What are Excluded Assets?
The division of family property in British Columbia changed in 2013 with the enactment of the Family Law Act.
The scheme of our new act is that all property that an individual brings into a marriage (which includes a common-law marriage of at least two years) is “excluded property”. The increase in value of all assets during cohabitation including excluded assets is shared equally unless a court orders an unequal division of family assets under section 95 of the Family Law Act. An unequal division is extremely rare and is only done where a court decides that it would be “significantly unfair” to divide assets equally.
The value of the excluded property when it was brought into the relationship would normally be paid back to the individual who brought it into the relationship “off the top” at its original value upon breakdown of the relationship. In theory, if you sold a home for $100,000 10 or 15 or 40 years ago and invested that as a down payment in a new family home then you would receive $100,000 upon division of assets today.
Excluded property would include assets that either spouse had when they began cohabitation or assets that they brought in during the relationship by way of inheritance or windfall. It may include a home, an investment, an RRSP or contribution to a pension.
The scheme is not as easy as it might sound. You have to prove that you brought in the asset and trace it to an existing asset. Proving that an asset existed 15 or 20 or 40 years ago can be very difficult as documents may no longer exist. For example, obtaining bank documents or RRSP statements may be impossible unless someone has retained the paperwork. Valuing the asset 15 or 20 or 40 years ago can be just as difficult. For example, you may be required to obtain a historical appraisal of real estate. Tracing the asset means that you have to show that it was used to acquire an asset such as a home or an investment, or paid down a debt on an asset such as the mortgage on a home. You have to show that that asset still exists in some form today.
If the excluded asset was used to pay down credit cards or go on a holiday it is lost. You cannot seek compensation for your contribution unless it still exists.
Determining potentially excluded assets is one of our biggest headaches in family law today. The law is changing almost daily as a result of how judges are interpreting the Family Law Act. If an excluded asset was put in the name of the contributors spouse alone, the exclusion may be lost. If an excluded asset is put into joint names it may or may not be lost depending on how the courts rule in the future.
It is safest to retain assets that you bring into a relationship in your name alone in order to ensure that the exclusion is not lost. This is difficult to do in any relationship and may be totally impractical. To clarify what you as spouses want you should have this discussion now and create a marriage agreement or a cohabitation agreement while you are still on good terms. This is good practice and good planning just as doing your will and saving for your retirement is.
Garth Edwards is a partner with Cohen Buchan Edwards and has practised family law for 33 years. Garth may be contacted at firstname.lastname@example.org or 604.273.6411.