How Marriage and Cohabitation Agreements can Safeguard Parental Gifts

In British Columbia, the Family Law Act (“FLA”) sets out clear rules governing the division of property when spouses separate. One important aspect of these rules concerns money or property that parents give to their child during the child’s marriage or common-law relationship. Under the legislation, gifts from third parties—such as parents—are considered excluded property. This means that, if the spouses separate, the gift remains the sole property of the child who received it, rather than being shared equally with the spouse. The intention is to recognize and preserve the contribution parents make specifically to their own child.

However, this protection can be unintentionally lost depending on how the gifted funds or property are handled. A common issue arises when parents give their child money to help purchase real estate, and the child chooses to register the property in joint tenancy with their spouse. Many couples do this for convenience or estate-planning reasons, because joint tenancy allows the property to pass automatically to the surviving spouse if one partner dies. But in the context of property division, registering the property in both spouses’ names can undermine the excluded status of the parental gift. By putting the spouse on title as a joint owner, the child may be found to have intentionally gifted part or all of the funds to their spouse, thereby losing the exclusion that would otherwise protect the parental contribution.

To avoid this unintended consequence, couples can enter into a cohabitation agreement or marriage agreement—commonly known as a “pre-nup”—that clearly confirms the gift from the parents remains excluded property despite how the title is registered. Such agreements allow the spouses to set out their mutual understanding in writing and ensure it aligns with the child’s parents’ intentions. A properly drafted agreement can prevent disputes later and preserve the child’s separate property rights.

It is also important to understand that the FLA distinguishes between the initial value of excluded property and the increase in value of that property during the relationship. While the original gift is excluded, any increase in its value—such as appreciation in the property’s market price—is considered family property. Under the law, family property is normally divided equally between spouses upon separation. This means that unless the spouses make a different arrangement in a legally valid agreement, any growth in the value of the gift must be shared.

A marriage or cohabitation agreement can address this as well. If the parties agree, the contract can state that not only the original parental gift but also any increase in its value will remain excluded. This type of provision must be explicit, because British Columbia law does not exclude increases in value by default. Only a valid agreement between the spouses can change that outcome.

To ensure enforceability, these agreements should always be drafted by experienced family lawyers and signed only after each spouse has obtained independent legal advice. Proper legal drafting and advice help ensure that the agreement meets statutory requirements, reflects informed and voluntary consent, and will stand up in court if ever challenged.

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Learn more about marriage and cohabitation agreements or contact us to see how Greg Lilles Law can help.