January 26, 2021
As I mentioned in my last post, there are eight categories of excluded property in the Family Law Act. Some common types of excluded property are:
- Property owned by a spouse prior to the spousal relationship. For example, your equity in the family home that you owned prior to becoming spouses.
- Gifts to one spouse from a third party. For example, a gift from your parent to you for the down payment of real estate.
- Inheritances received by one spouse. For example, your grandmother passes and leaves you a cash inheritance.
- Personal injury settlements and insurance settlements (not attributed to the loss of income).
A common question for Vancouver family law lawyers is: If you have excluded property, and if you and your spouse separate or divorce, you get to keep your exclusion, right?
Answer: Not necessarily! Unfortunately, there are several unintentional ways that you can “lose” your excluded property.
Common ways that spouses lose their excluded assets are as follows:
(1) You spend the excluded property or money earned from the sale of excluded property. If you spend your excluded money during the spousal relationship (for example, on debt payments, vacations, or the general costs of living) then you will no longer have a claimable exclusion. So, if you want to maintain your exclusion, make sure you keep the excluded property in a separate account not used for family expenses and don’t spend it!
(2) You transfer the excluded property into your partner’s sole name. You may lose your exclusion if you transfer the excluded property into the sole name of your spouse. For example, if you take excluded money out of an account to purchase a house in your spouse’s name (for example, you may do this for creditor protection if you own a business), the house will become family property even it would have been excluded property if it had been left in the excluded account.
(3) You transfer the property into joint names. You may also lose your exclusion if you transfer the excluded property into assets owned in joint names (such as the family home) with your spouse. Courts in B.C. have been inconsistent in their decisions regarding whether excluded property transferred into joint names is lost. If the court can find evidence that a spouse did not intend to make a gift, then the transferring spouse may be able to keep his excluded property. Such evidence may include, for example, an oral agreement between the spouses or some other circumstantial evidence of intent. However, if the court finds that a gift was intended at the time when the excluded property was transferred into joint names the transferring spouse may lose their exclusion.
The most certain way to keep your excluded property yours is to make sure it in your sole name. This means making sure that real estate purchased with excluded property (including the family home) is held in your name only and ensuring that excluded money is kept in a separate account held in your name.
It should be noted, however, that sometimes for practical and estate planning purposes you and your spouse may wish to hold excluded property in joint names as this will save on probate fees, property transfer fees, and estate taxes if one of you dies. It is therefore important to seek legal advice on how to ensure that you get to achieve these goals while also preserving your excluded property.
The best practices for protecting your excluded property:
(1) Enter into a family law agreement
- A family law agreement will help you protect your exclude property if it specifically sets out how the excluded property will be managed during the spousal relationship and after separation.
- These agreements may be included within a marriage agreement (also known as a prenuptial or “prenup” agreement), a cohabitation, a “postnuptial” agreement, or created on an ad hoc basis. Any agreements between you and your spouse should be in writing and witnessed by at least one other person for it to qualify as a “property agreement” under the Family Law Act.
- I assist my client with preparing such agreements, and you can read more about family law agreements here
(2) Maintain good records
- Make sure you maintain detailed documentary evidence of excluded property and money so that it can be traced into the property that exists at the time of separation.
- Please consult with a family law lawyer to get a better understanding of the documents you will want to maintain to keep your property exclusions upon separation.
(3) Talk to a family lawyer!
- The best step you can take to protect your property is to get legal advice from a family law lawyer on your unique situation. I cannot stress this enough. You can contact me here to book your free consultation.
NOT LEGAL ADVICE. Information made available on this website is for information purposes only and is not legal advice. Do not rely on this information, nor take or fail to take any action, based upon this information. Do not disregard professional legal advice or delay in seeking legal advice because of something you have read on this website. Contact me here to discuss any specific legal issues.