Amendment to Family Law Act Enhances Protection for Inheritances

 

A recent change to British Columbia’s Family Law Act provides greater protection for inheritances from claims of spouses on the breakdown of a marriage or marriage-like relationship. The basic structure of our Family Law Act provides that some assets are “included property” in the division of property and other assets are “excluded property.” In most cases, included assets are divided equally between spouses following the breakdown of the marriage or marriage-like relationship, and excluded property is, well, generally excluded from the division. The court may in some circumstances deviate from this scheme of division, but for the purpose of this blog, lets keep it simple.

When one spouse receives and inheritance or gift, that property is excluded. However, if the property appreciates in value during the marriage or relationship, then the gain is included, and divided equally. Say, for example, one spouse inherits a house worth $800,000 from her mother (probably not in Vancouver), and on separation from her spouse, the house is worth $1 million, then she keeps $800,000, but shares the $200,000 gain with her ex-spouse.

This seems simple enough, and strikes me as fair. The mother intended to benefit her daughter, rather than her daughter’s spouse, but on the other hand, the appreciation in value occurred during the marriage. Where things get murkier is if the daughter transfers the house into her spouse’s name during the marriage. Perhaps she transfers title into a joint tenancy with her spouse, so that if she dies before him, he will receive the house by right-of-survivorship. In that case, does the house remain excluded property? 

The British Columbia Court of Appeal, answered that if excluded property is gifted by one spouse to the other, it is no longer excluded. I wrote about the case of V.J.F v. S.K.W., 2016 BCCA 186 here. In that case, the husband inherited $2 million from his employer, and used most of the funds to buy land, the title to which he and his wife registered in her sole name. On the breakdown of the relationship, both the trial judge and the Court of Appeal held that the residence was no longer excluded property.

The British Columbia Government published a discussion paper in August 2016 discussing this issue and invited comments for potential legislative change.

Now, the legislation has been changed, effective May 11, 2023. The following provision has been added to section 85:

(3)          If property is excluded from family property under subsection (1), the exclusion applies despite any transfer of legal or beneficial ownership of the property from a spouse to the other spouse.

85 (1) excludes from family property inheritances as well as certain other categories of property such as assets brought into the relationship, and any property derived from the sale of excluded property.

If this new subsection 85(3) had been in effect when the proceeding in  V.J.F. was commenced, it is likely that the $2 million would have been excluded, rather than shared between the spouses.  

Cottrell v. Cottrell

 When assisting clients in creating trusts to benefit their children, I am sometimes asked about potential claims that a child’s spouse might make to trust assets if there is a breakdown of the child’s marriage or marriage-like relationship. Typically, the parent is concerned that if she puts assets into a trust to benefit her children, the trusts in fact benefit the children and not future ex-spouses of any child. I can’t give a definitive answer to that question, but a recent decision provides some comfort to parents creating trusts for their children, provided that the trust does not give the child the right to distributions or control of the trust. The case is Cottrell v. Cottrell, 2022 BCSC 1607.

Robert and Patricia Muster contributed all of the funds to two trusts: the Robert and Patricia Muster Family Trust and the Muster Joint Partner Trust. They were created in 2010 and 2011 respectively. The beneficiaries were Robert and Patricia Munster, their son, and their daughter Joanne Cottrell. The trusts are described in the decision as discretionary trusts in which the beneficiaries received distributions only at the discretion of the trustees.  (I suspect from the name, that there were restrictions in the Joint Partner Trust such that during the lifetimes of Robert and Patricia, all of the income was payable to them, and no one else would be entitled to capital until the last of them to die.) The Family trust held shares in a company, Muster Management Inc., and the Joint Partner Trust held investments.

When a trust is completely discretionary, no beneficiary has any particular entitlement until the trustees decide, and there is no certainty that the beneficiary will receive anything.

Robert and Patricia Muster were the original trustees of both trusts, but when Patricia Muster died in 2012, Joanne Cottrell and her brother became co-trustees with their father. Decisions required a majority vote. There was evidence that neither Joanne Cottrell or her brother were active in the management of the trusts and trust assets, and that their father considered that the assets of the trusts were his property during his lifetime.

Unfortunately, Mrs.  Cottrell’s marriage to Paul Cottrell broke down. Following their separation, she ceased to be a trustee of the trusts. In the litigation over the division of their property, Paul Cottrell claimed an interest in the trusts.

The way the Family Law Act (the “FLA”) in British Columbia works there is included family property, in which spouses share an interest on separation, and excluded family property, in which they do not. Because all of the funds in the trusts were contributed by Mr. and Mrs. Muster, and not by Joanne, her interest in the trust property is excluded. This is set out in section 85(1)(f):

85(1) The following is excluded from family property:

            …

(f) a spouse’s beneficial interest in property held in a discretionary trust

(i) to which the spouse did not contribute, and

(ii) that is settled by a person other than the spouse....

However, the increase in value of a spouse’s interest in excluded property during the marriage is included property, subject to a claim by the other spouse. This is set out in s. 84(2)(g) of the FLA:

84(2) Without limiting subsection (1), family property includes the following:

…

(g) the amount by which the value of excluded property has increased since the later of the date

(i) the relationship between the spouses began, or

(ii) the excluded property was acquired.

Paul Cottrell acknowledged that the assets settled on the trusts were not included family property, but he argued that the assets increased in value, and he is entitled to a portion of that increase, reflecting Joanne Cottrell’s interest in the trusts.

The contrary argument is that because the trusts were discretionary, Joanne has no property interest in the trust assets, she cannot compel any distributions to her, and her interest could be defeated such that she might not receive any distributions in the future.

Mr. Justice Brongers held in favour of Joanne Cottrell on this issue. He wrote:

[42]         Accordingly, the fundamental question to be determined is whether Joanne’s beneficial interest in the discretionary Muster Trusts has increased in value since Joanne acquired her interest on September 14, 2010 (in the case of the Family Trust) and on January 5, 2011 (in the case of the Partner Trust). Given that Paul is the party asserting a claim in respect of this alleged family property, which Joanne opposes, it is Paul that bears the burden of establishing that there has been such an increase in value.

[43]         On my assessment of the evidence presented, I am not satisfied that Paul has met this burden. In particular, I agree with the submissions of Joanne’s counsel that the uncertain nature of Joanne’s contingent beneficial interest in the Muster Trusts is such that it cannot be said that, at the time of the trial, there has been an “increase in value” of this interest. This uncertainty stems from the fact that Joanne has never had the actual or even an apparent ability to compel a distribution of the Muster Trusts, and has no reliable assurance regarding the specific extent to which she may receive such a distribution in the future. In these circumstances, the Court cannot find that Joanne’s beneficial interest in the property held in the Muster Trusts is greater now than it was when the trusts were settled. In the absence of such a finding, there is no “increase in value of excluded property” to which a s. 84(2)(g) FLA claim can be asserted. Paul’s request for a remedy in relation to such a claim must therefore be dismissed.

