29 November 2016

Inheritances used to purchase property placed in joint tenancy - November 2016 update


(Not a very catchy title to this blog article I realize but the issue of excluded property and inheritances keeps coming up so I wanted to add my notes on this new case, and be perfectly clear about what it says, or what I think it says)  by Karen F. Redmond
On November 17, 2016 the BCSC decision in Ladhekorpi v. Lahdekorpi, 2016 BCSC 2143 was released, which gives us yet another little nugget on division of excluded property, in particular when inheritance funds are used to purchase property placed in joint tenancy with a spouse. 

At trial, the husband had conceded that the wife’s $30,000 inheritance was excluded property.  Mid-way through the trial, and after the Court of Appeal decision in  V.J.F. v. S.K.W., 2016 BCCA 186 was released, the husband changed his position and argued that the wife was not entitled to keep her inheritance because the money had been used to purchase the family home, therefore he argued that she lost her claim to exclusion by putting the property in joint tenancy, which gave him right of survivorship.  Mr. Justice Harris in Ladhekorpi distinguished the V.J.F. case and found that the wife’s $30,000 inheritance was still considered excluded property, saying, at paragraph 94: 

“In the instant case, the Shirley Road property was purchased, in part, with the respondent’s $30,000 inheritance and the property was registered jointly in both their names. In my view, the joint tenancy effectively preserved her contribution to the property, which was purchased for approximately $130,000. In these circumstances, I am not persuaded that the respondent could reasonably be said to have intended to gift her inheritance to the claimant. I note that, although the parties purchased subsequent properties using, in part, income derived from the Shirley Road property, the properties were either held jointly or in the sole name of the respondent. In my view, the $30,000 used in the purchase of the Shirley Road property can be traced back to the inheritance, such that it does not lose its character as an inheritance.”

So, it appears for now, that as long as you can trace your excluded property, it is safe if used to purchase property placed in joint tenancy with your spouse.  I note the reference to the ‘intentions’ of the wife at the time she received her inheritance, which still appear to be relevant in consideration of claims to excluded property. 

23 November 2016

Home is where the Heart (ache) is


My Colleague Jonathan M. Lazar recently led a panel discussion on the Family Home, at the   Collaborative Divorce retreat on November 18th.  It’s no wonder that the Family Home is one of the most difficult issues to settle in a family law file, when there are so many facets to consider.  Here is some of what Jon and the panel discussed. 

SYMBOLISM:  HOUSE AS A HOME

As most of us know, as house is not just a house, as lawyers we need to consider what it means for our clients, for their children, for the family as a whole.  There is certainly a stigma attached  to ‘losing the house’, so there needs to be great deal of thought given to how to deal with it in the context of a separation and divorce. 

OPTIONS – other than selling

There are many options other than selling the Family Residence, Jon and the panel listed a few including, sharing it (nesting) one spouse buying the other spouse’s interest, creating an income stream by renting out part of the house, one partner retaining an interest as an investment, asking a relative to move in or co own the home.  The panel discussed creative ways to re-finance including a blend and extend to lower payments and deferral of property taxes. 

CONSIDERATIONS  - legal and financial

In making a decision about the Family Residence, the panel acknowledged it isn’t all about affordability, the parties need to consider the welfare of the children, the ability of one party to physically maintain the property, new partners, the proximity of parents and children to each other, transit, and schools, as well as any special needs, the capacity to manage household debt and the ability of the other party to find affordable housing.  There are also the pets to consider, and whether one party has an emotional or historic connection to the house.  Are there mental health issues that need to be taken into account and what will be the financial impact of the timing of the sale? 

Lawyers also need to advise their clients about excluded property claims and claims for occupational rent should one party be living in the house while the other party is living on their own and paying their own accommodation expenses.  Lawyers need to discuss timing and listing of sale, as well as how to determine the value of the home if one party is buying out the interest of the other. Parties need to know how and when to change the locks, how to decide who gets what in terms of furniture, right down to the towels and the cutlery. These are things that can cause a heck of a lot of grief if not handled properly at the outset.  Some good advice is to tell people that it is not worth paying a lawyer to decide the value of your favorite couch which is probably worth almost nothing to anyone else. 

Lawyers also need to help parties come up with clear agreements about listing and sale of property so that the process is clear, and everyone knows what will happen if the house doesn’t sell within 90 days for instance, and the price has to be lowered. Agreements should be in place setting out the process for listing and selling, and what is happening with the sale proceeds, as well as a dispute resolution mechanism to deal with conflict when it arises, which it will.   

CONSIDERATIONS  - personal and emotional

The Panel also discussed the potential or perceived bias and loss that can be experienced by one party if they ‘lose’ the Family Residence.  How will it affect the children to see a parent move out of the home?  What are the implications for the parent moving out and what are the implications for the children? 

