The COVID-19 pandemic has impacted the incomes of many people in BC. The uncertainty around the duration of business closures causes further stress in an already difficult time. While mortgage freezes and EI can provide some relief, you may be considering using other assets in order to supplement your or your spouse’s income. To support their family’s needs, spouses may not have a choice but to use money from their separate bank account, money from an inheritance, or funds received as a gift. If you find yourself in this situation, your rights under the Family Law Act may be affected in the event of a separation.
You may have heard that family property is divided equally if you separate. The Family Law Act assumes that all of your and your spouse’s property will be divided equally between each of you, but it also provides a mechanism to exclude some property from being divided. Excluded property includes property you brought into the marriage, property gifted to a spouse by a third party, inheritances, settlement or damages for injury or loss (with some exceptions), and some discretionary trust property. The balance of your bank account before you started living with your spouse, for example, may be your excluded property.
However, the courts have recognized that it may not always be fair in all cases to keep property separate. If a spouse uses excluded property for a family purpose, the spouse may lose the exclusion. This could include, for example, using your separate funds to buy groceries, paying the mortgage on the family home, or moving funds from a spouse’s separate bank account to a joint account. The portion you spent of the inheritance, gift, settlement or money you brought into the marriage then becomes family property. If you separate, that property is divisible equally unless you can show the court it would be significantly unfair to divide it.
A good way to ensure your exclusion is maintained is to document your intention with your spouse. Even an email chain where both spouses confirm that your exclusion stands can be evidence of your intention to maintain the exclusion. If you separate, your documentation can help to establish that the money you spent remains yours.
The excluded property regime is complex and heavily fact-dependent. If you have questions about your entitlement, please contact a member of our family law group.