Losing Excluded Property By Changing Title
An important new decision was released last week by our Court of Appeal (J.F. v. S.K.W 2016 BCCA 186), which will have a significant impact on how “Excluded Property” under the Family Law Act (“FLA”) is treated by the courts.
Excluded Property includes things such as inheritances, or property acquired by one spouse before the relationship began.
After the FLA was introduced in 2013, there were two competing lines of authority about whether Excluded Property needed to be in that party’s name in order to claim the exclusion. One said it didn’t really matter while the other said that a change in title to the property meant that the exclusion was lost.
The BC Court of Appeal has now said that title is absolutely important and if a spouse ‘gifts’ their excluded property to their spouse by placing it in joint tenancy, they lose the ability to later claim it as excluded property. In short, title matters.
This means that anyone with significant assets that pre-exist the relationship or assets received as inheritance or a financial gift, will likely have to keep those assets legally separate in order for them to remain theirs on separation (but any appreciation will be split 50/50). Once they convert them into joint tenancy (such as a joint bank account or joint property) or even the sole name of their spouse (like putting title in one party’s name to avoid creditors after the other party), then the notion of those funds being Excluded Property immediately evaporates and the entirety of that property is legally “family property” with a presumptive 50/50 split.
Few people like to think about relationship breakdown when things are going well; however, if one party is coming into the relationship with a significant asset or receives an inheritance during the relationship, they should take great care (and get legal advice early on!) regarding how to ensure that it remains protected from the presumption of equal division upon relationship break-down.