CONSIDERATIONS  - financial

In terms of financial considerations, the panel discussed basic affordability and how to guide clients towards financial advisors who can give advice and help make good decisions.  Considerations included what tradeoffs would have to be made in order to be able to maintain the home as an investment.  How would each person’s budget be affected by the house purchase, and were there other options like downsizing?  The financial concern of course being that a person is making an emotional decision and committing themselves to an “all eggs in one basket” financial position which may or may not be in their best interests. 

As the list grows longer it’s easy to see why decisions about the Family Home are so difficult to make.  Thanks to Jon Lazar and the panel for a fascinating discussion. 
Karen F. Redmond, Family Law Lawyer

 

24 October 2016

New CRA Rules for Declaring Sale of Family Residence

A colleague brought this to my attention today and I thought it was worth sharing since in the context of family law and separation, the sale of the family residence is often an issue. 


CRA announced on October 3, 2016 that they had made administrative changes to the reporting requirements when it comes to sale of a principal residence.  Previously, if you sold your principal residence you did not have to report the sale on your tax return if you did not have to pay tax from the gain of the sale.  This would be the case if you were eligible for the full income tax exemption meaning that the residence was your principal residence for every year that you owned it.  Conversely, if you sold an investment property, you are required to report the sale and pay tax on the gain.  The new CRA policy says that starting in 2016, and retroactive to January 1, 2016, you are required to report the sale of your principal residence in order to claim the full exemption, and you need to provide information about when you bought it, the sale price and so on. 


More information can be found on the CRA website HERE


Karen F. Redmond

23 October 2016

CBABC Family Law Working Group's Submissions to the BC Ministry of Justice

As detailed in our September 19, 2016 post, the BC government sought input on its two Discussion Papers regarding the Family Law Act's guardianship provisions and the presumption of advancement and property division.

The CBABC Family Law Working Group has published their submissions to the BC Ministry of Justice. Their submission on guardianship provisions is available here, and their submission on the presumption of advancement and property division is available here.

The Ministry of Justice's website explains that staff is now reviewing the feedback and determining whether there is support for developing recommendations for amendments to the Family Law Act.


Jennifer Woodruff

10 October 2016

October 2016 Update on Excluded Property in British Columbia


In 2016 our Court of Appeal handed down two decisions which have changed the way family lawyers advise their clients about excluded property.  The Family Law Act defines Excluded Property in section 85, as property that is excluded from Family Property and includes:

 (a) property acquired by a spouse before the relationship between the spouses began;

(b) inheritances to a spouse;

(b.1) gifts to a spouse from a third party;

(c) a settlement or an award of damages to a spouse as compensation for injury or loss, unless the settlement or award represents compensation for

(i) loss to both spouses, or

(ii) lost income of a spouse;

(d) money paid or payable under an insurance policy, other than a policy respecting property, except any portion that represents compensation for

(i) loss to both spouses, or

(ii) lost income of a spouse;

(e) property referred to in any of paragraphs (a) to (d) that is held in trust for the benefit of a spouse;

(f) a spouse's beneficial interest in property held in a discretionary trust

(i) to which the spouse did not contribute, and

(ii) that is settled by a person other than the spouse;

(g) property derived from property or the disposition of property referred to in any of paragraphs (a) to (f).

(2) A spouse claiming that property is excluded property is responsible for demonstrating that the property is excluded property.

 

 

On plain reading of the Family Law Act, it would appear that a person, who received an inheritance and could prove it, was entitled to claim it as Excluded Property.  Not so, the Court of Appeal tells us.  These cases tell us that the provisions of the Family Law Act cannot be considered in isolation, that FLA is not in itself a complete code, and that we must look at the intentions of the parties at the time the inheritance was received or the property was transferred. 

 

In Cabezas v. Maxim, 2016 BCCA 82, the parties met in 2005 and began living together in 2006.  In 2007 they purchased property together and Mr. Maxim paid a $56,000 down payment.  The balance of the purchase was funded through a mortgage of $256,000.  The parties struggled financially so Mr. Maxim’s parents paid a total of $187,349 to discharge the mortgage, without any written agreement or loan document.  After separation in 2013 and following the sale of the family residence, Mr. Maxim argued that the net sale proceeds of $196,070 were his excluded property.  Mr. Maxim’s mother testified at trial that she intended the money to be given only to her son as an advance on his inheritance, and not to the couple together.  In the absence of any contemporaneous evidence suggesting the payments were loans, as well as the manner in which she gave  money to her other  children, the trial judge concluded that the funds were given as a gift intended to benefit both parties (at para. 67).  The judge found that the mother’s intention to provide the funds as an advance on her son’s inheritance were found to have been made after the gifts had been made, therefore they were not excluded property. 