[44]         I have reached this conclusion notwithstanding Paul’s attempt to value Joanne’s interest in the Muster Trusts. Leaving aside my significant concerns about its reliability given the limited scope of the evidence tendered and the lack of a valuation opinion from a qualified expert assessor, Paul’s estimate relates to the property held in the discretionary trusts, not to Joanne’s beneficial interest in that property. As such, even if I had been inclined to accept his estimated values of the trust assets, they do not show that there has been an actual increase in the value of Joanne’s beneficial interest in these assets, which is all that can be claimed pursuant to ss. 84(2)(g) and 85(1)(f) of the FLA.

Doe this mean that a separated spouse will never have a FLA claim to an interest in a discretionary trust? I would not go that far. Key factors in this case were 

1.  that Joanne Cottrell did not contribute any of the assets to the trusts,
2. her interest was purely discretionary,
3. she was never the sole trustee or in a position to require distributions be made to her, and
4. in practice, she appears to have had little or no influence on the management of the trust and decisions about distribution. 

a.      One can envision cases in which, on reading the trust documents, the beneficiary appears to have no control, but in practice the beneficiary is the one making the decisions. In such circumstances, the outcome may be different if a separated spouse makes a family law claim.  

Mr.  Justice Brongers was careful to qualify his decision:

[47]         Before completing my consideration of this issue, however, I wish to be clear that my finding that Paul has not established that there has been an increase in value of Joanne’s beneficial interest in the Muster Trusts should not be taken as a conclusion of law that it is impossible to make a family property claim in respect of a spouse’s beneficial interest in a discretionary trust under the FLA. My finding is based on the evidence presented in this case, particularly the terms of the Muster Trusts instruments, as well as Mr. Muster and Joanne’s testimony about their intentions and expectations regarding these trusts. That evidence does not justify a conclusion that Paul is entitled to a remedy in relation to Joanne’s beneficial interest in the Muster Trusts. A different conclusion could well be reached in another case involving different trusts, trustees, beneficiaries, and spouses.

Can the Personal Representative of a Deceased Separated Spouse Start a Claim Against the Surviving Former Spouse?

 

In a decision released on February 25, 2022, the British Columbia Court of Appeal confirmed that the personal representative of a deceased separated married spouse may bring a family law claim against the surviving spouse if they had not divorced. The case is Weaver Estate v. Weaver 2022 BCCA 79.

Lani Jo Weaver and Albert Russell Weaver married in 1993 and separated in 2005. They did not divorce, sign any separation agreement or bring any family law proceedings against each other.

Ms. Weaver died in 2020, and in November 2020, the administrator of her estate brought a family law claim in British Columbia against Mr. Weaver seeking a division of family property including jointly owned real estate in British Columbia and in the United States. Mr. Weaver brought an application in the Supreme Court of British Columbia in which he asked to dismiss the claim on the basis that because of Ms. Weaver’s death her administrator did not have standing to bring the claim and the court did not have jurisdiction to hear it. Mr. Weaver’s application was dismissed, and he appealed to the Court of Appeal.

The Court of Appeal held that Ms. Weaver’s administrator did have standing to bring the claim on behalf of her estate. The decision is based primarily on the wording of the legislation.

The Section 81 of the Family Law Act provides that on separation each spouse is entitled to an undivided one-half interest in family property and is equally responsible for family debt. The legislation provides that the one-half interest is as a tenant in common, the implication of which is that on death the one-half interest falls into the souse’s estate and does not pass to the other joint owner by right-of-survivorship as in a joint tenancy.  The word spouse is defined in section 3 to include a former spouse.

The time limits for brining a family law claim for a division of family property are set out in section 198 and depend on whether the spouses are married or are spouses by virtue of living in a marriage-like relationship. Pursuant to section 198 (2), the claim must be filed in court

(a)in the case of spouses who were married, the date

(i)a judgment granting a divorce of the spouses is made, or

(ii)an order is made declaring the marriage of the spouses to be a nullity, or

(b)in the case of spouses who were living in a marriage-like relationship, the date the spouses separated.

(The running of the time limit may be suspended in some circumstances.)

The Supreme Court Family Law Rules contain provisions providing that claims may survive the death of a spouse and for the appointment of a litigation representative to start or continue a family law case on behalf of a deceased’s estate.

Section 150 of the Wills, Estates and Succession Act provides (with certain specified exceptions such as defamation claims) a cause of action or proceeding survives the death a person who has a claim or is a party to a proceeding.

Madam Justice DeWitt-Van Oosten, for the Court of Appeal, contrasted the Family Law Act with legislation in some of the other provinces where the relevant legislation expressly excluded claims by or against the estate of a deceased separated spouse. If the British Columbia Legislative Assembly intended to exclude claims by the personal representative of a deceased former spouse, it could have done so expressly.

Furthermore, the case law established that a surviving former spouse could bring a claim against the estate of a deceased former spouse, and it would be unfair if the personal representative of the deceased former spouse could not similarly make a claim against the surviving former spouse.

In light of the language of the legislation, this decision does not appear to me to be controversial. But there is an interesting point to consider. In view of the fact that only living spouses may divorce, is there any limitation period for a claim either made against the estate of a deceased separated married spouse, or brought on behalf of the estate of the deceased separated spouse? What if both spouses have been dead for decades?

Madam Justice DeWitt-Van Oosten commented briefly on this point:

 

[81]         The chambers judge did not address this issue. Nor did we receive full submissions on the point. For present purposes, I simply note that the modern principle of statutory interpretation, as applied to s. 198(2)(a) of the FLA and s. 150 of WESA, may support an interpretation that the administrator of an estate would have two years from the date of death of the separated and deceased spouse to commence a claim for division.

I confess that on reading the legislation, I am not sure how those sections support that interpretation. I hope that this will be considered in a future case, because in many cases an undue delay would be unfair to either the living separated spouse or to the beneficiaries of the deceased spouse. There may perhaps be other defences available particularly if the claimant’s delay caused the defendant to change their position to their detriment. From the perspective of the person making the claim, it is best not to delay.

Williamson v. Williamson

In British Columbia, a separated spouse may make a claim to his spouse’s interest in a trust. In some cases, the claim will be successful, but in others, property held in trust may be insulated from family law claims. The law is quite nuanced. This is illustrated by the case of Williamson v.Williamson, 2020 BCSC 108.

Diane Williamson was a trustee and a beneficiary of a family trust. The property held in trust consisted of an interest in a farm business that had been in her family for generations. The other beneficiaries were her spouse, Robert Williamson and their children. The trust was a discretionary trust in which the trustee had the power to decide if and when to make distributions to any one or more of the beneficiaries. No beneficiary had any entitlement to the property held in trust unless and until the trustee decided to make a distribution to that beneficiary.

On the breakdown of the marriage, Mr. Williamson pursued a family law claim against Ms. Williamson, including a claim to a division of her interest in the trust property.

Ms. Williamson’s father, Lorne Jack was a co-trustee and a “protector” of the trust. As the protector, he had certain powers including the power to remove and replace a trustee and to add beneficiaries.

   

The lawyer for the trustees gave written notice that the Ms. Williamson would be removed as trustee and her mother appointed as a beneficiary. Mr. Jack intended to make a distribution before the 21^st anniversary of the trust and Ms. Williamson would not likely receive any of the trust property. The significance of the distribution before the 21^st anniversary is that if the property were still held in trust, there would be a significant amount of tax payable because there would have been a deemed disposition of the property under the Income Tax Act, Canada.

