There have now been four decisions of the BC Supreme Court which have looked at the questions regarding whether or not a spouse loses their right to excluded property if they place that property in joint tenancy with their spouse. Two of these decisions say that the exclusion is lost and two say that it is not lost.

 

The most recent decision is P.G. v. D.G. 2015 BCSC 1454 which was pronounced on August 18, 2015. In this decision Madam Justice Fenlon provided a careful and detailed analysis of this issue at paragraphs 41 to 89:

 

[41]         The parties agree that the following assets were owned by Mr. G. prior to the commencement of their relationship and are his property alone:  a vacuum cleaner, cherry armoire, night stand, sleigh bed, glider chair, musical equipment, and instruments. These items are specifically identified in the summary at para. 149 of these reasons.

 

[42]         The parties disagree whether the equity Mr. G. had in a property located at 5806 Main Street in Vancouver at the time of the marriage should be excluded from family property (the “Main Street Property”).

 

[43]       Section 85 of the FLA provides:

 

Excluded property

85  (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)  a spouse’s beneficial interest in property held in a discretionary trust

(i)  to which the spouse did not contribute, and

(ii)  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).

 

(2)  A spouse claiming that property is excluded property is responsible for demonstrating that the property is excluded property.

 

[Emphasis added.]

 

[44]         Mr. G. has met the burden of proving that he owned the Main Street Property before the relationship between the parties began. The Main Street Property had belonged to Mr. G.’s grandparents. He bought it from their estate in May 1991 for $285,000, taking out a $252,000 mortgage. By the time the parties married on November 29, 1997, the mortgage had been reduced to $181,867.

 

[45]         The parties do not agree on the value of the property at the time of the marriage. Ms. G. relies on the BC Assessment Authority notice of assessment showing a value of $321,000 in 1997. While the Court of Appeal has acknowledged that notices of assessment may be used in some family cases in the absence of better evidence, appraisals are to be preferred:  Dosanjh v. Liang, 2015 BCCA 18 at paras. 60 and 61.

 

[46]         In the present case, the parties commissioned a joint appraisal on the Main Street Property as of the date of marriage. The appraiser valued the property historically at $400,000. While he initially made an erroneous assumption about the number of bathrooms in the residence in November 1997, the appraiser provided a supplemental report and was cross-examined on his reports by Ms. G. at trial. I am satisfied that his amended opinion should be accepted. I therefore find that Mr. G. had equity of $218,133 in the Main Street Property at the time the parties married ($400,000 – $181,867).

 

[47]         During their marriage, the parties decided to repurpose the Main Street Property into a rooming house. They converted the two suites into nine rooms, completing that work in July 2005. At the commencement of the renovation work, on December 22, 2003, Mr. G. added Ms. G. to the title of the Main Street Property as a joint tenant.

 

[48]         Mr. G. did much of the renovation work himself, working full-time as a truck driver during the day and renovating in the evenings, on weekends, and during holidays. Ms. G. contributed by caring for the children, doing yard work, and assisting with tenants. I accept both parties were partners in the work done to improve the Main Street Property as Ms. G. asserts.

 

[49]         The number of tenants in the renovated Main Street Property made it less than ideal as a home for raising their children. In July 2005, the parties increased the mortgage on the Main Street Property by $131,000 in order to buy a home in Walnut Grove in Langley (the “Former Family Home”). The title to the Former Family Home was registered in joint tenancy.

 

[50]         On December 2, 2009, the parties sold the Main Street Property for $1.065 million. After paying off the mortgage on the Main Street Property, the balance of the money went into the parties’ joint account. It was then used to pay off the mortgage on the Former Family Home of $334,049.

 

[51]         There is thus a direct line between Mr. G.’s equity in the Main Street Property at the time of the marriage and the acquisition of the Former Family Home.

 

[52]         The issue is whether the equity in the Main Street Property at the time of marriage continued to be excluded property after Mr. G. transferred the Main Street Property into joint tenancy on December 22, 2003, and after he put the proceeds of the sale of the Main Street Property into the Former Family Home, which was also held in joint names.

 

[53]         Ms. G. asserts that the transfer of the Main Street Property into her name constitutes a gift of Mr. G.’s otherwise excluded portion. She says that is also evident from his statement at the time of their marriage:  “all I have is yours”.

 

[54]         I will address first the latter submission. In my view, those words are ambiguous and do not alone constitute proof of a gift. They could simply mean “all I have is yours to use”.

