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.”

When can a Court vary a Will? – Estate Litigation

Under the British Columbia Wills and Estate Succession Act, a court has the power to vary a Will from the original intentions of the testator. In Hagan-Bourgeault v. Martens Estate (2016 BCSC 1096), a daughter applied to have her mother’s Will varied. Tataryn v Tataryn Estate, [1994] 2 SCR 807, 93 BCLR (2d) 145 (SCC) outlines the factors that a court must consider when varying a testator’s Will. Ultimately, the Court may vary the Will as long as it is ‘adequate, just and equitable’ in light of the circumstances.

The contest in Hagen-Bourgeault was over a modest estate. The residue of the estate consisted of a structured settlement from ICBC, which paid a monthly income of about $2,200.00 per month. The mother left no immediate direct provision for her daughter in her Will, and did not disclose any reason for her failure to do so. Instead, the mother left the residue of her estate to her husband. The husband’s position was that it was the deceased’s intention that he should have the discretion to make payments to the daughter based on her needs. The Will also stated that if the husband predeceased the daughter, that the “residue of the estate was to be held in trust for the plaintiff” and to be paid at predetermined later dates.

In determining the appropriate division of the estate in Hagan-Bourgeault, the Court analyzed both the financial need of the daughter, and the moral claim that she had to the funds. The Court also reviewed the position of the husband. He only had a short relationship with the deceased and he was financially independent.

The Court held that it was just and equitable to vary the mother’s Will and give the residue to the daughter.