Mr. Williamson asked the court to grant an order essentially restraining Mr. Jack from distributing the property held in trust. Mr. Williamson wished to preserve the property in trust in order to pursue is family law claim to an interest in the trust property.

“Family property,” divisible under the Family Law Act may include a beneficial interest in property held in trust, including in some circumstances property held in a discretionary trust. Section 84 (3) provides that

“…family property includes that part of trust property contributed by a spouse to a trust in which

(a)        the spouse is a beneficiary, and has a vested interest in that part of the trust property that is not subject to divestment,

(b)        the spouse has a power to transfer to himself or herself that part of the trust property, or

(c)        the spouse has a power to terminate the trust and, on termination, that part of the trust property reverts to the spouse.”

If one spouse contributes property to a discretionary trust and retains the ability to distribute the property to herself, then the other spouse may have an interest in the property on the breakdown of the spousal relationship (unless excluded on some other basis).

On the other hand, section 85 (1) excludes interest in property held in a discretionary trust in certain circumstances:

Excluded Property

85.(1) The following is excluded from family property:
...
(f)         a spouse’s beneficial interest in property held in a discretionary trust

(i)         to which the spouse did not contribute, and
(ii)        that is settled by a person other than the spouse;

In Williamson, Mr. Justice Punnett found that the trust property was excluded property. Ms. Williamson had not contributed the farm property, which had been in her family for generations.

Mr. Jack, who said he wanted to preserve the farm operation as a family business, acted consistently with his powers under the terms of the trust agreement.

Mr. Justice Punnett dismissed the application for restraining orders, with the result that Mr. Jack was entitled to add his wife as a beneficiary and distribute all of the trust property to the exclusion of Ms. Williamson.

Separation Without Termination: Robledano v. Queano

Can you separate from your common-law spouse without terminating the relationship? Apparently, according to the British Columbia Court of Appeal decision in Robledano v. Queano, 2019 BCCA 150.

Spousal status is often critical in estate disputes. A “spouse” as that term is defined in the Wills, Estates and Succession Act (the “WESA”) may apply to vary her deceased’s spouse’s will. If there is no valid will, she will be entitled to a share of the estate on an intestacy (sometimes the entire estate). There is not surprisingly a great deal of litigation over the question of whether someone meets the definition of spouse.

Section 2 of the WESA sets out the criteria for a spouse under the Act. I will leave out subsection (2.1) which is not necessary for this discussion.

2   (1) Unless subsection (2) applies, 2 persons are spouses of each other for the purposes of this Act if they were both alive immediately before a relevant time and

(a)they were married to each other, or

(b)they had lived with each other in a marriage-like relationship for at least 2 years.

(2) Two persons cease being spouses of each other for the purposes of this Act if,

(a)in the case of a marriage, an event occurs that causes an interest in family property, as defined in Part 5 [Property Division] of the Family Law Act, to arise, or

(b)in the case of a marriage-like relationship, one or both persons terminate the relationship.

….
(3) A relevant time for the purposes of subsection (1) is the date of death of one of the persons unless this Act specifies another time as the relevant time.

The Family Law Act (the “FLA”) has similar, but as we shall see, not identical, criteria for determining when someone is a spouse. Section 3 provides:

3  (1) A person is a spouse for the purposes of this Act if the person

(a)is married to another person, or

(b)has lived with another person in a marriage-like relationship, and

(i)has done so for a continuous period of at least 2 years, or

(ii)except in Parts 5 [Property Division] and 6 [Pension Division], has a child with the other person.

(2)A spouse includes a former spouse.

(3)A relationship between spouses begins on the earlier of the following:

(a)the date on which they began to live together in a marriage-like relationship;

(b)the date of their marriage.

(4) For the purposes of this Act,

(a)spouses may be separated despite continuing to live in the same residence, and

(b)the court may consider, as evidence of separation,

(i)communication, by one spouse to the other spouse, of an intention to separate permanently, and

(ii)an action, taken by a spouse, that demonstrates the spouse's intention to separate permanently.

Section 81 of the FLA deals with the rights of each spouse to property held by the other on separation. It reads:

81  Subject to an agreement or order that provides otherwise and except as set out in this Part and Part 6 [Pension Division],

(a)spouses are both entitled to family property and responsible for family debt, regardless of their respective use or contribution, and

(b)on separation, each spouse has a right to an undivided half interest in all family property as a tenant in common, and is equally responsible for family debt.

The main issue in the Court of Appeal in Robledano was whether Maria Robledano was Barbara Jacinto’s spouse when Ms. Jacinto died on April 14, 2014. If so, because the court had found that Ms. Jacinto did not have a will, Ms. Robledano is entitled to the entire estate. If not, the estate goes to other relatives. In the Supreme Court of British Columbia, the trial judge found that Ms. Robledano was Ms. Jacinto’s spouse. One of Ms. Jacinto’s sisters, Milagros Queano, appealed.

Ms. Robledano and Ms. Jacinto were not married. The parties agreed that Ms. Robledano and Ms. Jacinto were in a marriage-like relationship from 1985 to 2000, and again from 2005 to 2010, but Ms. Queano argued that they were no longer in a marriage-like relationship after 2010. From November 2010, Ms. Robledano and Ms. Jacinto had separate residences, but Ms. Robledano maintained that they did continue to reside together part of the time.

The Court of Appeal held that the trial judge applied the correct legal tests and did not make any palpable and overriding error.

In his reasons for judgement, Mr. Justice Groberman held that it is not necessary for a couple who were in a marriage-like relationship to be in a marriage-like relationship at the time of death, as long as the relationship had not been “terminated.” Termination is not the same as separation, although separation is a factor that may be considered.

Mr. Justice Groberman wrote:

[39]         Ms. Queano says an unmarried person can only be the spouse of a deceased person if they were living together at the time of death and for at least the two years immediately preceding it. In my view, that is not a correct interpretation of s. 2(1).

[40]         Paragraph 2(1)(b) of the statute uses the past perfect tense (“had lived together”) rather than the past continuous tense (“were living together”). The ordinary grammatical meaning of paragraph 2(1)(b) is that in order for a person who was not married to the deceased to be their spouse, the two must have lived together in a marriage-like relationship for two years, but not necessarily for the two years immediately preceding the deceased’s death. In contrast to paragraph 2(1)(b), paragraph 2(1)(a) uses the past continuous tense (“were married”) rather than the past perfect tense (“had been married”). The statute is professionally drafted and the use of these different tenses should be presumed to be deliberate.

Further on:

[44]         Ms. Queano contends that the question to be asked under s. 2(2)(b) is whether the parties separated. She says that the parties clearly did so at the end of 2010, and that they remained separated for the rest of Ms. Jacinto’s life.

[45]         Again, I am unable to fully agree with Ms. Queano’s interpretation of the statute. Paragraph 2(2)(a) of the WESA provides that married persons cease to be spouses when events occur that engage the property division provisions set out in Part 5 of the Family Law Act, S.B.C. 2011, c. 25. Typically, those provisions are engaged, under s. 81 of the Family Law Act, when the parties separate.

