Under the Family Law Act, S.B.C. 2011, c. 25 (the “FLA”) unless property is “excluded property”, property owned by at least one spouse upon separation is family property and presumptively to be equally divided. “Excluded property” includes property which is owned by one of the spouses before the relationship began, inheritances to a spouse and gifts to a spouse from a third party (s. 85(1) of the FLA).
In VJR v SKW, 2015 BCSC 593, a husband successfully argued that a $2 million payment to him was a gift, by way of inheritance, from his former employer, with whom he had developed a father-son relationship. However, upon receiving the $2 million payment, the husband then used the funds to purchase property registered in his wife’s name only and to pay off family debts. The husband argued that he had just placed the property in the wife’s name to protect him and his family from his creditors and that the wife held the entire property in trust for him. The wife argued that the husband had gifted the money to her based upon how the property was registered and his use of the money to pay family debt. The Court held that the husband could not argue that the registration of the property to the wife was to shield him from his creditors and then argue the property was held in trust for him. The Court would not assist a sham arrangement and help the husband to establish a trust arrangement for his benefit. It determined that the husband had gifted the property to the wife, such that it was found to be family property, and the net sale proceeds were divided equally between them. Even if the $2 million payment was “excluded property”, it was significantly unfair not to divide it with the wife as she had contributed to the property, the household, and she had supported the husband for over 10 years, which helped him to develop his relationship with his former employer.
Therefore, if property is “excluded property”, it is best to keep it separate, such as putting the money in a separate bank account, and not use it to purchase family property or pay down family debt.