 

[55]         The question of whether a transfer of property into the name of the other spouse constitutes a binding gift that extinguishes the right of the transferor to claim it as excluded property on separation is a more complicated one. This Court has considered the issue in three cases that establish two conflicting lines of authority.

 

[56]         In Remmem v. Remmem, 2014 BCSC 1552, the husband used the proceeds of an excluded property to purchase property in joint tenancy with his wife. The parties’ relationship began in 1990, at which time the husband owned property on Greaves Road on the sunshine coast valued at $65,000. When the husband sold the Greaves Road property in 1995, the parties used the money to buy a home in both names at Middle Point. The parties lived there until they moved into a new home on Curran Road in Halfmoon Bay, BC. The Middle Point property was later sold and the proceeds used to purchase a five-acre lot on MacMillan Road in Halfmoon Bay, where the parties planned to build a new family home.

 

[57]         The wife agreed that the Greaves Road property was excluded property and that the Middle Point property and Curran Road property were derived from that excluded property. However, she submitted that when Mr. Remmem used the Greaves Road proceeds to buy Middle Point and placed that property in joint tenancy, he effectively gave one-half of his interest in those excluded proceeds to her. She based that submission on the presumption of advancement between spouses (at para. 20).

 

[58]         The trial judge rejected this submission. He concluded that the purchase of property held in joint names using the proceeds of excluded property does not reduce the value of the exclusion (at para. 52). At para. 50, the trial judge identified a number of problems that would arise if the presumption of advancement between spouses applied to the scheme of Part 5 of the FLA:

a)         The presumption only applies to married spouses and so gratuitous transfers between married and unmarried spouses would be treated differently.

b)         The presumption is at odds with and would … limit the utility of the tracing provisions. Property (such as the Middle Point property) placed in joint names is clearly derived from excluded property and so it is easy to trace the full amount of the exclusion. Unlike the presumption of advancement, tracing does not depend on the parties’ intentions. The application of the presumption of advancement and an examination of whether property was gifted is at odds with the simple concept of tracing.

c)         When applied, the presumption of advancement would significantly reduce the value of the exclusion to the donor spouse.

d)         Further, if half of the excluded property is a gift to the donee spouse, shouldn’t [the donee still] be able to claim that his or her half of the property is excluded?

 

[59]         He concluded at para. 52:

 

[52]      When I consider these difficulties, I conclude that the tracing provisions in the FLA, at least when applied to the circumstances in this case, are to be applied without considering or applying the presumption of advancement between married spouses. In other words, none of the excluded property – the fair market value of the Greaves Road property in October 1990 – was gifted to Ms. Remmem when the Middle Point property was placed in joint names. Mr. Remmem remains entitled to the full value of the exclusion of $65,000.

 

[60]         In Wells v. Campbell, 2015 BCSC 3, the trial judge came to the opposite conclusion. In that case the husband owned a two-acre waterfront property on Hornby Island valued at $185,000 when the relationship began. In 2008, about five years before the parties separated, the husband transferred the Hornby Island property into joint tenancy with his wife. The trial judge concluded that at the time the husband transferred the Hornby Island property into joint tenancy, he did so as a gift to his wife because it was a perfected inter vivos gift that cannot be revoked (at para. 32). He concluded that the FLA does not alter the law of inter vivos gifts, so that the presumption of advancement applied (at paras. 32-33). He found that the husband had not established a contrary intention behind his transfer of the Hornby Island property into joint tenancy, nor had he pleaded or argued such (at para. 31).

 

[61]         Although the transfer of the property into joint tenancy was considered most significant, the trial judge also observed at paras. 28 and 29:

 

[28]      I note that the term “excluded property” self describes itself as property and that “property “is described as real or personal property and includes a beneficial interest. It is questionable then as to whether a “value” in property falls within the definition of excluded property. Next, in respect to family and excluded property, the items described as such are things (e.g. gifts, inheritances, money) or recognized interests and not a value as argued by Mr. Wells. The only exception appears to be where there has been an appreciation in value of excluded property after the start of a relationship. In such a situation the appreciation is considered family property. Other than appreciation, it is apparent that property is viewed distinct from value. Interestingly, depreciation in value is not considered family property.

 

[29]      As a result, it would seem that value appears to be different from property and does not constitute excluded property.

