family property that a spouse transferred after separation but can get back, and
• property in a trust that the spouse created and can get back.

Perhaps most importantly, under section 84(2)(g), family property includes the increase in value of a spouse's excluded property after it was received or brought into the relationship.

The definition of family debt is at section 86 and is much shorter:

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.

In other words, all of the debt accumulating from the date the spouses began to live together or got married, whichever is earlier, to the date of separation is family debt. Family debt includes debt that is incurred after separation if the debt was incurred for family property, for example if a spouse takes out a loan to make the mortgage payments on the family home. Since the family home is family property, the loan is a family debt that both spouses are responsible for.

Separation

When the spouses separate, all of the family property owned by either or both spouses becomes equally owned by both spouses as tenants in common. If only one spouse owns an asset, both of the spouses become equal owners of the asset as tenants in common. If both spouses own an asset as joint tenants, the joint tenancy is severed and both of the spouses become equal owners of the asset as tenants in common. This is all a bit complicated to explain, so please bear with me.

How property is owned

Two or more people can own the same property in one of two ways:

1. they can own the property as "joint tenants", or
2. they can own it as "tenants in common."

Joint tenants

When two or more people own a thing as joint tenants, they are each owners of the whole thing. This is a fuzzy kind of shared ownership because the interests of one owner can't be separated out from the interests of the other owner(s) because they each own the whole thing. To put it another way, a joint tenant doesn't own a particular slice of the pie, a joint tenant owns the whole pie.

When a joint tenant dies, their interest in the asset disappears, and the surviving joint tenants continue to own the whole asset as they always had. As a result, joint tenancies are extremely handy estate planning tools: the right of survivorship means that the legal interests of a joint tenant in a house does not pass through probate when the joint tenant dies; the surviving joint tenants simply and automatically continue forward as owners of the whole interest in the property.

Tenants in common

When people own a thing as tenants in common, each owner's interest in a property is separate and distinct. The tenants in common of a property each own their particular slice of the pie; collectively, they all own the whole pie, but individually they just own their personal share. If you had two joint tenants of a house, each would have a divided one-half interest.

Because each owner's interest is separate (i.e. divided) from the other owners, a tenant in common can sell their share in the asset to someone else, put a mortgage on their interest or use it as collateral, or give it to someone else as a gift. If a tenant in common dies, their interest in the thing becomes a part of their estate to be distributed according to their will.

The effect of separation

Section 81(b) of the Family Law Act states:

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.

From a family law perspective, the most important thing about owning an asset as tenants in common, which is how assets are owned after the spouses separate, is this idea of two separate interests in an asset. Say the family home is registered in only one spouse's name and that spouse goes bankrupt. If there has been a separation and each spouse takes a one-half interest as a tenant in common, the only part of the house that can be taken by the bankrupt spouse's trustee is the bankrupt spouse's one-half interest; the other spouse's interest in that asset will be preserved from the bankrupt spouse's creditors, and it doesn't matter who owns the asset on paper. This can be hugely important.

Family law lawyers describe the effect of a separation as "crystallizing" the spouses' interests in the family property because the separation makes each spouse the legal owner of one-half of the family assets in a way that is also binding on people outside the relationship, like creditors, trustees in bankruptcy, potential purchasers, and so forth. After a separation happens, all a creditor can lien or seize to secure or pay a debt is the debtor's half-share of an asset, regardless of whether the debtor was the sole owner or the joint owner of the asset before the separation.

Under the Family Law Act there is no requirement that the parties start a court proceeding or sign an agreement in order to be separated.

The valuation of property and valuation date

Although the pool of family property to be shared between spouses is crystallized when the separation happens, under section 87(b), the value of the family property is not fixed until the date of the trial or agreement that divides the property. This makes sense, because it can take two or three years for the division of property to wrap up at a trial, and it can take four or five months to finish an agreement for the division of property. With respect to daily use bank accounts (i.e. bank account where your pay is deposited and you pay your monthly bills), it has become more common for the court to value such bank accounts based on its value as at the date of separation instead of the date of the trial or agreement.

Under section 87(a), the value of property is its fair market value, the amount a reasonable buyer would pay for the property in its current condition, not the purchase price of the property, the insured value of the property, or the replacement cost of the property. In other words, the value of the reconstituted leather living room suite you got from the Brick for $999 five years ago isn't what you paid for it, it's the $100 that someone would likely give you for it at the date of the trial or agreement.

