The Legal Status of an Inherited Home Transferred Between Two Spouses Following Separation

A recent British Columbia Court of Appeal decision considered the legal status of an inherited home transferred between two spouses following separation.

What Happened?

In December 2014, the husband and wife decided to end their marriage of nearly 40 years. They were financially successful, having been able to retire in their mid-40s in 1999 and live off their investments, which were managed by the husband. 

On January 1, 2015, the couple entered into a letter of intent agreement to dissolve their marriage and split their assets. 

As part of the agreement, the husband agreed to transfer their house into the wife’s name. The house had originally belonged to the husband and his late mother in joint tenancy, but the husband had acquired full title through the right of survivorship upon her death.

In June 2015, the wife brought an action claiming spousal support and an equal division of family property. The matter proceeded to trial in September 2016. 

At the time of trial the husband was 63 years old and the wife was 62. 

Lower Court Decision

The judge ordered an equal division of family property with a total net value of $5,015,728 and a compensation payment of $641,772 to accomplish equal division. 

After ordering the equal division of family property, the judge noted that the husband “will continue to have the income earning capacity to make investments and profit from his capacity to do so”. On the other hand, the judge found that the wife did not have that capacity. 

As a result, the judge ordered that the husband pay spousal support to the wife of $2,650 per month for ten years, after which there would be a review.

Issues on Appeal

With respect to the treatment of the house, the husband argued that the judge erred in failing to find that part of the property was excluded property as a gift or inheritance. 

Additionally, the husband claimed that the judge also erred in her alternative findings that the house ceased to be excluded property when the husband transferred it to the wife and that its exclusion from property division would be significantly unfair.

While the husband agreed that the wife had a part interest in the house, because family funds contributed to the purchase, he claimed that his mother’s half-interest, which he obtained by right of survivorship, was excluded property under s. 85 of the Family Law Act [the “FLA”] as a gift or inheritance. Section 85 states that inheritances to a spouse as well as gifts to a spouse from a third party are excluded from family property.

Court of Appeal Decision

The court stated that if the mother had made the gift of the house to the husband, then on its face it would qualify as excluded property under s. 85(1)(b.1) of the FLA as “gifts to a spouse from a third party”. However, the court found that it was unclear whether the mother gifted the right of survivorship to the husband alone, or to both the husband and the wife, who had contributed to the purchase price. 

Additionally, the court found that the presumption of advancement did not apply in this case because the parties were separated at the time of the transfer. Therefore, the transfer of the house to the wife by the husband was not a gift between spouses; it was in partial fulfillment of the terms of their separation agreement. 

Finally, the court found that the trial judge had erred in not considering the tax issues raised by both parties surrounding the disposition of the house.

As a result, the court found that the trial judge had erred in her analysis of whether the house was excluded property and in failing to properly consider and apply the tax implications of property division.

Ultimately, the court found that all these issues needed to be ascertained at a new trial and ordered a new trial. 

Get Advice

Separation and divorce are challenging for everyone involved.  When dealing with custody or access disputes, matters involving spousal and child support, the division of assets, and other family issues, emotions can be your worst enemy. Having an experienced family lawyer on your side can help you stay focused and resolve disputes as quickly and amicably as possible.

At Campbell Bader LLP our family team has collectively spent more than twenty years advising clients about family disputes, including those involving high net worth individuals or complex matters.

We value and incorporate collaborative family law principles into our practice, but we’re smart enough to recognize when that approach won’t work for you and we adapt our strategy accordingly. To learn more about how we can help you, contact us online or at 905-828-2247.