Family Property: The Communal Pot
Since March 2013, BC divorce lawyers dividing family property have been wrapping their heads around new legislation that was meant to be simpler, more intuitive and “better fit with people’s expectations of what is fair”(See the White Paper on Family Relations Reform Act) than the previous law. In theory, the new Family Law Act is fair and simple: each party keeps what was theirs at the beginning of the relationship and the increase in value of property during the relationship is presumptively split equally. Other property may also be excluded, such as gifts to one of the spouses from third parties. Simple right? Maybe in theory.
The problem is that in the real world most people don’t receive a gift (such as an inheritance of money), open a new bank account to put it in and then go about their lives ensuring that gift stays separated from other property. Nor do most people keep what they had at the beginning separated from any other property. Most couples pool their funds in some way or another. This creates uncertainty in how you calculate what remains excluded at the end of the relationship.
In the recent BC Court of Appeal Case of VJF v. SKW, 2016 BCCA 186, the court confirmed the concept of a “communal pot” of family property. The basic concept is this: There is a communal pot of family property into which all assets owned by either party falls. The onus is on the party wishing to show that property is their excluded property. If the party is able to show this, the property is removed from the communal pot of family property. Only the communal pot of family property will be presumptively divided equally.
Where the difficulty arises is how one shows that their property is excluded and how the exclusion is lost.
In VJF, the main issue involved a $2M gift that the husband received during the marriage. The parties agreed that when he received the $2M gift, it was excluded property. What is important is what he did with the gift after receiving it and before the date of separation. In that case, the husband took the $2M gift (which was excluded) and put it in the wife’s sole name (thereby losing his exclusion).
It was found by the court that when the husband put the $2M in the wife’s sole name, he intended a full and complete gift to the wife. That intention was reflected in his evidence that it was to secure the $2M against creditors. The full and complete gift to the wife made the $2M family property which fell into the communal pot on division of assets. Essentially, the husband gave 100% of the $2M to the wife and received a presumptive ½ on a division of the communal property.
Post VJF, many family and divorce lawyers have had troubles with its reasoning because throughout the decision there is reference to an equitable principle called the presumption of advancement.
The presumption of advancement relates to the onus of proof. It applies only where the court is unable to make a determination of the parties’ intention at the time of a gratuitous transfer based on the available evidence. It acts as a legal “tie breaker” in that where the court believes each party equally or neither party at all, it provides the court with the answer. The presumption of advancement states that where parties have a dependence on each other (i.e. spouse to spouse and parents to children), there is a presumption that the transfer was intended to be a full gift. The exact opposite presumption (the presumption of resulting trust) applies where there is no dependence between the parties (such as parents to adult-children or legal strangers).
In VJF, the court made a positive finding that there was evidence that the husband intended the gift to the wife, making it a full and complete gift. Therefore, the presumption was available but was not used by the court as there was not a legal tie to break.
Further, the reasoning in VJF is entirely consistent with common law and equitable principles which would apply to the parties if they were not spouses. If the parties were not spouses, on the evidence, the full and complete $2M gift could not have reverted back to the husband simply because in the future he chose to reclaim it. In fact, the husband would not be able to reclaim the gift at any point in the future because the court found that he intended the gift at the time of the transfer. That makes it the wife’s property, period. Once a gift is made and completed, it cannot be rescinded. It was a benefit to the husband that the parties were married, and the only reason he was entitled to reclaim 50% of the gift.