Excluded property

The definition of family property at section 84 starts from the assumption that all property either or both spouses own on the date of separation is shareable family property, with the exception of excluded property.

Excluded property is defined at section 85(1):

(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) property held in a discretionary trust

(i) to which the spouse did not contribute,

(ii) of which the spouse is a beneficiary, and

(iii) 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).

To boil all this down, a spouse's excluded property is all the property that the spouse owns on the date of cohabitation or the date of marriage, whichever is earlier. Other property acquired during the relationship can also be a spouse's excluded property, including:

• gifts (provided that the gift is to the spouse alone and not a gift to the couple),
• inheritances,
• court awards,
• insurance payments, and
• property held in a trust that was contributed by someone else.

Perhaps most importantly, under section 85(1)(g), excluded property includes property bought during the relationship with excluded property. This is another kind of tracing provision, because you trace the money (or other value) used to pay for a recently acquired piece of property to prove that it came from, or was derived from, property that was excluded.

Say, for example, that a spouse receives an inheritance of $10,000 and buys a collection of vintage Pyrex. The Pyrex collection would be that spouse's excluded property because it was bought with excluded property, even if the Pyrex collection was used in the day-to-day course of the couple's life together. Remember, whether something was "ordinarily used for a family purpose" is not a consideration under the Family Law Act.

Burden of proof is on the spouse claiming exclusion

Under section 85(2), the spouse who claims that an asset should be excluded from the pool of family property is responsible for proving that the asset is excluded property.

For some property this is easy to do, for example when someone owns their own home before the relationship even started. But for more ambiguous scenarios, like when one spouse says that the large amount of money they received from their parent is a gift to them personally, and was not intended for the couple, evidence of everything that happened around a transaction can be critical. Consider the case of Zhao v. Fang, 2022 BCCA 227, which involved a gift that the husband claimed to be excluded under section 85(1)(b.1), but which the wife disagreed was a gift. The Court of Appeal talked about the role that evidence plays in proving property deserves to be excluded:

"[25] Excluded property, defined in s. 85(1), includes “gifts to a spouse from a third party”. Under s. 85(2) the spouse making this claim has the burden of demonstrating that property is excluded property. The standard of proof is on a balance of probabilities (as in any civil case), but the evidence must be clear and cogent. If documentary evidence is not available, a party's testimony on this issue is to be scrutinized for credibility. However, the judge is permitted to draw reasonable inferences from evidence that is less certain or precise in order to do justice between the parties [...]"

Amendments to the Family Law Act that reinforce excluded property

Where a married person transfers their excluded property into the name of the other spouse, there used to be a risk that this excluded property would become family property. This risk came from a contentious old legal doctrine called the presumption of advancement. The presumption applied when gratuitous transfers were traditionally made by a husband to his wife. Before May 2023, the Family Law Act did not explicitly address this old doctrine. It did not say if it applied or not, and a rift emerged between one line of court judgments that imposed the doctrine, and another line of court judgments that rejected it. In May 2023, the Act was amended to try and resolve this inconsistency. Subsection 85(3) was added to the Act, which says:

If property is excluded from family property under subsection (1), the exclusion applies despite any transfer of legal or beneficial ownership of the property from a spouse to the other spouse.

This amendment also added a number of sections to the Act, including section 81.1(1), which does away with the presumption of advancement, and section 81.1(2) which does away with the presumption of resulting trusts:

Certain presumptions not be applied

81.1 (1) The rule of law applying a presumption of advancement must not be applied in question respecting the ownership of property as between spouses.

(2) The rule of law applying a presumption of resulting trust must not be applied in question respecting the ownership of property as between spouses.

Let's consider an example that illustrates the impact of this amendment dealing with the presumption of advancement. Here is a fictional scenario:

• Jacob owned his own house prior to marrying Carmen.
• The house is excluded property.
• Once married, he adds Carmen on title to the house as a joint tenant.
• He does this because it is a common estate planning strategy to avoid unnecessary probate fees, but he doesn't keep evidence to show this intention.

Prior to the May 2023 Family Law Act amendments, unless Jacob somehow had the foresight to get Carmen's explicit acknowledgement that adding her to title was not intended to be a gift, Jacob risked losing his excluded property under the presumption of advancement. The court might have felt bound to presume that a gift was intended. Because the presumption of advancement is now abolished by section 81.1(1), and because section 85(3) now makes it clear that the exclusion of excluded property applies despite any transfer of legal or beneficial ownership to the other spouse, Jacob will not lose the value of his excluded property if Carmen and he separate.

