Family Law – When does Excluded Property lose its Character as Excluded Property?

Pursuant to s. 85(1)(a) of BC’s Family Law Act,SBC c 25 (the “FLA”), property acquired by a spouse before the relationship between two spouses begins is considered “excluded property.” Because of the language of s. 81 of the FLA,and unless the court makes a determination under s. 96, excluded property is not divided equally between spouses upon separation – in other words, each party leaves the relationship with the property they brought into the relationship.

However, what happens if one spouse (“Spouse 1”) gives a gift of excluded property, for example money or a house acquired by Spouse 1 prior to the relationship, to another spouse (“Spouse 2”) during the course of a relationship? Does the property lose its character as excluded property?

Once property loses its character as excluded property it becomes family property (see s. 84 of the FLA) and, pursuant to s. 81 of the FLA, will be subject to equal division on separation unless the court orders otherwise under s. 95.

Can Spouse 1 claim that the gift given to spouse 2 was a gift of excluded property which should be returned to Spouse 1 upon separation and u not be subject to equal division between the spouses?

In the recent BC case of VJF v SKW, 2016 BCCA 186, the BC Court of Appeal considered whether a $2 million gift of excluded property given by a husband to a wife lost its character as excluded property. The Court stated at paragraph 76: “…the $2 million gift received by Ms. W does “fall back into the communal pot” on separation and is divisible as family property in the normal way. The spouses are presumptively entitled to equal shares as tenants in common….”

How does a spouse protect him or herself from such a result? The Court noted at paragraph 78 that, subject to the other relevant provisions of the FLA, “the transferor can require the transferee to acknowledge that no gift of the excluded property (or its value) is intended.”