How are Assets and Inheritance handled during a Family Break up?
What happens when a spouse brings money or assets into a relationship or receives an inheritance during a relationship? Under the Family Law Act (FLA), pre-relationship money or assets are excluded. An inheritance is excluded in the same way. The other spouse could seek an interest in any increase in value of the pre-relationship asset, money or the inheritance.
The best option to protect an inheritance or pre-marriage asset would be to not use the funds for a family purpose. An example of this would be to keep the money, assets or inheritance in a separate account and not use any of these assets for mortgage payments, vacations, or purchase of other assets. This is great in theory; however, practically speaking, these assets are often used for the benefit of the family. Examples of this would be to use an inheritance as a down payment to purchase a home or to pay down a mortgage.
This example will better explain the process: Party 1 has $50,000 at the date the relationship commenced. The parties separate two years later. The $50,000 was invested into an interest bearing account and during the two year relationship, that $50,000 has increased to $52,500. Party 2 could seek an interest in the increase of $2,500. They could get one-half of the increase, which could entitle Party 2 to $1,250. The initial $50,000 is excluded under the law.
Prior to the FLA, which came into effect in March 2013, the previous legislation (Family Relations Act) made no distinction between pre-relationship assets or money. An inheritance was also not excluded property under the previous law.
In recent Supreme Court of British Columbia decisions, this point of law has been debated and clarified: Is it a gift, following the advancement of presumption? Or does it retain its excluded character?
In a 2015 decision, the Honourable Madam Justice Laura Ann Fenlon provided a subtle clue as to how one member of the Court of Appeal might vote and provided a thorough analysis. She explains how post-recent amendments to the FLA, the presumption of advancement
actually runs contrary to the way the Act deals with gifts, requiring them to be from third parties to avoid going into communal property. More prominently in her reasoning, she also noted that it would significantly curtail the tracing provisions in Section 85 of the Act.
What the above means is that the FLA was created to protect pre-relationship assets or inheritances. The presumption of advancement means that once the excluded property has been used for the family (buying of a house, placed into a joint account or used to pay down a mortgage), it is no longer excluded under the law. If the presumption of advancement were to be accepted, it would go against the intention of the legislation. This reasoning was cited with approval (which means it was accepted as valid) in a second 2015 case in the British Columbia Supreme Court.
As it currently stands, an asset will remain excluded even if that asset is used towards the family unit. In the event of a relationship/marriage breakdown, this is an important consideration for mediation or litigation.
If you have property that was gifted, inherited or that you brought into a relationship that you’re concerned about, you may wish to seek legal advice for assistance in how to deal with it. It’s never too late to create or amend a cohabitation agreement.
ABOUT THE AUTHOR:
Sumit Ahuja is a Family and Matrimonial Law lawyer at Lindsay Kenney LLP. Fluent in English, Punjabi and Hindi, Ahuja can communicate with his clients in their chosen language and explain complex issues that can arise in Family Law.