[46]         Paragraph 2(2)(b), on the other hand, which applies to persons who are not married but are in a marriage-like relationship, does not mention “separation” nor does it incorporate any test involving Part 5 of the Family Law Act. It simply states that persons in a marriage-like relationship cease to be spouses when either or both of them “terminate the [marriage-like] relationship”. I do not suggest that separation is an irrelevant consideration under the provision. The fact that parties have separated may lead a judge to infer that one or both of them has terminated the marriage-like relationship. That said, separation, per se, is not the test for termination of a marriage-like relationship.

Mr. Justice Groberman wrote that the standard for termination is a flexible one.

[55]         What we are left with, in s. 2(2)(b) of the WESA, is a rather imprecise and flexible legal standard. The question of whether a person has “terminated the relationship” requires a judge to consider the expressed and implicit intentions of each spouse, as well as the objective evidence concerning the subsistence of the relationship. The determination is a “judgment call” for the trial judge – the application of a broad legal standard to the factual circumstances of an individual case. It is a question of mixed fact and law. 

I have some doubt as to whether the drafters of the WESA intended to have different criteria for determining when a spousal relationship ends for the purpose of the WESA and for the purpose of the FLA. I understood that the intent was that one could have either a claim under the FLA or the WESA but not both. 

Consider this scenario. A couple living in a marriage-like relationship “separates” but neither one “terminates” the relationship. One of them dies without a will, leaving surviving him a child from a previous relationship. The implication is that the survivor may make both a claim to property under the FLA and a share of the estate under the WESA. Suppose he has an estate of $1 million, and the court finds that the surviving spouse is entitled to $400,000 under the FLA, leaving the value of the remaining estate at $600,000. Of this $600,000, the surviving spouse receives the first $150,000 plus one-half of the balance. The total amount the surviving spouse receives is $775,000 ($400,000 under the FLA, plus $150,000 and $225,000 under the WESA). If the spouses had not been separated, the surviving spouse would have received $575,000. If they had been separated, but the relationship terminated, then the surviving spouse would have received $400,000.

Moore v. Sweet

On November 23, 2018, the Supreme Court of Canada released its decision in Moore v. Sweet, 2018 SCC 52, in which the majority imposed a remedial constructive trust on the proceeds of a life insurance policy in favour of the life insured’s former spouse. The life insured, and owner of the policy, Lawrence Anthony Moore, had orally agreed with his former spouse, Michelle Constance Moore, that he would retain her as the beneficiary of his life insurance policy, if she paid the insurance premiums. She did so, paying approximately $7,000 in premiums after her separation from Mr. Moore. He broke his promise to her, by appointing his new common-law spouse, Risa Lorraine Sweet, as the irrevocable beneficiary. The policy paid out $250,000. At death, Mr. Moore’s estate was insolvent.

These facts raised some interesting issues of law and policy. Both Ms. Moore and Ms. Sweet were innocent parties. There is no question that Ms. Moore could sue his estate for his breach of the agreement, but that would be a hollow victory, given that the debts of his estate exceeded the assets. In order for her to receive what she bargained for, the proceeds of the life insurance proceeds, she would need to persuade the court to impose a trust on the proceeds, but on what basis? In Canada, constructive trusts are most frequently imposed when someone proves that another has been unjustly enriched. This is not the only basis on which a constructive trust may be imposed: it may be imposed when someone has acted wrongfully. In other words, it may be imposed on someone who holds property in circumstances when it is against good conscience for them to do so. I would argue that constructive trusts may also be imposed in other circumstances.

Ms. Moore was initially successful, but the majority of the Ontario Court of Appeal reversed the application judge’s decision. The Court of Appeal held that she was limited to receiving the amount of the premiums she paid. She appealed to the Supreme Court of Canada, the majority of which based its decision on unjust enrichment, holding that it would be unjust for Ms. Sweet to retain the insurance proceeds.

To succeed in a claim of unjust enrichment, Ms. Moore need to prove that Ms. Sweet was enriched, that Ms. Moore suffered a corresponding deprivation, and that there was no juristic reason for the enrichment. Madam Justice Cote, for the majority, found both that Ms. Sweet was enriched by the receipt of the insurance proceeds, and that Ms. Moore suffered a corresponding deprivation, having paid the premiums. It is not necessary that the enrichment be the same amount as the deprivation, nor, Madam Justice Cote wrote, does “the corresponding deprivation element…require that the disputed benefit be conferred directly by the plaintiff on the defendant.”

Much of the controversy in this case revolved around the third element: whether there was a juristic reason for the enrichment. The approach mandated by the Supreme Court of Canada decision in Garland v.Consumers’ Gas Co., 2004 SCC 25, is to consider first whether the defendant is entitled to retain the benefit on the basis of an established category for juristic benefit, such as a gift, a statutory, common law or equitable obligation. For example, if I give you a $100 as a birthday present, you are enriched and I have suffered a corresponding detriment, but my intent to make a gift is a juristic reason that you are entitled to retain the $100. Similarly, there is a juristic reason for the government to retain my taxes, namely the legislation pursuant to which I am required to pay the taxes. The burden is on the person making the claim to show that there is no juristic reason in accordance with an established category. If not, the person defending the unjust enrichment claim may then show that there is some other reason he or she should be able to retain the benefit which may include the expectations of the parties and public policy.

In this case, the insurer was required to pay the proceeds to Ms. Sweet in accordance with the Insurance Act, which includes protections of the proceeds against creditors of the deceased. Are the provisions of the legislation a juristic reason for Ms. Sweet’s enrichment? The minority thought so; the majority not.

Madam Justice Cote distinguished between the obligations of the insurer to pay out the proceeds to the designated beneficiary and the right of the beneficiary to retain the proceeds as against the claimant, in this case, Ms. Moore. She wrote:

[73]                          Accepting that contractual rights to claim policy proceeds can exist outside of the Insurance Act, can an irrevocable designation under the Insurance Act nonetheless constitute a juristic reason for Michelle’s deprivation? In my view, it cannot. This is because the applicable statutory provisions do not require, either expressly or implicitly, that a beneficiary keep the proceeds as against a plaintiff, in an unjust enrichment claim, who stands deprived of his or her prior contractual entitlement to claim such proceeds upon the insured’s death. By not ousting prior contractual or equitable rights that third parties may have in such proceeds, the Insurance Act allows an irrevocable beneficiary to take insurance money that may be subject to prior rights and therefore does not give such a beneficiary any absolute entitlement to that money (Shannon, at p. 461). Put simply, the statute required that the Insurance Company pay Risa, but it did not give Risa a right to keep the proceeds as against Michelle, whose contract with Lawrence specifically provided that she would pay all of the premiums exclusively for her own benefit. Neither by direct reference nor by necessary implication does the statute either (a) foreclose a third party who stands deprived of his or her contractual entitlement to claim insurance proceeds by successfully asserting an unjust enrichment claim against the designated beneficiary — whether revocable or irrevocable — or (b) preclude the imposition of a constructive trust in circumstances such as these (see Central Guaranty Trust Co. v. Dixdale Mortgage Investment Corp. (1994), 24 O.R. (3d) 506 (C.A.); see also KBA Canada).

