Gifts and Inheritances – What Happens in Separation?

Family Law

As a commonly contentious issue in family law, it was hoped that the enactment of the new Family Law Act would serve to clarify the law with respect to the division of gifts and inheritances at the end of a relationship. Under s.85(1) of the Family Law Act, gifts and inheritances to a spouse are excluded property and only the increase in value of the excluded assets is shared; except in the event of “significant unfairness”. However, the recent decision in Cabezas v. Maxim, 2014 BCSC 767 suggests that despite s.85(1) of the Family Law Act, third parties providing gifts or advances on inheritances to one party during the relationship should document their intention in order to ensure that the intended party receives the benefit of the gift or loan on separation.

Despite the guidance provided by s.85(1), in the recent BC Supreme Court decision, the Court considered the circumstances surrounding the gifts and the parent’s evidence with respect to the intended beneficiary of this gift in deciding whether the gift in question was excluded property under s.85(1). In that case, the Respondent’s parents made a number of substantial gifts which were applied directly to paying down the parties’ mortgage during the relationship. Accordingly, the Court was asked to consider whether a portion of the sales property of the home equivalent to the gifts were excluded property under s.85(1). The Court considered both the circumstances in which the parents provided funds to their other children and the circumstances of the payments in question. The Court held that when the Respondent’s parents provided money to their other children, they did so without regard for the fact that their spouse would also benefit from the financial assistance. The Court also held that there was no evidence that the payments that were made on the parties’ mortgage were intended to be a loan or advance on the Respondent’s inheritance. Accordingly, the Court held that because the property in question was family property, the payments advanced by the Respondent’s parents to pay the mortgage on the property were given as a gift intended to benefit both parties.

The implications of the Cabezas decision are two-fold. Firstly, parents intending to benefit their child alone must be sure to clearly document whom they intend to benefit whether by lump sum mortgage payments or an advance on their child’s inheritance. Further, if the gift is used by the spouse to buy property in joint names or pay down joint debts, clear documentation should be created to show that the gifted monies are the excluded property of one spouse alone.

A properly drafted Marriage or Cohabitation Agreement signed by both spouses with an opportunity for independent legal advice still appears to be necessary in these circumstances, despite the change in the statute.

Angela Thiele
Partner, Family Law
Lindsay Kenney LLP – Vancouver Office

Cassandra Drake
Associate, Family Law
Lindsay Kenney LLP – Vancouver Office