 

Mr. Maxim appealed the trial decision and on February 23, 2016 the B.C. Court of Appeal handed down this first decision which confirms that the Family Law Act is not a complete code, meaning that the common law principles can still be considered in each case.  Madam Justice Garson, at paragraph 38 clearly states that the common law provides interpretative context to the Family Law Act. 

 

 

On April 28, 2016 the Court of Appeal handed down the decision in V.J.F. v. S.K.W., 2016 BCCA 186.  At paragraph 72 Madam Justice Newberry, citing the Cabezas and Maxim case, says that case “provides additional support for the conclusion that common law precepts continue to apply at the earlier categorization stage.”  The Court found that the 2 million dollar inheritance received by the husband, and used to purchase a property solely in the name of the wife was properly characterized by the trial judge as family property, subject to equal division. 

This clarifies that the common law and equitable principles as they relate to property have not been eliminated by the Family Law Act. 

 

So, what do we know now? 

These cases tell us that the Excluded Property provisions of the Family Law Act are not a complete code and in advising our clients we need to look at the intention of the parties and or their parents or relatives at the time the gifts or inheritances were given or property was received or transferred.  It isn’t enough at separation for a person to say,

hey I know I put all of my inheritance down on the mortgage on our joint property for twenty years of our marriage but I really meant to keep it all to myself if we separated…”

 

there needs to be evidence of intention at the time these decisions were made. 

In 2015, and certainly before these Court of Appeal decisions, lawyers may have been telling their clients that the Excluded Property Provisions of The Family Law Act would protect their gifts and inheritances in any circumstance, but those assurances can no longer be given. 

 

So, what can you do?

  1. Draft a marriage agreement or a cohabitation agreement and clarify your intentions.
  2. Make sure you have documentation at the time your property/gift/inheritance is received or transferred.
  3. Sign a Declaration of Trust if you intend that your spouse will hold property in trust for you.
  4. Be aware of the inference of joint right of survivorship that arises with joint bank accounts and property held in joint tenancy.
  5. Talk to a family law lawyer about your options. 


written by

2016 Cases that have applied the V.J.F and Cabezas decisions:





19 September 2016

BC Govt seeking input on Family Law Act

The BC government’s Civil Policy and Legislation Office has released two Discussion Papers on issues pertaining to BC’s Family Law Act. Their website explains that:

The Family Law Act came fully into force on March 18, 2013, replacing the Family Relations Act. The new act significantly changed the way guardianship and parenting arrangements are conceptualized within family law in British Columbia, introducing new terminology as well as a new framework for determining parents’ responsibilities towards their children.  The Family Law Act also reformed the division of property, listing the types of property that are excluded from family property and generally will not be divided up after the parties separate. 

Whenever new legislation is enacted, it is anticipated the courts will provide guidance on how the new legislative provisions are to be interpreted as cases are decided using the new law.  There are now three years of case law interpreting the Family Law Act.  Feedback received by government suggests that this is an opportune time to consider particular issues that have been raised related to guardianship and division of property under the Family Law Act.

The deadline for providing feedback is Friday, September 30, 2016.  Responses can be sent by email to CPLO@gov.bc.ca or by mail to the Civil Policy and Legislation Office; Justice Services Branch; Ministry of Justice; PO Box 9222, Stn Prov Govt; Victoria, BC V8W 9J1.

The first Discussion Paper covers issues pertaining to the guardianship provisions, including “the intention underlying those provisions; how the default guardianship provisions have been interpreted in recent case law; and potential guardianship models suggested in response to concerned feedback.”

  1. Should the FLA be clarified with respect to guardianship in situations where the parents never lived together, or lived together but separated before the child was born?
  2.  Is regular care a useful basis for establishing the guardianship status of a parent that has never lived with their child?
  3. If it is a useful basis, does regular care need to be more clearly defined within the FLA?
  4. The diagram on page eight is a visual depiction of the options and some of the questions that flow from them. Does one of these options represent a clearer, more effective way to understand and apply guardianship in the absence of an agreement or order?

The second Discussion Paper covers the presumption of advancement.  It highlights many of the issues raised in the BC Court of Appeal decision V.J.F. v.S.K.W., 2016 BCCA 186, summarized on page six of the Discussion Paper as “whether excluded property always remains excluded property; the impact of applying the presumption of advancement to Part 5 of the FLA; the interpretation of ‘derived from’ in section 85 (1) (g) of the FLA; and the impact of section 104 (2) of the FLA on the operation of Part 5 of the FLA.”


