British Columbia has new legislation with respect to family law, the Family Law Act (the “FLA”), which came into force March 18, 2013.
Prior to the FLA coming into force, division of “family assets” was available only to legally married spouses or those spouses who opted in under Section 120.1 of the previous Family Relations Act. “Family assets” were assets ordinarily used for a family purpose. Business assets were excluded in the absence of direct contribution by the non-owning spouse.
Under the previous regime, the non-owning spouse only obtained an undivided one-half interest in an asset as a tenant in common when a “triggering event” occurred, i.e. a separation agreement, a Court declaration that the spouses had no reasonable prospect of reconciliation, or a divorce order.
Under the new FLA, a spouse now includes persons who have lived in a marriage-like relationship for a continuous period of at least two years. It creates an “excluded” property regime rather than a “family purpose” property regime. This means that everything is included unless excluded, in which case only the increase in value during the relationship is divided.
“Excluded property” includes property acquired by a spouse before the relationship began, gifts and inheritances, settlement and damage awards from tort claims, non-property related insurance proceeds and certain other types of property.
Accordingly, family property now includes all property that either spouse owns on the day they separate which does not qualify as “excluded property”. It is now clear that family property includes a share or interest in a corporation, a partnership or other business or venture and with respect to “excluded property”, includes the amount by which the value of the “excluded property” has increased since the later of the date that the relationship began or the “excluded property” was acquired. There is still some discretion in the Court to divide “excluded property” but generally that jurisdiction would be exercised if the family property located outside of British Columbia could not practically be divided or if it would be significantly unfair not to divide the “excluded property” considering the duration of the relationship and the spouse’s direct contribution to the “excluded property”.
If married or unmarried spouses do not wish the new regime to apply to them, they will have to “opt out”. This means that they will need to make a marriage agreement (if they are married) or cohabitation agreement (if they are common law spouses). These agreements are binding so long as there is sufficient understanding of the nature and consequences of the agreement, and so long as there has not been a failure to make proper disclosure and improper advantage has not been taken of the other’s vulnerability, ignorance or need. It is critical that both spouses have independent legal advice.
There is some jurisdiction in the Court to set aside agreements that are procedurally fair but would be “significantly unfair” having regard to the length of time that has passed since the agreement was executed, the intention of the parties to achieve certainty and the degree to which the spouses relied on the terms of the agreement.
There are also new provisions in the FLA, which allow a Court to order that a support obligation survives the payor’s death and is a debt of the estate. If a payor dies, the personal representative can apply to the Court to vary or terminate an order or agreement that makes support binding on an estate. If an order or agreement is silent as to whether support is binding, the recipient can apply to the Court for an order that support is binding.
The old Family Relations Act continues to apply to a proceeding respecting property division that was started under that Act. However, in any case where a proceeding has not been started, the new FLA will apply.
The new FLA also contains provisions for the appointment of standby guardians for minors. These provisions are applicable where there is only one guardian and he or she faces terminal illness or permanent mental incapacity. In such cases, such person can appoint another person to act as guardian using a prescribed form. Such guardianship appointments must be accepted to take effect. In addition, there are also provisions for temporary guardianship where a guardian is temporarily unable to exercise certain parental responsibilities. In those circumstances, it is now possible for such person to authorize another person to do so in writing.
Clients who are planning their estates are often concerned about what will happen to gifts or inheritances they have made or will make to a child before or during a child’s spousal relationship when that relationship breaks down. As gifts and inheritances are now excluded as family property, some comfort can be taken that generally it will only be the growth in the value of such gifts and inheritances during the relationship that will be subject to division.
From an incapacity planning perspective, it is also noteworthy that a standby guardian can be appointed in the event of impending incapacity or terminal illness and it may now be possible to appoint a temporary guardian by document released only if the parent becomes incapable (somewhat in the same manner as powers of attorney are now held to be used only in the event of incapacity).