The Family Law Act has recently been amended by Bill 14, Justice Statutes Amendment Act, 2014, which came into force on May 26, 2014.
Two of the amendments concern the definition of excluded property.
The previous version of section 85 stated:
Excluded property
85 (1) The following is excluded from family property:
(a) property acquired by a spouse before the relationship between the spouses began;
(b) gifts or inheritances to a spouse;
(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) property held in a discretionary trust
(i) to which the spouse did not contribute,
(ii) of which the spouse is a beneficiary, and
(iii) 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.
The amendments to section 85 are sections 85(b.1) and 85(f):
85 (1) The following is excluded from family property:
(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.
These amendments address two issues which arose from the original words in the Family Law Act.
The first was that all gifts were excluded property. What this meant is that if one spouse gave the other spouse a gift, that gift became the excluded property of the receiving spouse. If for example the family residence was owned by one spouse before the relationship and was later put in joint names, arguably that spouse has gifted at least one-half of the family residence to the other spouse. The receiving spouse could claim their one-half as excluded property and retain 100% of it. Only the remaining one-half would be shared equally between the spouses. The amendment in Bill 14 solves this problem by saying that only gifts from third parties constitute excluded property.
The second issue dealt with discretionary trusts. The original wording in the Family Law Act stated that all property held in a discretionary trust was excluded property and not just the spouse’s interest in the discretionary trust. This has now been remedied by clarifying that it is just the spouse’s interest in the discretionary trust that is excluded property.
There are issues which still have not yet been addressed with both sections. Regarding property which is placed in joint names, the Family Law Act gives no direction regarding how much of the exclusion, if any, is lost when one spouse places property in joint names with another spouse.
Regarding a spouse’s interest in a discretionary trust, the Family Law Act gives no direction regarding how the court will value this interest. Arguably the interest may have little or no value as the trustee has the discretion to not give any of the trust property to the beneficiary.
Both of these issues will be the subject of further litigation and we will be guided by future court decisions. Until then it is difficult, if not impossible, to predict the answers to these issues.
