Canada: Once A Gift, Always A Gift?

In a decision handed down this week, the Court of Appeal attempted to clarify a question that has frustrated family law practitioners and clients alike: what happens to a spouse's excluded property when it is transferred into joint names? Is the property a gift to the other spouse? Or does the spouse get to keep the value of their exclusion?

Family property and excluded property under the Family Law Act

In 2013, the Family Law Act created the concepts of "family property" and "excluded property" in British Columbia. Section 84 defines family property as all real and personal property owned by a spouse, including a beneficial interest in property, and derived from such property. On separation, spouses will share family property equally, unless it would be "significantly unfair" based on certain factors set out in s. 95.

What happens when excluded property is transferred to the other spouse?

Although the Family Law Act was intended to clarify what is (or is not) divisible between spouses on separation, the question of what happens to excluded property when transferred into joint tenancy or into the name of the other spouse has produced extensive litigation with varied outcomes. In Venables, the Court has provided a framework for addressing this situation.

Venables v. Venables

Venables v. Venables, 2019 BCCA 281, involved two classes of assets that Mr. Venables said were his excluded property, and so were not subject to division on separation:

  1. a house that he owned prior to the relationship; and
  2. an inheritance that he received during the relationship.

However, Ms. Venables said that the assets were family property because of how Mr. Venables had dealt with the property during the relationship:

  1. Mr. Venables had transferred the house into the parties' joint names to simplify estate administration and to derive a tax benefit. At the time, the couple did not discuss what would happen to the property on marriage breakdown; and
  2. Mr. Venables had placed over half of his inheritance money into a joint term deposit.

The trial judge found that Mr. Venables' actions had transformed the excluded property into family property. Having done so, however, the judge found that it would have been significantly unfair to divide family property equally. The judge divided family property in Mr. Venables' favour in such a way as to return to him much of the value of the formerly excluded property. This was due, in part, to the origins of the family property as Mr. Venables' excluded property.

Ms. Venables appealed.

Once a Gift, Always a Gift?

Ms. Venables argued, in part, that the judge had erred in dividing family property unequally. The Court summarized Ms. Venables' main argument as follows:

[75] The appellant submits that once the judge concluded that the Home and Inheritance lost their excluded status and became family property, it was inconsistent for him to take their origins into account and divide them unequally, in effect treating them as remaining "quasi excluded".

The transfer of property to the other spouse's name, solely or jointly, raised two questions for the Court:

  1. Does "excluded property" become "family property"?
  2. If so, then can the origins of the property (that previously made it excluded property) be considered a factor that might make it "significantly unfair" to divide family property equally, thereby justifying reapportionment of that property?

On the first question, and despite the lack of consistency in the case law, the Court held that the matter had been determined in its earlier decision in V.J.F. v. S.K.W., 2016 BCCA 186. The intention of the spouse transferring ownership is key in determining whether the property remains excluded property or becomes family property — if the transferring spouse intended a gift and there is no agreement that it is to remain excluded, then it will become family property.

Here, the judge found that Mr. Venables had intended a gift. Neither party disputed this determination on appeal.

Once a Gift, Not Always a Gift

On the second question, the Court rejected the notion of "once a gift, always a gift". When deciding whether to divide family property unequally, the Family Law Act allows the Court to consider whether "any other factor" may lead to significant unfairness. As such, the Court may consider the origins of family property as formerly-excluded property contributed by one spouse. The importance of this factor will depend on the circumstances.

Here, the judge had not erred in finding that an equal division of property would have been significantly unfair based on the following considerations:

  1. Mr. Venables had brought significant assets into the relationship that, had he not put those assets into joint names, would have been his excluded property and his alone. In contrast, Ms. Venables brought no material assets into the relationship.
  2. Mr. Venables contributed his formerly-excluded assets to the family property only a few years before separation.
  3. Mr. Venables had contributed his superior earnings and his work on renovations to the home.
  4. This was a medium length relationship where the parties had come together mid-life and did not raise children together.
  5. Ms. Venables' contributions and sacrifices were recognized, including in the award of spousal support.

In light of Mr. Venables' disproportionate contributions of formerly-excluded property, it would have been significantly unfair to allow Ms. Venables to financially benefit significantly more from the relationship than Mr. Venables. The Court upheld the judge's order, which was crafted so that each would be roughly equally better off financially as compared to when they entered the relationship.

A Way Forward

It is often the case that one spouse will transfer property into joint names, or will contribute otherwise excluded funds to family property. Due to the uncertainty that has emerged in the case law, counsel have been armed with numerous arguments about how to address this common situation, but few answers for anxious clients. Venables provides a framework for addressing such transfers:

  1. Did the transferring spouse intend a gift at the time of the transfer?
  2. If so, would it nonetheless be significantly unfair to divide family property equally, taking into account the transferring spouse's contribution of excluded property into the family property category?

Unanswered Questions

That said, Venables left some issues to be considered another day. For example, does the presumption of advancement continue to apply under the Family Law Act?1 Related to this issue, is it appropriate to look for evidence of the transferring spouse's intention where the transfer took place years (or decades) before the Family Law Act came into force? In those cases, spouses could not have known that they were potentially "gifting" assets to their spouse, as the concepts of "family property" and "excluded property" were not known to BC law.2 For answers to these issues, counsel and clients alike must await further clarification from the Courts or the Legislature.

For assistance with your family law matter, please contact a representative of Clark Wilson LLP's Family Law Practice Group.

Footnotes

1 The presumption of advancement is an evidentiary presumption where, in certain circumstances, a gratuitous transfer of property is presumed to be a gift: Namdarpour v. Vahman, 2019 BCCA 153. While V.J.F. held that this presumption continues to apply, other cases, including H.C.F. v. D.T.F., 2017 BCSC 1226, have concluded that it cannot coexist with the Family Law Act.

2 McManus v. McManus, 2019 BCSC 123.

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