Excluded property in BC: why "we split everything equally" is rarely true

The most common misunderstanding in British Columbia family law is that separating spouses split everything down the middle. What the Family Law Act actually says is narrower, and the difference is often worth hundreds of thousands of dollars.

The two-step structure

Since 2013, BC has used an excluded property model:

1. Family property is divided equally. That is everything either spouse owns on the date of separation, unless it is excluded.
2. Excluded property stays with the spouse who owns it — but any increase in value during the relationship is family property and is shared.

So the question is never “is this mine or ours”. It is “what was it worth at the start, and what is it worth now”.

What is excluded

Section 85 lists it. The categories that matter in practice:

• Property owned by a spouse before the relationship began.
• Inheritances received by one spouse during the relationship.
• Gifts to one spouse from a third party.
• Certain court awards and insurance proceeds — settlements for pain and suffering, for example, but not for lost wages during the relationship.
• Property held in a discretionary trust the spouse did not settle.
• Property derived from any of the above.

That last phrase does the heavy lifting. If you sold a pre-relationship condo and put the proceeds into the family home, the proceeds remain excluded — provided you can prove the connection.

Tracing: the part that decides cases

The burden of proving an exclusion is on the spouse claiming it. That means documents, and it means documents going back years.

A worked example. Suppose you owned a condo worth $400,000 when the relationship began. Five years later you sold it for $600,000 and put the whole amount into a house now worth $1.6 million, purchased for $1 million.

• Your excluded amount is $400,000 — the value at the start of the relationship.
• The $200,000 of growth during the relationship is family property.
• The house’s growth from $1 million to $1.6 million is family property.

Now suppose you cannot produce the 2019 statement of adjustments or the bank records showing the sale proceeds landing in the joint account. Your exclusion is not $400,000; it is whatever you can prove, which may be nothing. Courts have been consistent on this point: an unproved exclusion fails.

What to keep: purchase documents for anything owned before the relationship, a valuation or assessment near the start date, the sale documents, and the bank records showing where the money went. Every time.

Putting excluded property into joint names

This is the most expensive mistake in the area.

Placing excluded property into joint names does not automatically destroy the exclusion, but it makes the exclusion much harder to sustain — the transfer can be evidence of an intention to gift a half interest to the other spouse. Whether it does depends on the evidence of intention at the time, and the evidence of intention at the time is usually a conversation nobody wrote down.

If a parent gifts you a down payment and you put the house in both names, expect an argument.

Section 96: unequal division of excluded property

The exclusion is not absolute. Under section 96, a court may divide excluded property if:

• family property or debt outside British Columbia cannot practically be divided; or
• it would be significantly unfair not to divide it, having regard to the length of the relationship and the contribution the claiming spouse made to the maintenance or improvement of the excluded property.

“Significantly unfair” is a deliberately high bar — the courts have described it as something more than merely unfair. It is met occasionally in long relationships where one spouse’s excluded asset was the family’s entire wealth and the other spouse contributed materially to it. It is not met simply because the outcome feels lopsided.

Common-law spouses

All of the above applies equally to unmarried spouses who lived in a marriage-like relationship for at least two years. British Columbia is unusual in this respect; do not import assumptions from Ontario or Alberta.

The limitation period is different, though, and shorter: two years from the date of separation for unmarried spouses, versus two years from the divorce order for married spouses.

Practical takeaways

1. Find the documents before you need them. Exclusions are won on paper.
2. Get a value as at the date the relationship began, not just the date of separation. You need both ends of the line.
3. Think hard before moving an inheritance or a pre-relationship asset into joint names, and document the intention if you do.
4. Watch the limitation period, particularly if you were never married.

General information about British Columbia law, current as at the date of publication. Not legal advice.