When couples separate in British Columbia, most property is divided equally under the Family Law Act. As a general rule, family property includes almost everything either spouse owns at the time of division.

However, not all property is shared. The Family Law Act recognizes a category called excluded property, which remains the sole property of the spouse who owns it.

Understanding what qualifies as excluded property, and how it can change over time, is essential to ensuring a fair division.

Excluded property generally includes assets that were not built or accumulated as part of the relationship.

Under the Family Law Act, excluded property may include:

• Property acquired before the relationship began
• Inheritances received by one spouse
• Gifts given specifically to one spouse
• Certain court awards or settlements
• Certain insurance proceeds
• Certain trust interests

The key idea is that these assets did not arise from the joint efforts of the relationship.

If you owned property before you started living together, the value of that property at the start of the relationship may be excluded.

For example:

If you owned a home before cohabitation, the net value of the home, meaning its market value minus any mortgage or secured debt at the time you began living together, may be excluded.

It is important to understand that the excluded amount is fixed at the value that existed when the relationship began, not its value at separation.

Inheritances or gifts received by one spouse during the relationship are generally excluded, provided they were intended for one person only.

If a parent gives money specifically to one spouse, that money may remain excluded. It is helpful to have documentation, such as a gift letter or bank record, showing that the gift was directed to one person and not both spouses.

If the inheritance or gift was clearly intended for both spouses, it may not qualify as excluded property.

Certain types of legal settlements, such as personal injury awards and insurance proceeds, may be excluded to the extent they compensate for personal loss. It doesn't include amounts received to compensate for lost income.

Certain types of trust interests may also qualify as excluded property, depending on their nature and structure.

These situations can become complex and often require legal advice.

One of the most important concepts in excluded property is tracing. If excluded property is used to purchase another asset, the exclusion can follow, or trace into, the new asset.

For example:

If you owned a home before the relationship and sold it, then used the proceeds as a down payment on a new home, the excluded value may trace into the new property.

However, tracing requires clear financial records. If excluded funds are mixed together with family property and cannot be clearly identified, the exclusion may be lost.

Good documentation is often critical for your spouse to understand and agree to exclude such amounts.

Here is the rule that surprises many people.

While the original excluded amount remains excluded, any increase in value during the relationship is generally considered family property and is shared.

For example:

If you received an inheritance of $100,000 and invested it, the original $100,000 may be excluded. However, if that investment grew to $150,000 during the relationship, the $50,000 growth is typically family property and subject to division.

Similarly, if you owned a home worth $400,000 when the relationship began and it was worth $800,000 at separation, the $400,000 increase in value is generally shared.

The law protects what you brought in, but not the growth that occurred while you were building a life together.

Spouses can also agree to treat certain property as excluded, even if it would otherwise qualify as family property.

For example:

• You may agree that post-separation bank account balances remain separate
• You may agree that personal credit card debt incurred after separation is not shared
• You may agree that certain accounts remain untouched

The Family Law Act allows spouses flexibility to structure their own agreement, provided the result is fair and informed.

Excluded property often becomes complex when:

• Assets are reinvested
• Funds are mixed together
• Records are incomplete
• Significant growth occurs

The line between excluded property and family property can blur over time. This is why careful documentation and early legal advice are important, particularly where significant assets are involved.

Excluded property provides important protection for assets you brought into a relationship or received individually during it.

However, exclusion does not mean immunity from division forever. Growth in value is usually shared, and tracing must be clear and well documented.

Understanding how the Family Law Act treats excluded property allows you to negotiate with clarity and confidence.

When in doubt, seek independent legal advice to ensure your Separation Agreement accurately reflects both your rights and your intentions.