Section 81.1(2) does away with the presumption of resulting trust which is also an equitable law doctrine (more or less the opposite of the presumption of advancement), which states that the gratuitous transfer of property from a parent to an adult child, is not presumed to be a gift. The presumption is that an obligation is imposed on the adult child to hold that property in trust, meaning the parent would maintain beneficial ownership even if the legal ownership was in the adult child's name.

Both forms of common law presumptions were intended to provide a convenient default presumption in cases where the evidence didn't lean either way. Whether the transfer of property was intended as a gift or not could be presumed just based on the specific relationship of the people involved. With the amendments, the Family Law Act now does not presume anything about the intention of a transfer. That's what sections 81.1(1) and (2) now say. And section 85(3) reinforces that excluded property keeps its excluded nature, even when legal or beneficial ownership is transferred to the other spouse.

Note for family law proceedings started before May 11, 2023: If you are involved in a family law proceeding that was commenced before May 11, 2023, the amendments do not apply, and you may still argue about the presumptions of advancement and resulting trust in your case.

Taking stock at the beginning of a relationship

As you can see, it's rather important to know what you owned when you and your spouse began to live together. If you are just starting a relationship, here's what you do.

First, gather the documents listed below for the period that spans the date on which you and your spouse began to live together or got married, whichever is earlier:

• statements for all financial accounts, including savings accounts, investment accounts, RRSP accounts, and other retirement savings accounts,
• statements for any workplace pension plans,
• statements for all credit accounts, including credit cards, loans, mortgages, and lines of credit,
• your personal income tax return, complete with all of the schedules and attachments,
• your BC Assessments for all real property, or, if you want to be more accurate than that, proper appraisals,
• black book values or dealer quotes for any vehicles you own,
• appraisals for works of art and collections, and
• anything else that helps to establish the value of something you brought into the relationship in a credible way.

Next, once you've gathered these documents, staple them together and keep them together in some place that you're not likely to lose them, like a safety deposit box.

You should still be able to gather much the same collection of documents even if you've already been married or living together for some time. Banks and other financial institutions will give you copies of old statements, but there will be a charge; pension plan administrators should be able to provide old values; and, BC Assessments for past years are available online. You may, however, have a problem valuing old vehicles.

Keeping track during a relationship

It's also important that you keep track of new excluded property acquired during your relationship, and what's going on with the excluded property you brought into the relationship. It may be easiest to keep a journal that:

• shows the dates and amounts of any inheritances, gifts, court awards, and insurance proceeds received during the relationship,
• tracks money received from the sale of excluded property, and what you did with the money, particularly if the money was pooled with your spouse's money to buy something,
• with respect to gifts, keep documents evidencing the intention of the donor (i.e. a letter or card from the donor parent confirming that the gift of $100,000 was to you and not to you and your spouse),
• tracks property bought in exchange for excluded property,
• shows the intent of any gift or transfer of property, and
• records any changes in the value of excluded property during the relationship.

Remember, under section 85(2) it's up to the person claiming that the property is excluded property to prove it.

Who got what under the Family Relations Act

Because of the transition provisions of section 252 of the Family Law Act, the old Family Relations Act, even though it's been cancelled, will still apply to determine the division of property between married spouses if:

• they started a court proceeding to divide property before 18 March 2013, the date when the Family Law Act came into effect,
• a spouse wants to start a court proceeding to enforce or set aside an agreement about property that was signed before 18 March 2013.

As a result, for some cases it's still important to know how family property is divided under the Family Relations Act.

The division and distribution of property between married spouses was governed by Parts 5 (matrimonial property} and 6 (division of pension entitlement) of the Family Relations Act. Part 5 of the act dealt with the division of property, including personal property, financial assets, and real estate. Part 6 dealt with the division of pensions. Unmarried couples, including couples who qualify as unmarried spouses, were expressly excluded from the parts of the act that deal with property.

The presumption of equal sharing

Under this old law, when a marriage broke down, each spouse was presumed to have a one-half interest in all assets that qualified as family assets. Section 56 of the Family Relations Act said that:

(1) Subject to this Part and Part 6, each spouse is entitled to an interest in each family asset ...

(2) ... as a tenant in common.