[74]                          On this basis, the applicable Insurance Act provisions are distinguishable from other legislative enactments that have been found to preclude recovery, such as valid statutory provisions requiring the payment of taxes to the government (see GST Reference, at pp. 476-77; Zaidan Group Ltd. v. London (City) (1990), 71 O.R. (2d) 65 (C.A.), at p. 69, aff’d [1991] 3 S.C.R. 593). In that context, the plaintiff’s unjust enrichment claim must fail because the legislation permits the defendant to be enriched even when the plaintiff suffers a corresponding deprivation. The same cannot be said about the statutory framework at issue in this case, however; there is nothing in the Insurance Act that justifies the fact that Michelle, who is contractually entitled to claim the policy proceeds, is nevertheless deprived of this entitlement for Risa’s benefit. 

Madam Justice Cote held that there were no other juristic reasons for the enrichment.

Mr. Justice Gascon, writing for the minority dissent, would have held that the provisions of the Insurance Act constituted a juristic reason for Ms. Sweet’s enrichment. The designation was made in accordance with the Insurance Act, which also provided protections from creditors for an irrevocable beneficiary. It was his view that Ms. Moore’s claim was purely contractual, and she had no equitable claim to the proceeds. She had a claim against Mr. Moore’s estate in contract, but a contractual claim was insufficient grounds for the court to impose a constructive trust in unjust enrichment. Mr. Justice Garson emphasized the importance of certainty if that the legislation provides.

I should note that Madam Justice Cote declined to consider whether a good conscience constructive trust for wrongful acts could have also been imposed (I think it could), or whether there were other categories of constructive trust.

The result is that Ms. Moore is entitled to the insurance proceeds.

Hiding Assets in Divorce Proceeding Backfires

To some extent, the court process depends on the integrity of the people involved, including the parties to a lawsuit, as well as their lawyers. Of course, some people do lie. The process allows for pre-trial document disclosure and examinations under oath. At a trial, there are usually several witnesses, and lawyers have the opportunity to question opposing parties as well as all of the witnesses. After a full trial, the judge then weighs the evidence, considering such things as the internal consistency of a witness’s own evidence, as well as each witness’s evidence when weighed against the evidence of others.  Finally, is the evidence overall believable, or, to use the language of the courts, does it meet the preponderance of probabilities? My sense is that judges do quite a good job in weeding out fabrications, but they cannot see into the hearts and minds of those who appear before them.

The majority of the cases settle before trial, without the benefit of a judge assessing credibility. It must be tempting for some in a bitter dispute to lie, or in the case of a divorce, to hide assets. Doing so may backfire.

In divorce proceedings, Rosa Donna Este was required to disclose her assets to her former husband. She disclosed some, but apparently not all. She and her former husband settled the proceedings; their assets were divided in accordance with a consent order, and the Court granted the divorce.

Subsequently, after a falling out with her mother, Mina Esteghamat-Ardakan, and her brother, Francis Amir Este, Ms. Este sued them alleging that they held millions of dollars worth of assets in trust for her. She alleged that they held the assets belonging to her to avoid creditors, and in particular, the claim by her former husband.

According to Ms. Este’s own allegations, in her Further Amended Notice of Civil Claim,

11C.    From approximately 1990 to late 2014, the Plaintiff, Mina and Francis regularly engaged in discussions and planning regarding the manner in which properties that they owned or proposed to acquire should be held, including the name or names in which title should be held and trust arrangements or other agreements amongst themselves that should be made related to them. The primary objectives which the Plaintiff, Mina and Francis sought to advance through those discussions and planning measures included maximizing the extent to which the capital gains exemption available for gains realized on the sale properties claimed as their principal residences could be claimed, and protecting those properties from potential claims that their present or potential future spouses, romantic partners or creditors might make against them.

Her claim set out that,

(a)    From approximately late-May of 2013 through to October of 2013, Mina, with Francis’ participation and assistance, counseled and encouraged the Plaintiff to propound a false and concocted story, devised by Mina, that Mina was the true owner of assets that were then owned by the Plaintiff in defending a family law action that the Plaintiff’s (then) husband had commenced against her in May of 2013 (“Family Law Action”).

Other particulars of her claim include signing “fake back-dated trust declarations,” adding her mother as an account holder, and then deleting her own name, and giving false evidence.   

After four weeks of trial, Ms. Este’s mother and brother brought an application to dismiss her claim on the basis that there was no evidence to support her claim, and that her claims were an abuse of the court’s process.

Mr. Justice Funt, in Este v. Esteghamat-Ardakani, 2017 BCSC 878, set out the main issue before him:

[1]             Is it an abuse of process for a plaintiff to claim ownership of Blackacre that the defendant claims to own when that plaintiff, in recent divorce proceedings, swore falsely and pleaded not to own Blackacre, thereby deceiving then spouse, counsel, and the Court? Does it matter that the defendant knew of the deception and participated by preparing false documents? These questions are at issue before the Court.

[2]             It is an abuse of process for a plaintiff to ask the Court to perfect a fraud designed to cheat financially one’s spouse in divorce proceedings. An exception does not exist where the defendant knew of and participated in the deception, even where the defendant will enjoy a windfall.

[3]             The foregoing rule protects the administration of justice from being brought into disrepute. The Court will not help to perfect a fraud.

[4]             In the case at bar, the foregoing rule is engaged. The trial of the action is underway with the plaintiff having closed her case in which she seeks to have her claim to ownership in significant funds and various real estate properties recognized (and a particular mortgage declared invalid). Before proceeding further, the defendants seek to have the plaintiff’s claim dismissed as an abuse of process. They say that the plaintiff’s case is not one that a court would put to a jury.

Mr. Justice Funt, in dismissing Ms. Este’s claim, held that her conduct engaged three aspects of abuse of process: illegality, the pursuit of inconsistent rights, and bringing the administration of justice into disrepute.

It is illegal to transfer assets to defeat, delay or defraud creditors. Mr. Justice Funt noted that had Ms. Este sued her mother and brother for the assets before her divorce, she would not have been precluded from pursuing her claim. But in this case, she was relying on evidence of her own illegal conduct, and was accordingly precluded from recovery of the assets.

Secondly, Ms. Este was assertion of rights was inconsistent with her assertions in her divorce proceedings that she did not own the assets she was seeking to recover from her mother and brother. Mr. Justice Funt wrote at paragraph 33,

A litigant cannot use the Court’s process to state one set of rights in a proceeding and then in a subsequent proceeding assert rights inconsistent with the rights first stated. Otherwise, uncertainty would result and many paths for mischief would be introduced into our law for the avaricious, the malicious, and the vexatious. The litigant must elect at the outset which set of rights the litigant wishes the Court to recognize.

Thirdly, allowing Ms. Este to recover the assets in this context would tend to impair the integrity of, and public confidence in, the administration of justice.

The Court will not assist fraud. Mr. Justice Funt wrote,

[76]         In sum, in the divorce proceedings, the plaintiff chose to take steps to defeat her then husband’s legal rights by representing falsely, including in Court documents and under oath, the properties and funds she now claims she rightfully owns. She now wishes to perfect her fraud in the divorce proceedings — a fraud designed to cheat financially her then husband engaging the past unwitting help of officers and a judge of the Court.

[77]         Bluntly stated, the plaintiff now asks the Court to help her with her illegal artifice because her mother and brother no longer will. Such, the Court will not do.