  1.  Is it more consistent with fairness between spouses for the FLA to provide that gifts of excluded property between spouses transfer beneficial ownership or to allow excluded property to always retain its excluded status? Consider the example of RRSP’s or other investments purchased with the excluded property of one spouse and registered in the name of the other spouse? Should the value of the excluded property be returned to the transferor spouse or treated as family property under Part 5 of the FLA?
  2. The BCCA decision in VJF suggests that a spouse who wants to rebut the presumption of advancement can enter into an agreement that sets out that property exchanged between them is not a gift. Is this a practical way for spouses to address the issue?
  3. Should consideration be given to amending the legislation to explicitly abolish the presumption of advancement for the purposes of Part 5 of the FLA entirely? Or, should consideration be given to adopting the approach used in other provinces?
  4. If the presumption is not abolished for purposes of Part 5 of the FLA, should the FLA be clarified to ensure that the presumption also applies to those non-married spouses to whom Part 5 of the FLA applies?
  5. The Court of Appeal decision suggests that section 85(1)(g) can be used to retain the status of excluded property only if: the test of the presumption of advancement is met; and there is property or some other benefit returning to the transferor spouse. Because section 85(1) (g) applies only between spouses, are there scenarios in which a transferor spouse will receive a benefit from the transferee spouse such that section 85(1)(g) can apply? For example, assuming a finding that the test of the presumption of advancement was met, if the facts of VJF were that the purchased property was registered in the joint names of the spouses rather than the sole name of the wife, would that difference have constituted a returning ‘benefit’ to the husband?
  6. The BCCA decision in VJF alludes to the usefulness of the presumption of advancement to ensure fairness between spouses. If the presumption of advancement continues to apply to matters under Part 5 of the FLA, does section 95 of the FLA provide sufficient flexibility to allow a Court to address any alleged unfairness caused by excluded property being converted to family property?
  7. If the presumption of advancement is specifically abolished regarding matters under Part 5 of the FLA, does section 96 of the FLA provide sufficient flexibility to allow a Court to address any alleged unfairness that results from the tracing of excluded property?
  8. Are there other “rights under equity or any other law” that may interact with Part 5 of the FLA which require examination?


The CBABC Family Law Working Group has prepared two surveys on these issues to assist them in drafting their submissions to the government.  They are seeking input from lawyers and non-lawyers.  The deadline for responding to their first survey on the presumption of advancement is this Wednesday, September 21st. The deadline for responding to their second survey on guardianship is Friday, September 30th. 


Posted by Jennifer Woodruff

18 August 2016

Family Maintenance Enforcement Program


I am often asked about how helpful the Family Maintenance Enforcement Program is in assisting parties with enforcement of their court orders or separation agreements.  The answer is, FMEP can be extremely helpful, but only if your agreement or court order is specific enough. 

Some basic facts about FMEP can be found here :

  1. FMEP is a free service of the BC Ministry of Justice helping families and children entitled to support under a maintenance order or agreement.
  2. Anyone with a maintenance order or agreement can enroll in FMEP.
  3. There are various ways to send or receive maintenance payments and also actions can be taken if payments are not made. 

One of the biggest problems that keep people coming back unnecessarily to lawyers, and spending more money than they often are trying to collect, is poorly worded court orders or agreements for sharing of children’s expenses or “section 7 expenses”.  Section 7 expenses are discretionary by nature, meaning that, a court “may on either spouse’s request, provide for an amount to cover all or any portion of the following expenses……”   The online version of the Guidelines found here  can help you understand whether the expenses you want to share are extraordinary or whether they are covered by the child support you currently receive or pay. 

The key is to have your court order or separation agreement worded in such a way that avoids challenges and arguments down the road when you are trying to get payment for little’s Susie’s ballet class or little Jonny’s summer camp fees that weren’t mentioned in the Separation Agreement.  These expenses change over time as your children grow, so you may need to amend your agreement, but if you start out with clarity, it is much easier to make changes.  The FMEP website gives clear instructions about how your agreement should be worded, so FMEP can collect payments on your behalf and take enforcement action if required.  The agreement needs to clearly state the type of expense, the name of the child to whom the expense relates, the exact amount one parent is to pay the other for the expense, the date payments are to start and the frequency of payments.  If your agreement contains a vague statement that “parent one will pay to parent two his or her proportionate share of the agreed upon extraordinary expenses” FMEP cannot collect payment on your behalf if you send them receipts for little Susie’s ballet class because your agreement is not specific enough. 

Yes, it does take time to be precise in agreements, and when you are on the home stretch in that last lawyer meeting, these are often the details that get missed and I hear people say, “oh we can work that out ourselves”.  That is all fine and good when you are getting along, but when it comes to sharing of larger expenses like university tuition, which you may not have anticipated at separation because your children are young, you do not want to be in a position of having difficulties because of a poorly worded agreement.

What should you do?  Read through the child support guidelines to determine if the expenses you are trying to share are indeed “extraordinary” and then draft a clearly worded agreement about how these costs will be shared between you and the other parent.  Have a look at the FMEP website where you will find the answers to many of your questions about enrolment and enforcement. 

And finally, talk to a lawyer before you sign anything.