How BC’s Court of Appeal Is Using Reapportionment to Reach Excluded Assets — and What It Means for You
George Lee • George Lee Law • gleelaw.com
Family Law | Property Division | BC
You Did Everything Right — and It Still Wasn’t Enough
Imagine this. You inherited $2 million from your parents. You kept it in your own name. You never co-mingled it with joint funds. You can trace every dollar. Under BC’s Family Law Act, that inheritance is excluded property — protected from division when your marriage ends.
But at trial, the judge looks at the bigger picture: you walk away with $2 million in excluded assets plus your half of the family property, while your spouse — who spent 20 years raising your children and sacrificing career opportunities — walks away with a fraction of your combined wealth. The judge decides that equal division of family property would be “significantly unfair,” and orders an unequal split — in your spouse’s favour.
Your excluded property was never divided. But its existence changed everything about how the rest of the pie was sliced.
This is not a hypothetical. In two recent decisions — one in 2024 and another in early 2025 — the BC Court of Appeal used reapportionment under s. 95 to shift the division of family property where substantial excluded assets had shaped the economic life of the marriage. One of those cases also fundamentally changed the tracing methodology for co-mingled excluded property.
The Myth: “Excluded Property Is Untouchable”
There is a widely held belief among separating spouses — and even among some lawyers — that excluded property under the FLA is a fortress. If you can prove that an asset qualifies as excluded property under s. 85(1) (pre-relationship property, gifts, inheritances, insurance proceeds, and certain other categories), then it is yours. Full stop. Your spouse has no claim to it, and the court cannot touch it.
The logic is straightforward: the FLA creates a bright line between family property (divided equally) and excluded property (kept by the owner). Absent agreement or court order, the increase in value of excluded property during the relationship is generally family property (s. 84(2)(g)), while the principal remains with the owning spouse. But as the cases discussed below show, the final economic outcome can still be affected by tracing disputes and reapportionment under s. 95.
| ⚠️ The Myth in a Nutshell “If I can prove my property is excluded under s. 85, it’s protected. The court can’t divide it, and my spouse can’t benefit from it.” This belief is understandable — but increasingly dangerous. |
The myth persists because it is half right. Excluded property is still generally protected from direct division. But that protection is not absolute. Under s. 96 of the Family Law Act, the court may divide excluded property in limited circumstances, including where it would be significantly unfair not to do so having regard to the duration of the relationship and one or more statutory factors — such as a spouse’s direct contribution to the excluded property, the terms of any agreement between the spouses respecting the excluded property, or the extent to which the significant unfairness cannot be addressed through unequal division of family property under s. 95. Section 96 remains a high bar, and courts have been reluctant to invoke it.
But what the myth misses is the back door: section 95.
The Wake-Up Call: Recent BCCA Decisions
Healey v. Healey, 2024 BCCA 68
The Healeys were married for 21 years. The wife was the primary caregiver, with limited career development. The husband was a successful financial adviser who held over $12 million in excluded property, mainly from family trusts and private corporations gifted to him by his father.
At trial, the wife failed to meet the s. 96 direct contribution test — she could not show that she had directly contributed to the preservation or improvement of the excluded assets themselves. Under the traditional understanding of excluded property, that should have been the end of the story.
It was not. The Court of Appeal found that the trial judge had failed to connect the dots between the husband’s excluded wealth and the economic reality of the marriage. The excluded property had been central to the family’s economic life — the husband routinely used income derived from his excluded assets to cover family expenses and to purchase the family home. The wife had relied on the husband to plan and save for their retirement, and as a result, she “pursued only limited career opportunities” and “did not concern herself with having a pension or RRSP.”
The BCCA ordered an unequal division of family property under s. 95 — a 65/35 split in the wife’s favour, requiring the husband to pay $1 million in gross compensation. It also imputed $96,000 per year in additional income to the husband from trust distributions that the trial judge had wrongly excluded.
Mills v. O’Connor, 2025 BCCA 34
The parties were married for over 20 years and had three children. The husband inherited a Vancouver property worth approximately $1.85 million from his parents. He sold it, used the proceeds to build a family summer home, and maintained both properties using a mix of inherited funds and borrowed money. The wife was primarily responsible for child care and returned to work only when the family’s finances became stretched.
After separation, the summer home was destroyed by fire, and the insurance proceeds of approximately $2.6 million became the central asset in dispute. The trial judge applied a “first-in, first-out” tracing method that preserved virtually all of the insurance proceeds as the husband’s excluded property, leaving almost nothing for division.
The BCCA reversed. It held that the trial judge erred in her tracing methodology — the correct approach under the FLA is a pro rata method that recognizes the increase in value of excluded property as family property intermingled with the exclusion. Under this approach, the husband’s excluded claim dropped from $1.85 million to approximately $1.15 million, freeing up roughly $1.48 million in family property for division.
But the Court did not stop there. It found that even an equal split of this recalculated family property would be “significantly unfair” given the 23-year marriage, the wife’s caregiving role, and the family’s reliance on the excluded property. The BCCA ordered a 65/35 reapportionment of family property in the wife’s favour under s. 95.
