When married couples separate, they have to divide their property accrued during the marriage. Section 4(2) of the Family Law Act excludes the following categories of property from this calculation:
- Property, other than a matrimonial home, that was acquired by gift or inheritance from a third person after the date of the marriage.
- Income from property referred to in paragraph 1, if the donor or testator has expressly stated that it is to be excluded from the spouse’s net family property.
- Damages or a right to damages for personal injuries, nervous shock, mental distress or loss of guidance, care and companionship, or the part of a settlement that represents those damages.
- Proceeds or a right to proceeds of a policy of life insurance, as defined under the Insurance Act, that are payable on the death of the life insured.
- Property, other than a matrimonial home, into which property referred to in paragraphs 1 to 4 can be traced.
- Property that the spouses have agreed by domestic contract is not to be included in the spouse’s net family property.
- Unadjusted pensionable earnings under the Canada Pension Plan.
If on the date of separation a party holds any excluded property as set out in section 4(2), he or she does not have to share that property with his or her spouse.
This exclusion is not absolute, however, and there are circumstances in which a party may lose the ability to exclude his or her property. In Townshend v. Townshend, 2010 CarswellOnt 9629 (Ont. S.C.J.), the husband received a gift of $25,000 during the marriage, and his wife deposited the funds into a joint account. On separation, the husband sought to exclude the value of that gift and his wife opposed the exclusion on the basis that the funds had lost their excluded status as a result of being deposited into an account held jointly by the parties. The trial judge agreed with the wife, and the husband appealed the decision.
The Ontario Court of Appeal over turned the trial decision in Townshend v. Townshend, 2012 ONCA 868, finding that “excluded property deposited into a joint account loses its exclusionary character to the extent of the one-half interest that is presumed to be gifted to the spouse.
Townshend serves as an important reminder that if a party wants to maintain the entirety of a property exclusion, he or she must keep that property separate from the other. However, if circumstances arise where the excluded property comes to be held jointly by the parties, all is not lost, and one-half of the exclusion can still be claimed.