The division of property
British Columbia, Canada, attracts wealthy individuals from all over the world. The province may, however, present risk as a result of a new family law regime introduced on 18 March 2013. Touted as reflecting the norms of modern Canadian society, the Family Law Act heralds a wholesale shift from the circa-1979 legislation it replaces. There are major changes to the division of property. Three issues in particular warrant review: unmarried cohabitants, trust interests and business assets.
The new Act extends the legislated property division regime to couples living in a ‘marriage-like’ relationship for at least two years. Unsurprisingly, this has received media attention. Identifying a marriage- like relationship is not easy. Unmarried cohabitants – like married spouses – do not necessarily live in the same house, or even in the same country. They need not have children, sexual relations or joint bank accounts. Mobile, wealthy people in particular often reside in several countries. What constitutes a spousal relationship depends on the parties’ intention and their identification of their relationship to the outside world. This is expected to generate considerable litigation.
The Act separates property into two categories: assets acquired during the relationship and assets owned before the relationship. Assets acquired by a spouse during the relationship are subject to division, as is any growth in the value of otherwise excluded property. Assets owned before the relationship began, or acquired during the relationship by inheritance or gift, are prima facie excluded from division.
Some say this new regime is intuitive and fair, but is that the case for trusts?
Previously, trusts were popular as they provided some protection against family law. Often a trust would hold the shares of a private family corporation. Sometimes a trust was part of an estate freeze, allowing the trust to own the common shares – which held future growth – for the benefit of succeeding generations, whose members were typically discretionary beneficiaries. The trust interest of such a discretionary beneficiary was arguably excluded from the claims of duelling spouses, particularly if that beneficiary had no control over the distribution of assets or income and had not contributed to the trust assets.
The Act extends the property division regime to couples living in a ‘marriage-like’ relationship for at least two years
The Act now makes the growth in value of a trust as divisible as any other asset. This is troubling as it appears to be the value of the trust property that is shareable, rather than a spouse’s interest in the trust. On a literal interpretation, even where a trust has multiple discretionary beneficiaries, the entire growth in value of the trust will be divisible. This is unfair to other beneficiaries and makes trusts much less attractive shields against family claims.
Formerly, to claim a share of business assets, a spouse had to prove contribution, direct or indirect, to the business. This is no longer a factor. Business assets are divisible like any others: pre-relationship value is excluded, and any increase in value during the relationship is divisible.
This could be unfair. For instance, in a long marriage where both spouses were active in the business, there may be nothing to share if the business did not increase in value. Conversely, in a short marriage or two-year cohabitation, or where the business is in another country, or where the shareholder was not active in the business, any growth in business value is prima facie subject to equal division. This will catch many people by surprise.
The Act does allow the court to depart from the legislation where it would be ‘significantly unfair’ not to do so. How the courts will interpret this is unclear.
The Act was meant to bring British Columbia family law into the modern age and reflect societal changes; whether it will meet those goals remains to be seen.
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