Ministry of Justice Seeking Comments on the Presumption of Advancement and Property Division Under the Family Law Act

The British Columbia Ministry of Justice has published a Discussion Paper: The Presumption of Advancement and Property division under the Family Law Act, and is seeking comments until September 30, 2016.

The issues relate to the question of whether the presumption that when a married spouse transfers property to the other spouse the spouse making the transfer intends to make a gift should apply to make property that would otherwise have been excluded from the property that is divided on a marriage breakdown included property. I wrote about the decision in V.J.F. v S.K.W., 2016 BCCA 186 in my post “What Happens to Funds Inherited by a Spouse on the Breakdown of the Marriage.” In the V.J.F. case, the husband had inherited $2 million which he used to purchase real estate in his wife’s name. The trial judge had found that the husband had failed to rebut the presumption of advancement and that the real property was a gift to the wife. The court divided the land equally between the spouses. Had the husband bought the land using the inherited funds in his own name, the land would have been excluded from the division of property because it was an inheritance.

The Ministry of Justice poses the following questions in the Discussion Paper:

1. Is it more consistent with fairness between spouses for the FLA to provide that gifts of excluded property between spouses transfer beneficial ownership or to allow excluded property to always retain its excluded status? Consider the example of RRSP’s or other investments purchased with the excluded property of one spouse and registered in the name of the other spouse? Should the value of the excluded property be returned to the transferor spouse or treated as family property under Part 5 of the FLA? 

2. The BCCA decision in VJF suggests that a spouse who wants to rebut the presumption of advancement can enter into an agreement that sets out that property exchanged between them is not a gift. Is this a practical way for spouses to address the issue? 

3. Should consideration be given to amending the legislation to explicitly abolish the presumption of advancement for the purposes of Part 5 of the FLA entirely? Or, should consideration be given to adopting the approach used in other provinces? 

4. If the presumption is not abolished for purposes of Part 5 of the FLA, should the FLA be clarified to ensure that the presumption also applies to those non-married spouses to whom Part 5 of the FLA applies?

5. The BCCA decision in VJF alludes to the usefulness of the presumption of advancement to ensure fairness between spouses. If the presumption of advancement continues to apply to matters under Part 5 of the FLA, does section 95 of the FLA provide sufficient flexibility to allow a Court to address any alleged unfairness caused by excluded property being converted to family property?

6. The BCCA decision in VJF alludes to the usefulness of the presumption of advancement to ensure fairness between spouses. If the presumption of advancement continues to apply to matters under Part 5 of the FLA, does section 95 of the FLA provide sufficient flexibility to allow a Court to address any alleged unfairness caused by excluded property being converted to family property? 

7. If the presumption of advancement is specifically abolished regarding matters under Part 5 of the FLA, does section 96 of the FLA provide sufficient flexibility to allow a Court to address any alleged unfairness that results from the tracing of excluded property? 

8. Are there other “rights under equity or any other law” that may interact with Part 5 of the FLA which require examination?

You may respond by mail or email as follows:

By regular mail: Civil Policy and Legislation Office
Justice Services Branch
Ministry of Justice
PO Box 9222, Stn Prov Govt
Victoria, BC V8W 9J1

By email: CPLO@gov.bc.ca

What Happens to Funds Inherited by a Spouse on the Breakdown of the Marriage?

Some of my estate-planning clients have asked me what would happen to the money they intend to leave to their children if one of their children’s marriages breaks down.  In some cases, there may be concern that a marriage breakdown is imminent, while in others it’s a more general, “what if?” question.

When family law was reformed a few years ago in British Columbia, I thought that my answers would be a little more straightforward than they had been in the past. The Family Law Act, which came into effect in March 2013, overhauled the law governing divisions of property in a marriage breakdown. The basic rule is that family property and family debt is shared equally. The parties may agree on a different division, or if an equal division would be “significantly unfair” the court may order a different division, but the basic rule is a 50/50 split. One key aspect of the new property-division regime is that some property is excluded from the divisible family property. The “excluded property” includes inheritances or gifts received by one of the spouses.

At first glance, the answer to the question what happens to my child’s inheritance if her marriage breaks down appears simple:  “don’t worry; it is excluded from the property that she would have to divide equally with her former spouse.”

Alas, if the law were that simple, I might be out of a job.

Section 84 (2) of the Family Law Act includes among the divisible family property,

“(g) the amount by which the value of excluded property has increased since the later of the date

(i) the relationship between the spouses began, or
(ii) the excluded property was acquired.”

Still, this probably conforms to most people’s sense of what is fair. If I (the hypothetical  me) leave an inheritance to my daughter of say $400,000, she invests it and it grows to $500,000 during her marriage, then on the breakdown of the marriage, she keeps the full $400,000 on the breakdown of her marriage, and shares the $100,000 growth with her former spouse.

But it gets murkier (otherwise this would be a much shorter post). Supposing my daughter inherits $400,000 from me, but then uses the funds to purchase a house with her spouse, with the title registered in the spouse’s sole name. On a subsequent breakdown of the marriage, is the house (or at $400,000 of the value of it) remain excluded property that my daughter retains? Or is the full value of the house now equally divided between my daughter and her spouse?

The British Columbia Court of Appeal considered this issue in V.J.F v. S.K.W., 2016 BCCA 186. Mr. F. inherited $2 million (it was not from parents or other family, but nothing turns on that). He used most of it to purchase land in Vancouver on which he and Ms. W planned to build a new family home. The title was registered in Ms. W’s sole name. The trial judge found that he did this for creditor protection. It should be noted that there was no finding that he acted fraudulently to defeat current creditors, but rather that he did this because of risks of claims associated with his business. At trial, the trail judge found that Mr. F conferred a gift on Ms. W when he used the funds to buy the property in her name, and held that when he did so, the funds were no longer excluded property. Accordingly, the land was equally divided between Mr. F. and Ms. W.

Madam Justice Newbury, writing for the Court of Appeal, in upholding the trial judge’s decision, held that the trial judge did not err in finding that Mr. F conferred a gift on Ms. W. He could not protect the property from potential future creditors without conferring an absolute interest in Ms. W. She also held that the presumption of advancement—that is the presumption that when a married spouse transfers property to the other spouse gratuitously, he or she intends to make a gift—continues to apply to transfers between married spouse in the province of British Columbia (in some provinces in has been abolished). In this case the onus was on Mr. F to rebut the presumption that he made a gift, and he did not meet the onus.

Madam Justice Newbury also rejected the view expressed in some of the Supreme Court of British Columbia cases that the Family Law Act regime is a complete code, which supersedes common law property rights. In this view, property that was excluded remains excluded despite the fact that title may be transferred between the spouses. She wrote at paragraphs 74 and 75,

[74]         With all due respect to the contrary view, I conclude that the new FLA scheme does not constitute a “complete code” that “descends as between the spouses” and eliminates common law and equitable principles relating to property. Rather, the scheme builds on those principles, preserving concepts such as gifts and trusts, and evidentiary presumptions such as the presumption of advancement between spouses. Thus I find that the gift of (slightly less than) $2 million made by Mr. F. to Ms. W. became her property and was “property owned by at least one spouse” under s. 84, as opposed to “property derived from the disposition of [excluded] property” within the meaning of s. 85. At the time the definitions are applied – the date of separation – the fact Mr. F. had originally received the $2 million as a gift was no longer relevant. He lost the exclusion when he voluntarily and unreservedly directed that the West 33rd property be transferred to Ms. W. and ‘derived’ no property from that disposition.