As long as an asset qualified under the act as a family asset, each spouse was presumed to have a one-half interest in that asset. Family assets were defined in section 58(2) of the act, and the focus under the act was on how an asset was used during the relationship rather than on who bought it, when it was bought, or how it was bought:

Property owned by one or both spouses and ordinarily used by a spouse or a minor child of either spouse for a family purpose is a family asset.

This section cast a very broad net: as long as an asset was owned by a spouse and was ordinarily used for a family purpose, the asset would be a "family asset" for the purposes of the Family Relations Act, and it didn't matter whether the asset was brought into the marriage by one spouse, or bought during the marriage.

To summarize, when the marriage broke down, the spouses were presumed to own all family assets equally, no matter whose name the asset was in or whether the asset was brought into the marriage by one spouse or bought during the marriage. This presumption under the old law, however, only applied between spouses. As far as the rest of the world was concerned, the only owner of an asset was the person with legal title to the asset, which might be:

• one of the spouses,
• both spouses as joint tenants,
• both spouses as tenants in common, or
• one or both spouses, along one or more other people, either as joint tenants or as tenants in common.

The triggering events

Under the old Family Relations Act, when a triggering event happened, all of the property owned by either or both spouses became equally owned by both spouses as tenants in common. Even if only one spouse owned an asset, both of the spouses became equal owners of that asset as tenants in common. If both spouses owned an asset as joint tenants, the joint tenancy was severed and both of the spouses became equal owners of the asset as tenants in common.

Family law lawyers described the effect of a triggering event as "crystallizing" the interests of the spouses in the family assets because the triggering event made each spouse a legal owner of one-half of the family assets in a way that was also binding on people outside the marriage, like creditors, trustees in bankruptcy, potential purchasers, and so forth. After a triggering event happened under the old Family Relations Act, all a creditor could put a lien on or seize was the debtor's half-share of an asset, regardless of whether the debtor was the sole owner or the joint owner of the asset before the triggering event.

Section 56(1) of the Family Relations Act described four triggering events:

1. when the parties made and signed a separation agreement,
2. when the court made a declaration that the spouses had no reasonable prospect of getting back together and resuming married life,
3. when the court made an order for divorce, and
4. when the marriage was annulled.

Once any one of these triggering events happened, each spouse took a one-half legal interest in all of the family assets as a tenant in common, regardless of who bought the asset, who used to own the asset, or when the asset was bought. This new situation (created at the point of the triggering event) lasted until the division of the assets was finally determined by a court order or the parties' agreement.

The equal and unequal division of family assets

Under section 56 of the Family Relations Act, each spouse was presumed to have a one-half interest in all family assets. This was, however, only a presumption, a presumption that could be challenged. When assets were divided more in one spouse's favour than the other, the assets were said to have been reapportioned.

The court could order, or the spouses could agree, that all of the family assets would be reapportioned or that just a few assets would be reapportioned. This might have happened to allow one party to keep more of a pension or more of an inheritance, for example, even though all the other family assets might have been divided equally.

Section 65(1) of the Family Relations Act described the factors the court could take into account in deciding whether an equal division of the family assets would have been unfair:

(a) the duration of the marriage,

(b) the duration of the period during which the spouses have lived separate and apart,

(c) the date when property was acquired or disposed of,

(d) the extent to which property was acquired by one spouse through inheritance or gift,

(e) the needs of each spouse to become or remain economically independent and self sufficient, or

(f) any other circumstances relating to the acquisition, preservation, maintenance, improvement or use of property or the capacity or liabilities of a spouse

Family assets were most commonly reapportioned when:

• the marriage was short, say less than six or seven years, and one of the spouses brought the majority of the assets into the relationship,
• one of the spouses was responsible for racking up a lot of debts not related to spending for family purposes,
• some of the assets were located outside of British Columbia,
• one of the spouses required more than half of the family assets to become financially independent,
• one of the spouses had wrongfully disposed of family assets or negligently allowed them to decrease in value, especially if this happened after separation, or
• some of the assets had been bought with a spouse's inheritance.

Defining "family assets"

Not all assets were shareable family assets. The sections of the Family Relations Act quoted above only provided for the division of assets that qualified as family assets; other sorts of assets might have been exempt from division, so that the spouse who owned the asset would be allowed to keep that asset, without necessarily having to compensate the other spouse for its value.

