How to Prove Property is Excluded Under the BC Family Law Act

Since the introduction of the BC Family Law Act, the court has struggled with how a spouse may prove property is excluded. As explained in our blog Dividing Property in BC: The Proof is in the Puddin‘, the person who claims property is excluded has to show that it is excluded. The recent Court of Appeal decision, Shih v. Shih, 2017 BCCA 37, the court gives some more guidelines on what they will accept as adequate proof that a property is excluded.

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In Shih, the parties were together for approximately 8 years. They married about one year into their relationship and have two sons. At trial, the wife and husband each claimed that they were entitled to excluded property that they owned at the beginning of the relationship. The husband claimed a condo on West 4th Avenue in Vancouver was his excluded property because he owned it before the relationship began. The wife claimed a condo on West 13th Avenue was her excluded property because she owned it before the relationship began. Each party still owned the respective properties at the date of separation and they agreed that the would each keep their condos and that they would not have to pay the other out for any increase in value of the condos during the relationship.

Approximately 2 years into their relationship, the couple moved into a new condo that they purchased together on Birney Avenue in Vancouver. They lived there for 2 years before purchasing another home on Braemar Place in North Vancouver. At the time they purchased the Braemar Place property, the husband took out an additional mortgage against the 4th Avenue condo in the amount of $77,800 and put the funds towards Braemar Place. At the time of trial both the Birney Avenue and Braemar Place properties had been sold.

Throughout the relationship, the parties kept separate finances including bank accounts and investments. They had some joint assets including the Birney Avenue and Braemar Place properties and some investments. Each was responsible for some of the expenses and the husband funded the jointly held investments in their entirety. During the relationship, the wife received significant gifts from her parents, which the trial judge found to be excluded and traceable. The trial judge found that the husband did not provide adequate evidence to support his claims to various excluded investments. The husband appealed the trial judge’s findings.

On appeal, the court confirmed the test for determination of excluded assets,

[38] The judge had regard to the decision in Asselin v. Roy, 2013 BCSC 1681 (CanLII). In Asselin, the claimant advocated a “broad brush” approach to satisfy the burden of proof which is cast, by s. 85(2), on the spouse seeking to exclude property. The trial judge in Asselin rejected such an approach because he found it inconsistent with the approach “mandated by the Act.” In his opinion, a broad brush approach would not “foster the certainty that s. 85 seeks to achieve” (paras. 191–193).

[39] The judge in the case at bar did not read Asselin to invariably require documentary evidence to establish excluded property. However, she cited Asselin for the proposition that “more mathematical certainty from a clear evidentiary record is required” by the FLA (para 62). She then synthesized the approach to be taken as follows:

[64] The principle that emerges from the case law is that a broad brush or rough estimate approach to identifying excluded property is not appropriate and that a party claiming excluded property must establish, on a balance of probabilities, the basis for and extent of the exclusion with precision. Where it is asserted that excluded property has changed character, each link in the chain required to trace the property into a currently owned asset must also be established. Depending on the nature of the claim in question, this may mean, in practical terms, that it is impossible for a party to meet the onus without documentary evidence. For example, where the claim in question is a bank account that one party says pre-existed the relationship the court may conclude that a party’s viva voce testimony of the balance in the account at a particular point in time several years earlier is unreliable, and therefore insufficient to meet the onus, if not corroborated by a bank statement. On the other hand, where the claim in question is founded upon an unusually memorable event, such as inheritance, the court may conclude that a party’s viva voce testimony as to the value of the inheritance is reliable without corroborating documents. In other words, in determining whether the onus has been met, the court will assess the credibility and reliability of the whole of the evidence tendered in the context of the specific case, but having regard for the precision mandated by the more formulaic approach of the FLA. [Emphasis added.]

[40] The flaw I see in the Asselin analysis adopted by the judge is that it rests on the assumption that the FLA demands “precision” or “mathematical certainty”. I can see nothing in the Act that demands “precision” or “mathematical certainty” in the standard of proof for establishing a claim to excluded property.

[41] The inherent challenge which confronts litigants under the FLA is that in many relationships of any significant length, documents will have been destroyed and memories dimmed. A legal standard that demands mathematical certainty or precision risks defeating legitimate claims.

The court goes on to formulate the test as follows:

[42] In my opinion, the proper test for establishing a claim to excluded property under s. 85 of the FLA is the same as in any civil case – proof on a balance of probabilities. The requirement of certainty and precision in my view improperly tips the standard closer to the criminal standard of proof beyond a reasonable doubt.

[43] I do not quarrel with the proposition that, in order for a party to establish excluded property, he or she must do so with clear and cogent evidence. If documentary evidence is not available, the party bearing the onus of proof will need to testify as to their recollection of the transactions in dispute. That evidence will be scrutinized for credibility.

[44] However, in balancing the evidence as a whole, the trial judge must be permitted to draw reasonable inferences from evidence that is less than certain or precise in order to do justice between the parties.

[45] In P.G. v. D.G., 2015 BCSC 1454 (CanLII), Madam Justice Fenlon (as she then was) discussed the purpose of the excluded property model of the FLA and emphasized the need to fit with parties’ expectations of fairness.

[76] … In the British Columbia Ministry of Attorney General’s White Paper on Family Relations Act Reform: Proposals for a new Family Law Act, (2010), the reason for introducing an excluded property regime was described as follows (at 81):

The most compelling reasons for moving to an excluded property regime are to make the law simpler, clearer, easier to apply, and easier to understand for the people who are subjected to it. The model seems to better fit with people’s expectations about what is fair. They “keep what is theirs,” (such as pre-­relationship property and gifts and inheritances given to them as individuals) but share the property and debt that accrued during their relationship.

After setting the test, the Court of Appeal finds that the husband has met the onus of proving some of his investments are excluded property because he has provided evidence from which a “reasonable inference” as to the value of the accounts at the beginning of the relationship could be drawn. Where there was no evidence adduced with respect to an amount, the court found that no reasonable inference could be drawn.

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