 

[62]         Confining Remmem v. Remmem to its facts, the trial judge disagreed with the conclusion reached in that case that the presumption of advancement did not apply to Part 5 of the FLA by necessary implication, saying:

 

[38]      While I do not disagree certain problems can be presented; I am not persuaded that they lead to the conclusion that the Act displaces or extinguishes the presumption of advancement, or the effect of an inter vivos gift resulting in a joint tenancy. There is no explicit extinguishment in the Act, as has been done in other jurisdictions. See for example: Waters’ Law of Trust in Canada, 4th ed. [Waters’], at p. 414. In those other jurisdictions, the application of the presumption of resulting trust is required in questions of ownership of property between spouses. The legislation in those jurisdictions state where a property is held by the spouses as joint tenants, that fact is proof, in the absence of evidence to the contrary, that the spouses are intended to own the property as joint tenants.

 

[63]         This Court once again considered the question of excluded property under s. 85 of the FLA in V.J.F. v. S.K.W., 2015 BCSC 593. In that case, the husband used $2 million of excluded property (an inheritance) to purchase and register a house solely in his wife’s name. Registration in the wife’s name was part of a legitimate creditor-proofing exercise (at para. 23). The husband was a highly paid employee and director of a real estate development company that did not have director’s liability insurance.

 

[64]         The conflicting authorities of Remmem and Wells were squarely before the Court in V.J.F. (at paras. 56-68). Relying on Remmem, the husband argued that the $2 million inheritance was excluded and traceable into the property held by the wife. The wife relied on Wells, arguing that once the title to the house was registered, the presumption of advancement applied.

 

[65]         The trial judge in V.J.F. endorsed Wells. At para. 69, he noted that Wells had confined Remmem to its facts and stated:

In this case, when excluded property owned by one spouse was comingled with funds derived from family property to purchase an asset that is placed solely in the name of the other spouse in order to immunize it from potential creditors, the exclusion is lost because the disposing spouse gifted it to the other.

 

[66]         At para. 63 he also distinguished Remmem on the basis that s. 104(2) of the FLA was not raised in that case. Section 104(2) provides that any rights granted under the Act are in addition to and not in substitution for rights under equity or any other law. He concluded that the presumption of advancement was thereby preserved, and since the husband had intended to transfer the house to his spouse to protect it from creditors, he could not rebut that presumption; the entire property was therefore family property to be divided equally between the parties (at paras. 69-77).

 

[67]         Having considered these conflicting cases I conclude that I should follow the approach taken in Remmem for a number of reasons. First, Wells and V.J.F. focussed on the continued existence of the presumption of advancement — neither case addressed s. 85(1)(g), the tracing provision which expressly provides for the exclusion of property derived from excluded property or the disposition of excluded property.

 

[68]         In Wells, it appears the effect of s. 85(1)(g) was not raised. The subsection is not listed in the summary of the relevant provisions of the FLA at para. 17, and is not referred to at all in the analysis. In V.J.F., s. 85(1)(g) is referred to in the summary of the claimant’s position at para. 39, but it is not referred to in the discussion of excluded property at paras. 53-55 of the analysis. As set out in Re Hansard Spruce Mills, [1954] 4 D.L.R. 590 (B.C.S.C.), given that a relevant statutory provision was not addressed, I am not bound to follow these decisions.

 

[69]         In considering the effect of s. 85(g), I am mindful that the provisions of a statute are to be read in their entire context, in their grammatical and ordinary sense, harmoniously with the scheme of the Act, the object of the Act and the intention of the legislature: Rizzo & Rizzo Shoes Ltd. (Re), [1998] 1 S.C.R. 27, at para. 21; Loyola High School v. Quebec (Attorney General), 2015 SCC 12 at para. 50.

 

[70]         Section 85(1)(g) of the FLA is broadly worded. The section excludes property “derived from property or the disposition of property” acquired by a spouse before the relationship between the parties began.

 

[71]         In Minister of National Revenue v. Hollinger North Shore Exploration Co., Ltd., [1963] S.C.R. 131, the Supreme Court of Canada considered the meaning of the word “derived” and held that in the relevant context – the interpretation of exemptions in the Income Tax Act, R.S.C. 1952, c. 148 – it was broader than “received” and equivalent to “arising or accruing” from (at 134).