Family assets were defined in section 58 of the Family Relations Act as:

(2) Property owned by one or both spouses and ordinarily used by a spouse or a minor child of either spouse for a family purpose is a family asset.

(3) Without restricting subsection (2), the definition of family asset includes the following:

(a) if a corporation or trust owns property that would be a family asset if owned by a spouse,

(i) a share in the corporation, or

(ii) an interest in the trust

owned by the spouse;

(b) if property would be a family asset if owned by a spouse, property

(i) over which the spouse has, either alone or with another person, a power of appointment exercisable in favour of himself or herself, or

(ii) disposed of by the spouse but over which the spouse has, either alone or with another person a power to revoke the disposition or a power to use or dispose of the property;

(c) money of a spouse in an account with a savings institution if that account is ordinarily used for a family purpose;

(d) a right of a spouse under an annuity or a pension, home ownership or retirement savings plan;

(e) a right, share or an interest of a spouse in a venture to which money or money's worth was, directly or indirectly, contributed by or on behalf of the other spouse.

If an asset did not fall into these categories, it may not have been something that the spouses were both entitled to share. The basic rule of thumb under the old law was this: an asset was a family asset if it was ordinarily used or was intended to be ordinarily used for a family purpose.

Cohabitation agreements and marriage agreements

You can read more about cohabitation agreements under the chapter on Family Law Agreements. In short, they are agreements between people who will be or are living together, and who may or may not wind up getting married later on down the road.

That chapter also talks about marriage agreements, which are between people who will be getting, or are, married. (Although there's no reason why these agreements can't be entered into well after a relationship begins, they're usually signed on or shortly after the date the parties begin to live together or marry.)

These agreements are often used to say how property and debt will be handled during a relationship and how it will be allocated if the couple separates.

The Family Law Act specifically addresses agreements respecting property division at section 92:

92 Despite any provision of this Part but subject to section 93 [setting aside agreements respecting property division], spouses may make agreements respecting the division of property and debt, including agreements to do one or more of the following:

(a) divide family property or family debt, or both, and do so equally or unequally;

(b) include as family property or family debt items of property or debt that would not otherwise be included;

(c) exclude as family property or family debt items of property or debt that would otherwise be included;

(d) value family property or family debt differently than it would be valued under section 87 [valuing family property and family debt].

Many people are content with the basic plan for the division of property set out in the Family Law Act, so the question is often about what a cohabitation agreement or a marriage agreement can do that would be better than the default plan that the Act expects. Here are some things that an agreement could do, that alter the default property division rules under the Act:

• clarify which property is excluded property and what its value was when the relationship began,
• allow a spouse to keep not just their excluded property but the growth in value of their excluded property,
• say that there will be no shared family property, except for property that is registered in both spouses' names or that the parties agree in writing will be shared family property,
• give a share of a spouse's excluded property to the other spouse, including a share which increases over time,
• make all excluded property shareable family property,
• say how property bought during the relationship will be owned if it's bought with both spouse's excluded property, or
• say what will happen if a spouse's excluded property decreases in value during the relationship.

Do you have standing to enter agreements under the Family Law Act?

If you are over the age of majority, the answer is yes.

Because many agreements look ahead in time to what could happen in a relationship, you don't need existing rights claim property division under the Family Law Act before making an agreement that deals with what would happen once you and another person become married or unmarried spouses. Section 6 of the Act says:

(1) Subject to this Act, 2 or more persons may make an agreement

[...]

(b) respecting

(i) a matter that may be the subject of a family law dispute in the future,

(ii) the means of resolving a family law dispute or a matter that may be the subject of a family law dispute in the future, including the type of family dispute resolution to be used, or

(iii) the implementation of an agreement or order.

Agreements between any two people, even those who are not married and are not living together, can be used to change how property and debt will be divided later on when they are spouses under the Part 5 property division sections of the Act.

Resources and links

Legislation

• Family Law Act
• Family Relations Act

Links

• Dial-A-Law Script "Dividing Property and Debts"
• Justice Education Society's handbook Parenting After Separation: Finances
• Legal Aid BC’s Family Law website's information page "Property & debt"
  • See "Dividing property and debts"

This information applies to British Columbia, Canada. Last reviewed for legal accuracy by Trudy Hopman and Kenneth Craig, October 19, 2023.

JP Boyd on Family Law © John-Paul Boyd and Courthouse Libraries BC is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 2.5 Canada Licence.