[75]         I do not interpret the FLA as reversing the gift or requiring that it be ignored because of the spouses’ separation. Nor do I agree that the FLA effectively ‘prohibits’ gifts between spouses, as Mr. F. suggested. (See para. 56.) Gifts between spouses can continue as they have through the ages. It would take much clearer wording to render them suddenly revocable or null or illegal. (See the comments of Chief Justice Farris in a slightly different context in Duncan v. Duncan (No. 2) [1950] B.C.J. No. 50 at para. 13 (S.C.),aff’d [1950] B.C.J. No. 41. (C.A.).)

This case raises a couple of questions.

First, does this mean that whenever a spouse transfers funds from an inheritance to the other spouse, those funds lose their status as “excluded property?” I suggest that the answer is “not necessarily.” In V.J.F. the trial judge found that Mr. F intended to make a gift, and that the presumption of advancement had not been rebutted. In other cases, the courts may find that a spouse did not intend to confer a gift, and there may be evidence rebutting the presumption of advancement. In such a case, the spouse to whom title is transferred may hold the property as a trustee for the spouse who inherited the funds. In that event, the funds should still be excluded.

Secondly, what about a case where the spouse who receives the inheritance buys a house and the title is held in both names as joint tenants. This is likely a more common event. The beneficiary of the inheritance may want her spouse on title as a joint tenant for estate planning so that if she dies first, her spouse will receive the house by right of survivorship. Although the concept of joint tenancy is nuanced, arguably in that case half of the beneficiary of the inheritance should be able to exclude one half of the funds, and the other half divided equally, on the basis that each spouse has a notional half-interest.

If this is correct, then in my example of my daughter receiving a $400,000 inheritance, if she uses the funds to buy a house to be held in a joint tenancy with her spouse, $200,000 would remain excluded, and $200,000 divided equally between her and her spouse on the breakdown of the marriage. She ends up with $300,000, and he with $100,000 from the inherited funds.

Can a Former Spouse Bring a Family Law Claim to Divide Family Property Against the Estate of His or Her Deceased Former Spouse?

In a recent decision, Howland Estate v. Sikora, 2015 BCSC 2248, the Supreme Court of British Columbia held that a former spouse may bring a claim for the division of family property under the Family Law Act against the estate his deceased former spouse if the claim is filed within the limitation period set out in section 198 of the Family Law Act. In other words, a surviving spouse’s Family Law Act claim is not defeated by the death of the other spouse.

Martha Antoinette Howland and Kelvin Joseph Sikora lived together in a common law spouse relationship until their separation in August 2012. After separation, Ms. Howland started a lawsuit under the Partition of Property Act, seeking to have property they jointly owned sold. She died on March 2, 2013.  On May 5, 2013, Mr. Sikora filed a counterclaim seeking a division of family property under the Family Law Act.

Ms. Howland’s executor asked the court to dismiss the counterclaim. She argued that neither the deceased person nor the deceased person’s personal representative is a “spouse” or “former spouse” under the Family Law Act, and, therefore, the surviving former spouse, in this case Mr. Sikora, could not bring a Family Law Act claim following the deceased’s death.

Mr. Justice Harvey held that Mr. Sikora could proceed with his counterclaim. Mr. Sikora’s property rights crystallized under the Family Law Act on the date of separation. This stands in contrast the previous legislation in British Columbia, the Family Relations Act, pursuant to which there had to be a triggering event such as a separation agreement, divorce or a court declaration that there was no reasonable prospect of reconciliation before each former spouse acquired a property right to family assets held by the other.

Because Mr. Sikora’s property rights crystallized on the date of separation, he could proceed with a claim to a division of the family property pursuant to the Family Law Act, provided he did so within two years of the date of separation. This is the limitation period for a common law spouse to file a Family Law Act claim for the division of property.

Mr. Justice Harvey wrote at paragraphs 23 and 24:

[23]         Here, the action was commenced within that timeframe. Although the claimant was no longer alive when this occurred, she was alive when the respondent’s entitlement to an undivided half interest in the property arose upon separation. Therefore, this is unlike the situation where an order enforcing a personal obligation, such as spousal or child support, is sought against a deceased person. More importantly, nothing in s-s 198(2) stipulates that the action must be commenced against the other spouse. These features distinguish the present case from [British Columbia (Public Trustee) v]. Price [43 B.C.L.R. (2d) 368 (C.A.)].

[24]         For these reasons, I find that the respondent’s right to bring an action for property division under Part 5 of the FLA crystallized upon the coming into force of the FLA given their separation had occurred less than two years before the filing of the counterclaim.

Mr. Justice Harvey’s decision dovetails well with the provisions of the new (well, after a year and a half, relatively new) Wills, Estates and Succession Act, under which a person who ceases to be a spouse (usually on separation) loses the succession rights of a spouse. For example, a person who has ceased to be a spouse death may not make a claim to vary a will of a deceased former spouse, is not entitled to a share of the estate if the deceased died intestate, and unless there is a contrary intention appearing in the will, a gift by will to a spouse is revoked when he or she ceases to be a spouse.  The rationale for these provisions of the Wills, Estates and Succession Act is that the former spouse may pursue his or her claim under the Family Law Act, and should not be in a position to have both the family law rights of a former spouse, and the succession rights of a spouse.

If Mr. Justice Harvey had decided that a former spouse could not make a Family Law Act claim against the estate of the deceased former spouse, then the surviving former spouse who had not commenced a claim before the death of his or her formal spouse would be in the position of having lost his or her succession rights, but without any recourse to a share of family property under the Family Law Act, a result which in some cases would be most unjust.

There is one concern I have (actually I have several, but am only addressing one here) about the potential effects of the Family Law Act following the death of a former spouse. In the Howland Estate case, Ms. Howland and Mr. Sikora were common law rather than married spouses. The limitation period was two years from the date of separation. Although there can be disputes about when spouses separate, at some point it will usually be clear when the limitation period has expired. A personal representative may then be comfortable distributing the estate if no Family Law Act claim has been brought by the surviving former spouse. But the limitation period for a married spouse is different. The relevant section is 198(2) of the Family Law Act, which says:

(2) A spouse may start a proceeding for an order under Part 5 [Property Division] to divide property or family debt, Part 6 [Pension Division] to divide a pension, or Part 7 [Child and Spousal Support] for spousal support, no later than 2 years after,

(a) in the case of spouses who were married, the date

(i)   a judgment granting a divorce of the spouses is made, or
(ii)   an order is made declaring the marriage of the spouses to be a nullity, or

(b) in the case of spouses who were living in a marriage-like relationship, the date the spouses separated.