 

[72]         The Interpretation Act, R.S.B.C. 1996, c. 238, s. 29, defines “dispose” as follows:

“dispose” means to transfer by any method and includes assign, give, sell, grant, charge, convey, bequeath, devise, lease, divest, release and agree to do any of those things;

 

[73]         In Cominco American Inc. v. Duval (1993), 89 B.C.L.R. (2d) 83 (S.C.) Huddart J. held that a definition in the Interpretation Act applies unless a contrary intention appears in the legislation in issue (at para. 4). No such contrary intention appears in the FLA.

 

[74]         The Court in Wells referred to the registration of the Hornby Island property in joint tenancy as a “transfer”. It also referred to the registration in joint tenancy as a “gift to Ms. Campbell” (at para. 32). To do either of these actions is to “dispose” of property as that word is defined in the Interpretation Act.

 

[75]         Section 85(1)(g) does not restrict tracing to an asset held solely by the spouse who owned the original excluded asset. Recognizing the presumption of advancement when applying Part 5 of the FLA would generally “extinguish” the right of a spouse who has brought property into the relationship to retain it on separation whenever the pre-owned property is mingled with property held by the other spouse. The implications of this are far-reaching. Arguably an inheritance deposited into a joint bank account, a gift from a parent to one spouse used to pay down the mortgage on a home held as joint tenants, or an award of damages for pain and suffering used by a spouse as a down payment on a house placed in both names or placed in the other spouse’s RRSP would be subject to the presumption of advancement. It would follow that the spouse who was the original owner of these assets, which are expressly defined as excluded property under s. 85(1) of the FLA, would not be able to claim them as excluded property at the end of the relationship, unless he or she could marshal evidence to rebut the presumption of advancement at the time the transfer occurred.

 

[76]         The second reason I prefer the approach in Remmem is that it is consistent with the objects of the FLA. In the British Columbia Ministry of Attorney General’s White Paper on Family Relations Act Reform: Proposals for a new Family Law Act, (2010), online: < http://www.ag.gov.bc.ca/legislation/shareddocs/fra/Family-Law-White-Paper.pdf> the reason for introducing an excluded property regime was described as follows (at 81):

The most compelling reasons for moving to an excluded property regime are to make the law simpler, clearer, easier to apply, and easier to understand for the people who are subjected to it. The model seems to better fit with people’s expectations about what is fair. They “keep what is theirs,” (such as pre-relationship property and gifts and inheritances given to them as individuals) but share the property and debt that accrued during their relationship. Where one spouse enters the relationship with more assets than the other, providing that spouses share the increase in the value of the excluded property promotes a fair outcome. For example, assume one spouse enters the relationship with a house and a mortgage. During the relationship, the spouses pay down the mortgage and invest in renovations to the house. Upon separation, the spouse who brought the house into the relationship retains the value the house had at the beginning of the relationship, and the associated mortgage. The spouses share in the increased equity flowing from renovations and mortgage payments over the duration of the relationship.

Changing to an excluded property scheme removes the broad judicial discretion from the asset identification stage and leaves some discretion at the distribution stage. This change is designed to make it easier to identify property subject to division and, therefore, reduce the potential for disagreement.

[Emphasis added.]

 

[77]         Canadian courts have referred to White Papers as aids in interpreting statutory provisions:  see e.g. Canada v. Kieboom, [1992] 3 F.C. 488 at 498 (C.A.). Subsections 85(1)(a) and (g) of the FLA did not change from First Reading in the Legislature: Bill 16, Family Law Act, 4th Sess, 39th Parl, British Columbia, 2011, cl 85(1)(a),(g) <http://www.leg.bc.ca/39th4th/1st_read/gov16-1.htm#section85>.

 

[78]         Third, the reasoning in Wells and V.J.F. focusses on the legal effect of a transfer of property during the marriage without reference to the overall scheme of the FLA on marriage breakdown. In my view, general property law, including the presumption of advancement, applies during the parties’ marriage. While the relationship continues, a transfer of real property from the husband’s sole name into joint tenancy gives the wife an undivided interest in that property. If the husband dies, the entire property vests in the wife and does not fall into the husband’s estate. If the house is put into the wife’s sole name, it is hers absolutely during the marriage and the husband’s creditors, absent a fraudulent conveyance, cannot pursue it because the husband has no interest in that property.

 

[79]         On marriage breakdown, however, a new property rights regime descends as between the spouses, just as it did under the former FRA. The rights of third parties vis-à-vis the property held by the spouses remain unaffected (s. 82), but between the spouses, all changes. Whether property is held solely in the wife’s name, solely in the husband’s name, or jointly, it is all subject to the scheme of division created by Part 5 of the FLA (s. 84(1)). Some of that property is to be excluded under s. 85(1) and all the rest is presumptively to be divided equally regardless of whose name it is in at the date of separation.

