Inheritance, gifts and excluded property and property transfers
A recent case McCarthy v. McCarthy, 2018 BCSC 1210, is a good reminder of how to determine whether a property transfer is excluded property or a family asset. For example, imagine that you have been in a relationship with another person for a short period of time. Your mother then transfers property held in her name into you and your partner’s names. Shortly after, the two of you separate. What was your mother’s intention when she transferred title to your joint names? What options are available to you in order to recover your ex’s half interest in the property?
In this case, the parties were in a relatively short relationship. They began living together in 2011, got married in 2014 and separated in 2016. The claimant, Timothy McCarthy, was 62 years old and the respondent, Candice Markham, was 55 years old. There were no children of the marriage. One of the issues the court had to decide was whether the Johnson’s Landing Property (the “JL Property”), which Mr. McCarthy stated was his inheritance, was a family asset, and if so, whether and in what proportion, it should be divided between the parties. The JL Property was the parties’ largest asset and at the time of the trial was valued at $650,000.
Mr. McCarthy’s main argument was that the whole of the JL Property was his inheritance and therefore is excluded property and should not be shared with Ms. Markham. Ms. Markham’s position was that the JL Property was a gift to both spouses as joint tenants and as such is characterized as family property and subject to family division.
In 2015, Mr. McCarthy’s mother transferred her entire interest in the JL Property to the parties as joint tenants for a consideration of $1.00 “with natural love”. The parties did not lead evidence on the value of the property at the time of the transfer. The trial judge calculated that at the time of the transfer the value of the JL Property was approximately $574,780. Mr. McCarthy argued that his mother did not intend to gift the JL Property to his ex-wife. Rather, she intended that Ms. Markham holds her undivided half interest in the JL Property in trust for Mr. McCarthy.
Family Law Act
Under the Family Law Act (“FLA”), property owned by the spouses at the time of separation is categorized as either “family property” or “excluded property.” What spouses own at the date of separation is broadly defined as family property.
Pursuant to s. 81 of the FLA, “each spouse is presumptively entitled to an undivided half interest in all family property as a tenant in common, and equally responsible for family debt…these rights and responsibilities accords to the parties regardless of their respective use or contribution.” S. 85(1) of the FLA lists the categories of property that are excluded such as inheritances to a spouse.
The court found that Mr. McCarthy’s one half interest in the JL Property was excluded property and not subject to division. The court further ruled that Ms. Markham’s interest in the JL Property was held in trust for Mr. McCarthy, and was also excluded property. She was only entitled to a one-half interest in the increase in the fair market value of the excluded property from the date of acquisition to the date of trial.
The Court explained what it means in law when there is a gratuitous transfer between adults:
 Because equity presumes bargains, not gifts, there is a general presumption in the law that when one person gratuitously transfers property to another adult person, the recipient holds the property in trust for the donor: Hu v. Li, 2016 BCSC 2131 (CanLII) at para. 36. This creates a rebuttable presumption of a resulting trust. Once the presumption is raised, the onus falls upon the recipient on a balance of probabilities to show that the transferor intended to make a gift.
 Thus, in this case, both the claimant and the respondent must show on a balance of probabilities that Patricia McCarthy intended to make a gift to each of them when she transferred title of the JL property to them jointly.
 As noted by the court in Beaverstock v. Beaverstock, 2011 BCCA 413 (CanLII) at para 9, the actual intention of the transferor is a question of fact, and must be determined by having regard to all of the evidence.
The Honourable Madam Justice Shergill found Mr. McCarthy’s and his mother’s evidence more credible than that of Ms. Markham. Despite Mr. McCarthy’s vague explanation as to why he wanted to transfer the JL Property in joint names, his evidence was corroborated by his mother.
To elabourate, the Honourable Madam Justice Shergill made the following factual findings in support of Mr. McCarthy’s position that the transfer of the JL Property was not a gift to Ms. Markham:
- Markham’s evidence about a falling out between her and Mr. McCarthy’s mother a few weeks after the parties were married, was inconsistent with her contention that his mother intended to gift the JL property only a year later;
- Markham’s evidence that Mr. McCarthy’s mother intended that the JL property could be used to provide income to the parties was also not credible; and
- McCarthy’s mother’s Earlier Will which included Ms. Markham and a Power of Attorney which at some point named Ms. Markham as her alternate attorney were not contemporaneous enough with the transfer and did not show Mr. McCarthy’s mother’s intention to gift the JL Property to Ms. Markham.
In conclusion, Ms. Markham had failed to prove on a balance of probability that Mr. McCarthy’s mother intended to gift the JL Property to her. Rather the evidence established that Mr. McCarthy’s mother’s intention at the time of the transfer was to gift the entirety of the JL property to Mr. McCarthy as part of his inheritance. Said intention did not change at the time of the transfer. Therefore, the joint transfer was done at the request of Mr. McCarthy and it was his mother’s intention that Ms. Markham hold her interest in trust for Mr. McCarthy.
If you are unsure what property constitutes family property or excluded property, give Richter Trial Lawyers a call. Our contact number is 604.264.5550.
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