Next month, the new Family Law Act comes into force. This is the first major change in family law legislation in more than 30 years.
Though I am not a family law practitioner, I think generally that in this new Act, the provincial government sought to give people more options than the Courts in handling breakups of marital relationships. It may well turn out that way, but other changes to B.C. family law are significant, in my view, and some of them bear on Wills and Estates law.
Speaking of which — people were expecting the new Wills, Estates and Succession Act to be proclaimed this year, but I now gather that it won’t happen until next year. In any case, it is useful to summarize some of the main changes under this new legislation:
1. Common law spouses will be treated pretty much the same as married couples, in one of the Act’s significant changes. “Spouse” is defined as a married couple, a couple living for at least two years in a marriage-like relationship, or an unmarried couple with a child (regardless of how long they have lived together in a marriage-like relationship).
2. This Act encourages couples, whether married or not, to enter into Agreements with respect to their relationship and breaking it up, I think. Having said that, the Court has wide discretion to set aside Agreements due to defects in the process of making the Agreement (whatever that may mean), significant unfairness in the Agreement (defining that will require some litigation), failure to fully disclose a spouse’s assets, etc. I expect that, as the law evolves, some people may be advised to make Agreements, while others may find an Agreement to be of insignificant benefit.
3. Gone is the concept of “family assets”, and what replaces it are “family property” and “excluded property.” Family property will now include “family debt.” Thus, debt becomes more formally recognized as something to be divided, whereas the existing law leaves debt for the most part undefined.
A major change in this area, which I will examine shortly, is the treatment of excluded assets. This type of asset includes gifts and inheritances. They are not to be divided at the end of an appropriate relationship, but if the excluded asset increases in value over the duration of the relationship, the increase in value becomes an included asset. Thus, when gifted or inherited the asset is excluded, but if it increases in value over time, the increase becomes family property.
4. The Court and the parties must consider only the best interests of the child in making Orders and Agreements, under Section 37 of the Act. The section also defines what to consider in determining the best interests of a child. Parenting arrangements are also legislated.
In this area in particular, the new legislation gives parents various options in dealing with children, particularly minors, on the breakup of a relationship. Time will tell whether it is a step forward, but the expense in setting a parenting arrangement for children may remain potentially high, depending on the degree of disagreement that parents have.
The property issue
I mentioned earlier that excluded property may prove to be a significant change in the new legislation. One example that comes to mind is a scenario in which a person inherits a rental property at a time when they are married.
Over the last twenty years, property values across much of the province, especially the Lower Mainland, have increased dramatically. So if that beneficiary remains married for another fifteen years, and then separates, that rental property will probably be considered an excluded asset. But if, at the time of inheritance, the property was worth $1 million, fifteen years later it might be worth $2 million.
If that is the case, the other spouse will probably claim a portion of the $1 million increase (perhaps half) on breakup. If it turns out to be $500,000, the beneficiary spouse will have to pay $500,000 to the other spouse, and the question will arise as to how to do that.
The beneficiary spouse may have to mortgage the property. That may not be feasible, depending on the rental revenue and whether the beneficiary spouse now wants to be responsible for a mortgage payment. It may require the sale of the property, which will probably trigger a capital gain. One might question whether the gain will be calculated based on the full $1 million increase in value, or just the net increase in value, after paying out the $500,000 to the former spouse!
Regardless, after the capital gain and after paying the spouse, the beneficiary spouse will probably be left with somewhere around $1 million — the original inheritance value. To me, that comes across as a potential hardship, especially if the beneficiary spouse counted on the rental revenue as a source of retirement income.
This doubtless will be a consideration for many people under the new legislation. Whether the potential problem can be resolved by Agreement is questionable.
In my opinion, the new Family Law Act will help people in different ways. It will probably help people with children. But persons who own or stand to inherit property need to get advice.
Whether they are making Wills, considering Family Law Agreements, or entering or breaking relationships, advice will likely be necessary in the coming year as the new law takes hold. If you are in such a situation, go slowly, and call your advisor(s).
This column ran in the Richmond News on February 22, 2013.