On separation, each spouse has a right to a half interest in all family property under section 81 of the Family Law Act. However, under section 85 of the Family Law Act, certain property is excluded from family property. Some examples of excluded property are inheritances, gifts to a spouse from a third party, and property acquired by one spouse before the relationship began.
But what if excluded property is later used to purchase family property, such as a new house purchased in the names of both spouses? Does the transfer of excluded property into joint family property mean that the spouse who brought the property into the relationship has gifted half the value of the excluded property to the other spouse?
This was the question considered in a recent Supreme Court of British Columbia decision in R v.R, 2014 BCSC 1552. The husband owned a property prior to the start of the relationship. The property was later sold and the proceeds were used to purchase a house in both spouses’ names. The Supreme Court of British Columbia held that the purchase of property in joint names using the proceeds of excluded property does not reduce the value of the exclusion. The husband had not gifted any of the value of the excluded property to the wife by placing the new property in both their names and he remained entitled to the full value of the exclusion.
This means that if you have used the proceeds of an inheritance, gift, or other excluded property under section 85 of the Family Law Act to purchase property in both spouses’ names, you are still entitled to the full value of your excluded property. However if there has been any increase in value of your excluded property during the relationship, the increase in value is considered family property under section 84 of the Family Law Act and your spouse is entitled to half the increase in value.
If you are currently going through a separation or divorce it is highly recommended that you speak to a lawyer in order to determine if property will be considered family property or excluded property under the Family Law Act.