Feb 17, 2017

Just how excluded is the property, anyway?

Oleksiewicz v. Oleksiewicz, 2017 BCSC 228 (CanLII)

Excluded property under s. 85 of the Family Law Act, and how it interacts with the “presumption of advancement,” has been a difficult and contentious issue in many matrimonial breakdowns when considering property division. The essential scheme or intent behind the legislation seems to have been, “You take out what you brought in,” subject to a few exceptions.

The most vexing question by far, aside from the valuation of discretionary interests in trusts, has been what happens when someone has excluded property—something they brought in, a gift or inheritance received during the relationship—and puts it into joint names. The two most common ways of doing that would be putting it into a joint account or a home to which both people are on title. Nearly 4 years in, while some things have been clarified, the essential bare question of what happens remains.

While I am of the view that, based on the court of appeal decision in V.J.F. v. S.K.W., 2016 BCCA 186, if the presumption of advancement applies, the person is likely looking at a 75%/25% split (they gifted 50% to the other person, which falls into the family pot, and is divided equally—25% adding on the 50% they retained, with the other party getting 25%), a recent case may have made it a lot easier to avoid the presumption of advancement, allowing a person to retain 100% of the excluded asset.

The presumption of advancement basically means that, as between spouses or a parent and minor children, the usual rule of a bargain being presumed rather than a gift does not apply. Rather, absent evidence to the contrary, it’s assumed you made a gift. So when someone puts their excluded property into joint names, using the presumption of advancement, they’ve basically gifted it (or at least half of it) to the other person unless there’s evidence to the contrary (prenups or cohabitation agreements can be key to avoiding this).

There have been a couple of cases since V.J.F. that indicate that you might be able to retain 100% of excluded property, even where placed in joint names. Kalmiakov v. Shylova, 2016 BCSC 2095, was a case where a judge awarded 100% of excluded assets where the calculation of excluded property was capable of mathematical certainty in what appeared to be property in joint names. Lahdekopri v. Lahdekorpi, 2016 BCSC 2101 also involved a 100% recovery on property in joint names for more complex reasons).

Oleksiewicz v. Oleksiewicz, 2017 BCSC 228, however, has a wrinkle that might allow parties to get around the thorny issue of the presumption of advancement. While noting that no evidence was led (both parties were self-represented), the Honourable Mr. Justice Armstrong observed two important things.

First, because the wife used a portion of her personal injury settlement (which is considered an excluded asset) to purchase a boat in her sole name, the court concluded that the wife using the remaining settlement funds to purchase a house was evidence of her intention to keep the house as her sole and separate property, even though the house was in joint names with the husband. This argument may be a little weak—one could just as easily argue that the fact that she chose different ownership for each asset is evidence of a positive intention to gift a portion of it.

The second, less case-specific, and more important portion of the judgment is this:

[61] The parties had purchased the house together; I presume both owners were required by their lender to be covenantors on the mortgage and joint tenants. I cannot infer that the respondent’s infusion of all of the cash used to purchase the house and registration of title as joint tenants was any indication of her intention to make a gift to him. It is most likely that title to the Home was registered in joint tenancy as a convenient means to reflect their shared use and ownership of the property and shared obligation under the mortgage but without any intention on the respondent’s part to abandon her interest in the property and make a gift of her settlement funds to him.

This last portion is the key. If most people were asked why they put something in joint tenancy, they would likely say either they never thought about it or give similar reasons to the ones above. For lawyers and litigants going forward, it is likely that the entry of the statement above, or something similar, into evidence may well become just as rote and common with respect to excluded property as the statement about not being a party to conspiracy to defraud the court is to the issue of divorce. It provides a principled and exceedingly common reason to avoid the presumption of advancement with very little actual evidence required.

While again, if the presumption of advancement of applies, I believe it is likely to result in a 75%/25% split of the excluded property put into an asset in joint names, the statement of the rationale above seems to provide a mechanism of avoiding the presumption of advancement in property in joint names and exclude 100% of the amount.