Borrowing on Family Property to Acquire New Property Will be Traced by the Court

With the introduction of “excluded property” into British Columbia’s family property law, cases continue to be released providing guidance to lawyers and separating couples alike.

The Appeal Court in KPB v. KE 2019 BCCA 152 considered whether the husband’s use of a line of credit secured by the parties’ family home, and used by him to purchase real property in his name after the date of separation, brought the after-acquired property into the category of family property or whether it was excluded property.

The parties were married for 12 years and had two children. They jointly purchased the family home for $255,000 with a $70,000 loan from the appellant wife’s father. The parties agreed that the trial judge incorrectly held that the loan was excluded property and consented to an order that the loan was a family debt pursuant to the Family Law Act.

The parties had a joint line of credit, that had a $0 balance. It was secured by a collateral mortgage against the family home. The home had a trial date value of $480,000. Just prior to the separation, the husband withdrew $25,000 from the credit line, and later an additional $95,000 to purchase a home in his name. Still later, he unilaterally withdrew a further $73,000, making total withdrawals of approximately $194,000.

When the husband brought his action for divorce and corollary relief, he failed to disclose this new home and the line of credit debt.

During the marriage the husband received an inheritance which he used to purchase RRSP’s and mutual funds which were agreed to be excluded property.
The trial judge equally divided the family property with the exception of the home the husband purchased at the time of separation. His rationale was that since the line of credit debt was the husband’s sole responsibility, the home was excluded property.

The appeal panel acceded to the wife’s argument that the trial judge erred in concluding that the husband’s after-acquired real property was excluded property. The Court held that if the trial judge had first determined what assets were family property and thereafter, what debt was family debt, he may not have fallen into error.

The Court said:

“After determining that the $193,792 was not family debt, the judge then reasoned that whatever was acquired by the husband with those monies was not family property. Had the correct approach been followed, in my opinion the result would have been different.”

The Court observed that the husband’s new home and the family home were interconnected assets because the husband, in effect, borrowed $120,000 from the equity of the family home to make his purchase.

The Court held that the wife’s interest in the husband’s home equated to that portion of the home that was purchased using the family home equity, which based on the home’s value of $490,000, less encumbrances, amounted to a compensation payment to the wife of $88,000.

Lawdiva aka Georgialee Lang

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s