 

[80]         Under this scheme it does not matter that one spouse during the marriage is presumed to have gifted property, whether excluded or otherwise, to his or her spouse. There is a whole new regime once the marriage ends. In my view, this interpretation finds support in s. 85(1)(b.1), which was amended to clarify that only gifts from a third party, as opposed to a spouse, are excluded property. Originally, s. 85(1)(b) of the FLA read:

 

85 (1) The following is excluded from family property:

(b) gifts or inheritances to a spouse;

 

[81]         The amended ss. 85(1)(b) and (b.1) provides:

 

85 (1) The following is excluded from family property:

(b) inheritances to a spouse;

(b.1) gifts to a spouse from a third party;

 

[82]         The reason for this amendment was clarified by Hon. S. Anton. in the committee stage for Bill 14, Justice Statutes Amendment Act, 2014 (British Columbia, Legislative Assembly, Hansard, 40th Parl, Sess, Vol 9 No 3 (27 March 2014) at 2531):

 

Hon. S. Anton: There are two changes here, and I’ll do them one at a time. The first one. Again, we’re not aware of case law, but family law lawyers were concerned with the way the provision was written. There was a possibility that gifts between spouses might be excluded, and the intention is only that a gift from a third party should be excluded.

 

[83]         As a result of this amendment and the property regime under the FLA as a whole, whether a house or a piece of jewellery is given by one spouse to another during the marriage, it all falls back into the communal pot when the marriage ends. Some of the property will then be excluded if a spouse can meet the requirements of s. 85, and the remainder may, in certain cases, be divided unequally under s. 95. Section 96 of the FLA provides that even excluded property may, in certain cases, be divided if justice so requires.

 

[84]         Logically, if the presumption of advancement continues to govern on marriage breakdown, then a gift from one spouse to another would not fall back into the communal pot. If “a gift is an irrevocable gift” for the purpose of determining what can be claimed as excluded property, why would a gift not be an irrevocable gift for the purpose of determining what is family property to be divided at the end of a marriage? The amendment reflected in s. 85(1)(b.1) demonstrates the legislature did not intend that approach to be taken.

 

[85]         The interpretation of s. 85 adopted in Remmem is also, in my view, more consistent with the objectives of the FLA and the reality of most marriages. In a majority of cases, assets owned by one spouse before the couple comes together will be mingled with property held in both names. The cost of owning a home in many parts of British Columbia practically compels spouses to pool their assets. Registering the home so acquired in both names as tenants in common reflects the unity of the couple in marriage; placing a home in joint tenancy is a practical tool for estate planning; and placing the home in the name of one spouse is an accepted way to protect a core family asset from business creditors.

 

[86]         The adoption of an excluded property regime “to better fit with people’s expectations about what is fair… [so] that they keep pre-relationship property and gifts and inheritances given to them as individuals[,] but share property and debt that accrued during their relationship” (White Paper on Family Relations Act Reform, at 81) is effectively negated if the excluded property cannot be traced into assets placed in whole or in part in the name of the other spouse.

 

[87]         It is unlikely that when the legislature drafted the new excluded property regime under the FLA it was unaware of the practical reality that many spouses will combine assets during their marriage.

 

[88]         Finally, I note that failing to give effect to the tracing provision in s. 85(1)(g) when excluded property is placed in the name of the other spouse in whole or in part may result in an unfairness. Section 95 of the FLA replaces s. 65(1) of the FRA and provides for an unequal division of family property in circumstances of “significant unfairness”. However, whereas s. 65(1) of the FRA specifically invited the Court to consider circumstances relating to acquisition and preservation of family assets, those factors are not included in the enumerated factors to be considered in s. 95 of the FLA:  see generally Jaszczewska v. Kostanski, 2015 BCSC 727 at para. 144.

 

[89]         In summary on this issue, I conclude that I should follow the approach taken in Remmem. Accordingly, the equity in the Former Family Home of $218,133, derived from the Main Street Property held by Mr. G. at the time of the parties’ marriage, is excluded property under s. 85(1)(g).

 

In summary, although the P.G. v. D.G. claim seems to be “well reasoned” we will have to wait until the B.C. Court of Appeal has ruled on this issue in order to know the current law in B.C.

 

Deborah A. Todd
Deborah A. Todd