Excluded Property in BC

When spouses separate in British Columbia, the Family Law Act sorts what they own into two categories. Family property is normally divided equally between the spouses. Excluded property normally stays with the spouse who brought it into the relationship or received it. The line between the two can be worth a great deal, and where it falls often turns on paperwork rather than argument.

SiLaw Group Family Lawyers is a boutique family law and mediation firm in South Surrey. This guide explains how sections 84 and 85 of the Family Law Act work, what the increase in value rule means, what evidence courts need to see, and the mistakes that most often cost people an exclusion. If your main question is about the family home, start with our post on what happens to the house in a BC divorce.

What is family property under the Family Law Act?

Section 84 casts a wide net. Subject to the exclusions in section 85, family property is all real and personal property that either spouse owns on the date of separation, plus property acquired after separation that is derived from it. The section lists examples: shares and business interests, money in bank accounts, tax refunds, and a spouse's entitlement under a pension, RRSP, or annuity.

Two points surprise people. First, whose name is on title does not decide the outcome. Section 81 says spouses are both entitled to family property regardless of their respective use or contribution, and on separation each spouse has a right to an undivided half interest in all family property. Second, these rules are not only for married couples. For property division, a spouse includes someone who has lived with their partner in a marriage-like relationship for a continuous period of at least two years (section 3). Unsure if that describes you? Read our post on common-law relationships in British Columbia or our common-law separation page.

What counts as excluded property?

Section 85(1) excludes the following from family property:

• Property acquired before the relationship began. The relationship begins on the earlier of the date the spouses started living together in a marriage-like relationship or the date of the marriage (section 3(3)), so pre-marriage cohabitation counts.
• Inheritances received by one spouse.
• Gifts to one spouse from a third party, such as a parent.
• Certain damages awards, meaning a settlement or award of damages as compensation for injury or loss, except any part that compensates both spouses or replaces a spouse's lost income.
• Certain insurance money, other than a policy respecting property, again except parts covering loss to both spouses or lost income.
• Some trust interests, including property held in trust for a spouse that falls within the categories above, and a spouse's beneficial interest in a discretionary trust settled by someone else that the spouse did not contribute to.
• Property derived from any of the above. If you sell an excluded asset and buy something else with the proceeds, the new asset can carry the exclusion.

Section 85(3) adds that an exclusion applies even if legal or beneficial ownership was transferred from one spouse to the other. The Act also says the old presumptions of advancement and resulting trust do not apply between spouses (section 81.1). Even so, transfers between spouses make the evidence harder, as explained below.

Is the increase in value of excluded property also excluded?

No, and this is the rule people miss most often. Under section 84(2)(g), family property includes the amount by which the value of excluded property has increased since the later of the date the relationship began or the date the excluded property was acquired.

So if you owned a condo before the relationship, the condo itself can remain excluded, but its growth in value during the relationship is family property and is presumptively shared. The same applies to an inheritance invested during the relationship. The starting value stays with you; the gain goes into the pot. That makes the value at the start of the relationship, or when you received the asset, a number you need to be able to prove.

Who has to prove that property is excluded?

The spouse claiming the exclusion. Section 85(2) says a spouse claiming that property is excluded property is responsible for demonstrating it. Nobody has to disprove your exclusion; you must establish it, usually years later, with documents such as:

• account and investment statements from the month the relationship began
• a property assessment or appraisal near the start of the relationship
• estate documents showing an inheritance and the amount received
• a gift letter or bank record showing a transfer from a parent
• land title records and mortgage statements
• statements tracing money from the excluded source into whatever it became

Tracing - following excluded money through the years

Because section 85(1)(g) extends exclusions to property derived from excluded property, an exclusion can survive many changes of form. An inheritance can become a term deposit, then a down payment, then equity in the next house. But the exclusion only survives on paper if you can follow each step. Lawyers call this tracing.

Tracing is an evidence exercise. A clean trace is a chain of statements: the deposit arriving, the transfer out, the purchase it funded. A broken trace is money landing in a busy joint account, mixing with pay cheques and bills, then partially funding something years later. The burden under section 85(2) stays on the spouse claiming the exclusion, and full disclosure from both sides is what makes tracing possible. We explain why in our post on the importance of disclosure in family law matters.

Common mistakes that put an exclusion at risk

• Commingling. Depositing an inheritance or gift into a joint account used for daily spending is the classic problem. The exclusion is not automatically lost, but proving how much of what remains is still the excluded money becomes difficult, and the burden of proof is yours.
• Throwing out old records. Banks keep statements for a limited time, and the record showing what you owned at the start may be hard to obtain many years later. Keep records from the start of a relationship, and keep everything connected to an inheritance or gift.
• Assuming title settles it. Registering an asset in joint names, or in the other spouse's name, does not by itself end an exclusion (section 85(3)), and being on title does not by itself create one. The analysis runs on sections 84 and 85, not on the land title printout.
• Waiting too long to deal with it. Time limits apply, as set out next.

What are the time limits for property claims in BC?

Section 198 of the Family Law Act sets a two year limit for starting a property division claim. For married spouses, the two years run from the date of the divorce judgment or an order of nullity. For unmarried spouses who lived in a marriage-like relationship, the two years run from the date of separation. The clock is suspended while the spouses are engaged in family dispute resolution with a family dispute resolution professional, such as a mediator. A separate two year limit applies to applications to set aside an agreement, running from when the spouse first discovered, or reasonably ought to have discovered, the grounds for the application.

Can a court ever divide excluded property?

Rarely, but yes. Under section 96, the Supreme Court must not divide excluded property unless family property or debt outside British Columbia cannot practically be divided, or it would be significantly unfair not to, considering the duration of the relationship and a spouse's direct contribution to preserving, improving, operating or managing the property. The court can also divide family property unequally where equal division would be significantly unfair (section 95).

Protecting excluded property, before and after separation

Spouses can make their own rules. Section 92 lets spouses agree on how property and debt will be divided, including agreements that confirm what is excluded and how growth will be treated. A cohabitation or marriage agreement made early, while records are fresh, is far easier than a tracing exercise years later; our family law agreements team prepares these. After separation, a separation agreement records the division you have both accepted. Where you are close but not agreed, mediation usually costs less than court, and our property division lawyers can act for you either way.

Talk to a property division lawyer for free

If you brought property into your relationship, received an inheritance, or are facing a claim against something you believe is yours, get advice before positions harden. The first 30 minutes with SiLaw Group are free, in English or Punjabi, by phone, video, or in person at Suite 201, 3108 Croydon Drive in South Surrey. Call (778) 381-9977.

This page is legal information, not legal advice. For advice about your own situation, speak with a lawyer.