Why These Decisions Matter
Taken together, Healey and Mills v. O’Connor represent a significant shift in how BC’s appellate court approaches the interplay between excluded property and the division of family property. Several principles emerge.
First, excluded property is not invisible to the court. While the court cannot divide excluded property directly (absent the s. 96 threshold), the existence and use of excluded property during the marriage is a relevant factor in assessing whether equal division of family property would be “significantly unfair” under s. 95. In both Healey and Mills, the excluded wealth had been woven into the fabric of the family’s economic life — funding the family home, supporting the family’s lifestyle, and shaping the career and retirement decisions of both spouses.
Second, spousal sacrifice unlocks reapportionment. In both cases, the non-owning spouse had made significant personal sacrifices during the marriage — primarily by assuming the caregiving role at the expense of career development. The Court of Appeal treated this economic disadvantage as a factor that, combined with the excluded wealth, made equal division of family property unfair. Section 95(3) expressly permits the court to consider whether support alone has adequately addressed the financial impact of the relationship; if it has not, reapportionment is on the table.
Third, the tracing methodology matters enormously. Mills v. O’Connor establishes the pro rata method as the appropriate approach under the FLA when excluded property has been co-mingled with family property. This rejects the more favourable “first-in, first-out” approach, which had the effect of preserving excluded property values at the expense of family property. The pro rata method treats increases in value as shared between excluded and family property proportionally — shrinking the exclusion and expanding the pool available for division.
Fourth, the bar for “significant unfairness” may be lower than previously thought. The BCCA was careful in Healey to note that mere disparity alone is not enough. But when disparity is combined with reliance, sacrifice, and the use of excluded wealth for family purposes, the threshold is met. This creates a broad factual inquiry that will favour the economically disadvantaged spouse in many long marriages.
The Consequence: Excluded Property Protection Is Under Siege
The practical effect of these decisions is that the protection afforded by s. 85 of the FLA is no longer as robust as many people assume. The excluded property itself may remain formally untouched — but if the court can reapportion the family property to compensate for the unfairness created by the exclusion, the economic result is the same: the spouse with excluded property ends up transferring wealth to the other spouse.
| ⚠️ The New Reality Section 85 protects excluded property from direct division. But s. 95 allows the court to reapportion family property — including giving the other spouse a larger share — whenever the existence of excluded property creates “significant unfairness.” The protection is formal, not substantive. The economic outcome may be the same as if the excluded property had been divided. |
This creates a troubling paradox for estate planners and family lawyers advising clients on asset protection. A parent who gives their child a substantial inheritance — carefully structured as excluded property — may find that the protection evaporates in a long marriage where the other spouse can demonstrate economic disadvantage. The child’s inheritance remains “excluded” on paper, but the court redistributes the family property to offset the perceived unfairness of the exclusion.
For the spouse with excluded property, the message from the Court of Appeal is sobering: your exclusion is only as strong as the overall fairness of the outcome. If the economic result of applying the exclusion leaves your spouse in a significantly worse position — particularly after a long relationship with caregiving sacrifices — the court will intervene through s. 95 to close the gap.
What You Can Do
| 💡 Practical Steps for Protecting Excluded Property 1. Document the exclusion rigorously. The better your tracing and documentation, the more likely the court will respect the full value of the exclusion — rather than reducing it through pro rata tracing. 2. Keep excluded property separate. Do not use excluded assets to fund family expenses, purchase the family home, or support the family’s lifestyle. Every time excluded property is used for family purposes, it strengthens the argument for reapportionment. 3. Consider a marriage or cohabitation agreement. An agreement that specifically addresses how excluded property will be treated on separation — including its effect on the division of family property — is the strongest shield available. 4. Plan for both spouses’ financial independence. The reapportionment cases are driven by economic dependence. If both spouses maintain careers and retirement savings, the argument for s. 95 intervention is weaker. 5. Get legal advice early. Do not wait until separation. The time to structure your affairs is when the excluded property is acquired, not after the relationship breaks down. |
Don’t Assume the Law Will Protect You
The BC Court of Appeal’s recent decisions in Healey and Mills v. O’Connor are a wake-up call for anyone who relies on excluded property as a shield against family property claims. The protection is real — but it is not absolute. When excluded wealth shapes the economic life of a marriage, the court has broad discretion under s. 95 to rebalance the outcome.
If you hold significant excluded property — or if your spouse does — the time to understand your rights and risks is now.
At George Lee Law, we advise clients in English, Cantonese, and Mandarin on all aspects of family property division under the BC Family Law Act, including excluded property claims, reapportionment risks, and protective agreements. We understand the stakes — and we can help you plan ahead.
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Disclaimer: This article is for general informational purposes only and does not constitute legal advice. Every situation is unique, and readers should consult with a qualified lawyer regarding their specific circumstances. The information in this article is current as of March 2026 and may be subject to change as new legislation and case law develop.