As I interpret this, the limitation does not begin to run in the case of married spouses until a divorce or order declaring the marriage to be a nullity. If a spouse dies without a divorce, or order declaring the marriage to be a nullity, and there is no separation agreement, the surviving spouse could conceivably commence a claim many years after separation, and even many years after death. There are various ways the deceased’s personal representative may be able to deal with this issue if he or she is aware of the potential claim, but I suspect there will be cases where a personal representative may distribute the estate without recognizing that a former married spouse may make a Family Law Act claim, especially if spouses had been separated for a long period of time before one of them dies. 

British Columbia Law Institute Seeks Comments on New and Emerging Issues for Update to Pension Division Question and Answer Materials

The British Columbia Law Institute published the first edition of its book Questions and Answers About Pension Division on the Breakdown of a Relationship in British Columba in 1996.The third edition was published in 2013, and is available here.

The British Columbia Law Institute is now seeking input for the fourth edition. I will quote the press release:

The law on pension division is rapidly evolving. BCLI is working to keep pace with it by developing the fourth edition of its popular Questions and Answers on Pension Division at the Breakdown of a Relationship resource.

Do you have a question about the new Pension Benefits Standards Act or its interaction with the Family Law Act?

Do you have comments about a particular area of the law you would like to see explained in more detail in the 2016 update?

This new update will examine the upcoming changes to pension benefits standards in the new Pension Benefits Standards Act, explore the effects of ancillary provisions in the Family Law Act, as well as review developments in the common law since its last publication in March 2013. This will be the fourth edition of the Q & A materials – an ongoing project dating back to March 1996.

Thomas G. Anderson, QC, a specialist in pension law, particularly dealing with dividing entitlement when a relationship ends, is once again working closely with the BCLI to perform this update. He noted, “In my view, this is an extremely valuable project.  When a relationship ends, often the most valuable assets the parties possess are their retirement benefits.  It's important for the Q & A materials to continue to serve as an up-to-date practice resource for the BC legal community, other professionals involved in pensions and benefits, and members of the general public.”

The final publication is expected to be available at www.bcli.org in Spring 2016.

BCLI is currently receiving submissions, questions, and comments about suggested updates for the fourth edition of the Q & A materials. BCLI is accepting submissions at pensiondivision@bcli.org until 30 October 2015.

The British Columbia Law Institute strives to be a leader in law reform by carrying out the best in scholarly law-reform research and writing and the best in outreach relating to law reform.


Contact: Alexandre Blondin
Research Lawyer
(604) 822 0981
ablondin@bcli.org

Heathfield v. St. Jacques

Although the Wills, Estates and Succession Act has now been in effect for over a year, in most of the court cases being reported now, the Courts are dealing with the law as it stood before the effective date of March 31, 2014. This is because most of the provisions of the Wills, Estates and Succession Act only apply if the date of death occurred after the legislation came into effect. It is interesting to note how the law would have applied in some of the recent cases if the deceased had died on or after March 31, 2014.

The recent decision of Madam Justice Ballance in Heathfield v. St. Jacques, 2015 BCSC 505, provides an illustration.

When Michael Heathfield made his will on August 7, 2004, he was in a common-law relationship with Nicole St. Jacques. They had a child together with another on the way. In his will, he appointed Ms. St. Jacques as his executor. He left his estate to her if she survived him by thirty days, and if not, the will provided that his estate would be held in trusts for his children, until each attained the age of 25.

Mr. Heathfield and Ms. St. Jacques later separated. They divided their property. Their two children resided primarily with her, and he paid child support to her.

Instead of making a new will, Mr. Heathfield wrote in changes on his 2004 will, essentially stating that Ms. St. Jacques would not receive any of his estate, which would go to their two children. These changes were not witnessed by two witnesses as required under the Wills Act. He told others that he wanted his estate to go to his children, rather than to his former common-law spouse.

When Mr. Heathfield died on November 13, 2011, he left an estate valued at approximately $1.2 million.

Ms. St. Jacques as his executor obtained a grant of probate of the will.

The Public Guardian and Trustee of British Columbia brought an application under the Wills Variation Act on behalf of Mr. Heathfield’s two young children to vary the will. The Public Guardian and Trustee argued that the will should be varied so that the estate would be held in trust for each child until that child attains the age of 25, with the Public Guardian and Trustee acting as trustee of the funds.

Ms. St. Jacques opposed the application. She agreed that the estate should be used to benefit the two children, but argued that a formal trust was unnecessary. She as their mother would use the inheritance for their benefit. If the will was varied in favour of the two children, she asked the court to appoint her as trustee of funds.

In opposing the application to vary the will, Ms. St. Jacques relied on a previous Supreme Court of British Columbia decision, Cameron(Public Trustee of) v. Cameron Estate (1991), 41 E.T.R. 30, in which the Court declined to vary a will of a minor child’s mother. In that case, Mrs. Cameron left her estate to her husband, who was the father of the child. The trial judge found that Mr. Cameron was properly maintaining and supporting their child, and refused to vary the will.

Madam Justice Ballance varied Mr. Heathfield’s will by deleting the gift to Ms. St. Jacques, and creating trusts similar to those in the will for each of the two children in respect of the residue of the estate.

In arriving at her decision, Madam Justice Ballance declined to follow the decision in Cameron for two reasons. First, Cameron was decided before the Supreme Court of Canada’s decision in Tataryn v. Tataryn Estate, [1994] 2 S.C.R. 807, which provided a framework for determining if a adequate provision has been made, including an analysis of the will-maker’s legal and moral obligations to a spouse and children. Madam Justice Ballance expressed doubt as to whether Cameron is good authority for the proposition that a will should not be varied whenever a minor child’s surviving parent is the sole beneficiary of the will in light of the Tataryn framework.

Secondly, the circumstances in Heathfield are different. In contrast to Cameron, a case in which the court found that the wife and husband relied on each other to provide for their child, following his separation from Ms. St. Jacques, Mr. Heathfield made it clear that he did not rely on Ms. St. Jacques.

Madam Justice Ballance found that Mr. Heathfield had legal obligations to his children, as reflected in the child support he was paying, and moral obligations to them. In leaving a will that made no provision for them, Mr. Heathfield did not meet those legal and moral obligations. In contrast, he did not have those obligations to Ms. St. Jacques, who was not a person who could have applied to vary the will under the Wills Variation Act.

In her reasons for judgment, Madam Justice Ballance noted how the Wills, Estates and Succession Act has changed the law in a couple of respects that would have been significant to this case if Mr. Heathfield had died after it came into effect.

As she wrote at paragraph 82, under section 56, unless there is a contrary intention expressed in the will, “a gift to a person who has ceased to be a married spouse or a common-law spouse is revoked and must be distributed as if the surviving spouse had predeceased the will-maker.”

Section 58 of the Wills, Estates, and Succession Act would have allowed the court to give effect to Mr. Heathfield's handwritten notes on his will despite the fact that they were not witnessed if the court were satisfied that the notes represented his testamentary intentions.

Accordingly, if Mr. Heathfield had died on or after March 31, 2014, the children would likely have received his estate without having to resort to an application to vary the will under wills variation legislation (now Part 4, Division 6, of the Wills, Estates and Succession Act).

Madam Justice Ballance did accede to Ms. St. Jacques request that she be appointed as trustee of the trusts for the children, and she declined the Public Guardian and Trustee’s submission that Ms. St. Jacques should be restricted as trustee in her ability to access income from the trust for the benefit of the children.