Advancement Demoted: Are we saying goodbye to the presumption of advancement in family property division?

The most recent chapter in the debate regarding the continued operation of the presumption of advancement in the context of property division attempts to put the presumption to rest, once and for all. Despite appellate authority to the contrary in V.J.F. v. S.K.W., 2016 BCCA 186, Justice Voith recently concluded in H.C.F. v. D.T.F., 2017 BCSC 1226, that the presumption of advancement cannot co-exist with the property division regime created by the “new” Family Law Act, S.B.C. 2011, c. 25 [FLA]. The result of this decision is that a husband who owns excluded property may retain that exclusion on separation, despite “gifting” it to his wife by, for example, transferring it into joint names.

In H.C.F., Voith J. recounts the uncertainty created by British Columbia’s adoption of an “excluded property regime”. Under Part 5 of the FLA, property is divided based on its characterization as “family property”, as opposed to “excluded property”. This is similar to the family property regimes in Alberta, Saskatchewan, and Ontario. Unlike in those provinces, however, the FLA did not expressly abolish the presumption of advancement, which has left its continued operation the subject of considerable judicial comment.

The presumption of advancement is an evidentiary assumption that applies between married spouses when a husband gratuitously transfers property to a wife, or between family members where a parent gifts property to a minor child. In these circumstances, the transferor is presumed to have intended to gift the property to the recipient without retaining any beneficial interest. In all other circumstances, however, a presumption of resulting trust will apply, such that the transferor is presumed to have intended to retain the beneficial interest for themselves. These presumptions apply where the transferor’s actual intention is unclear, and they can be displaced or rebutted with evidence to the contrary.

However, s. 85(1)(g) of the FLA defines “excluded property” as including “property derived from [excluded] property or the disposition of [excluded] property”. The interaction of s. 85(1)(g) and the common law presumptions has created a question that courts have answered differently since the FLA came into force: when a husband owns excluded property and that excluded property can be traced into property gifted to a wife, does it remain his excluded property or become family property subject to the equal division?

The Court of Appeal attempted to resolve this question in V.J.F. In that decision, Newbury J.A. dismissed an appeal from Justice Walker’s decision in reasons indexed as 2015 BCSC 593, discussed in an earlier blog post. Briefly, Walker J. concluded that $2 million received by the husband as a gift from his employer was excluded property. However, when the husband used the bulk of the funds to purchase a property in his wife’s name and cover some preconstruction costs, the judge held that the “character of the $2 million payment changed almost immediately after Mr. F. received it” from excluded property to family property, subject to equal division on separation: para. 71.

On appeal, Newbury J.A. agreed that in gifting the property to his wife, the husband lost the exclusion. The decision considered the competing lines of authority created by P.G. v. D.G., 2015 BCSC 1454, following Remmem v. Remmem, 2014 BCSC 1552, on the one hand, and Wells v. Campbell, 2015 BCSC 3, and the trial decision in V.J.F. on the other.

Newbury J.A. rejected Fenlon J.’s analysis in P.G. v. D.G. that the FLA acts as a “complete code”, such that on separation, “a new property rights regime descends as between the spouses”. Instead, Newbury J.A. upheld the trial decision in V.J.F. and held that the FLA did not eliminate the common law and equitable principles relating to property. Rather than abolishing the application of equitable principles, at para. 74, Newbury J.A. held that “the scheme builds on those principles, preserving concepts such as gifts and trusts, and evidentiary presumptions such as the presumption of advancement between spouses” (emphasis in original). As a result, she agreed with the trial judge that by gifting the $2 million to his wife, the husband lost the exclusion and the funds were family property. In the result, the presumption of advancement continued to apply.

Despite this binding precedent, however, Voith J. recently reached the opposite conclusion. At issue in H.C.F. were certain funds that were initially the husband’s excluded property. The funds, totaling close to $560,000, had been applied by the husband to a property held by the parties as joint tenants. The husband argued that the money remained his excluded property, while the wife argued that the husband had lost the exclusion by “gifting” the amounts to her.

Voith J. observed that the cases decided since V.J.F. have continued to be inconsistent. While some have followed the broader principles, others have confined the case to its somewhat unusual circumstances. These included that the husband had transferred the property to the wife to avoid potential creditors, such that he could not claim to have retained a beneficial interest in it on separation and simultaneously disclaim any interest for purposes of credit-proofing.

Voith J. observed that these circumstances influenced the outcome. He also noted that the Court in V.J.F. did not deal with the implications of certain changes to the property regime in the FLA and how those provisions related to the question before it. Accordingly, he went on to consider whether the presumption of advancement could co-exist with the division of property regime under the FLA. He concluded that it could not.

The judge considered the history of the presumption, which, as noted, operates only from husband to wife. He observed that it is rooted in “a now anachronistic view of the economic competency of women” and “a theory or premise of gendered economic dependence”: paras. 112, 114. He reviewed the cases and commentary that have questioned its continued operation, and observed that the “legal parallels, in a contemporary society, between gifts made to wives and gifts made to minor children, are jarring and further highlight the outdated foundation of the presumption”: para. 125.

Voith J. noted that the Court in V.J.F. did not appear to have been directed to the definition of “spouse” under the FLA, or to how that expanded definition is relevant to the property division regime. Formerly, “common law” couples were not included in family property legislation, such that they had to rely on the complex doctrines of unjust enrichment and resulting trust on separation. The inclusion of unmarried spouses in the FLA “signaled a recognition that in contemporary society there are different forms of union and that the rights of partners or spouses under these different forms of union should give rise to identical sets of rights and obligations”: para. 146. The same considerations apply to same-sex couples, which unequivocally “fall within the FLA and… are, unequivocally, extended the full range of rights and remedies”: para. 147. In this context, the continued operation of the presumption would be “incoherent” in that despite all such partners being defined as “spouses”, the presumption would apply only to a subset of those relationships: a gift from a man to a woman in a traditional marriage. Such a result would permit an anachronistic legal principle to continue to exist in the context of legislation intended to recognize the changed nature of relationships in modern society, and would cause different property division rules to apply to different types of relationships. He also noted that the inclusion of “debt” in s. 81 makes separating spouses presumptively equally responsible for family debt, which is reflective of contemporary society in that men and women are more often financial equals. The judge also found support for his conclusion by reference to various principles of statutory interpretation.

In the result, the judge concluded that the funds were excluded property, such that close to $560,000 was to be credited to the husband. However, if he were mistaken in his conclusion that the presumption of advancement is no longer operative, he would have found that the husband had not rebutted the presumption, with the effect that the amount in question would be family property.

Justice Voith’s decision is a strong acknowledgment of the equality of diverse forms of spousal relationships, and a powerful rejection of outdated assumptions. However, the decision also indicates that despite Newbury J.A.’s reasons attempting to settle the issue, the treatment on separation of excluded property that is gifted from husband to wife remains the subject of judicial comment. For the moment, Newbury J.A.’s decision stands as binding authority for the proposition that the presumption of advancement continues to exist. The debate appears to be far from over, however, as H.C.F. has been appealed. Watch this space.

 

Jo Ann Carmichael, Q.C. is the Group Leader of Alexander Holburn’s Family Practice Group.  Emma Ferguson practices in the areas of Wills, Estates and Trusts and Family law at Alexander Holburn.  Polly Storey is an articled student with the firm following a clerkship at the Court of Appeal for British Columbia.