An Exception To The Usual Exclusion Rule
As discussed in earlier blogs, ordinarily when determining a party’s net family property a spouse is entitled to exclude assets acquired by gift or inheritance during the marriage. In addition, the Family Law Act allows this same exclusion for any property that this so-called asset may be traced to. In other words, a spouse can exclude an asset that was purchased with money from either the inheritance or the gift. However, the Court in a decision known as Cartier v. Cartier has carved out an exception to this usual rule so that the spouse who received either the gift or inheritance may, in certain circumstances, still be entitled to exclude his or her half of it.
In Cartier the husband inherited farmland, and the married couple then sold it and put some of the proceeds of sale into a jointly held investment. If the husband had kept the proceeds of sale in the investment in his own name he would have enjoyed the exclusion of the entire asset from his net family property. In addition, he would also have enjoyed the exclusion for any asset purchased with the proceeds from this inherited asset. One then would have expected that the husband placing the proceeds from this inherited asset into a jointly held investment would have ended his claim for an exclusion. That was not the case. In the end, the presiding judge accepted the evidence of the husband when he argued that he intended that he and his wife would each own one-half of this jointly held asset. This was a unique argument, and the judge held that this particular intention that each party own 50% of the asset removed it from the usual case where an asset lost its exclusion because it was intended for the “common purposes of the family.” In this case, the Court accepted that the husband’s clear intention, which was that this asset would accrue in equal shares to each spouse so that it was not for the “common purposes of family.” Since the husband had agreed that the asset is jointly owned he was effectively only claiming an exclusion over his half and, for this reason, the Court allowed him to exclude the value of his half for the purposes of determining his net family property. At the end of the day, then, the husband enjoyed the benefit of excluding his half while his wife had to include her half. As such, the husband was able to reduce his net family property while the wife’s was correspondingly increased.