



COURT OF APPEAL FOR BRITISH COLUMBIA




Citation:



Baryla v. Baryla,









2019 BCCA 22




Date: 20190118

Docket:
CA44857

Between:

Lorraine Marie
Baryla

Respondent

(Claimant)

And

Gordon Paul Baryla

Appellant

(Respondent)




Before:



The Honourable Madam Justice Bennett

The Honourable Mr. Justice Savage

The Honourable Mr. Justice Butler




On appeal from:  An
order of the Supreme Court of British Columbia, dated
September 29, 2017 (
Baryla v. Baryla
, 2017 BCSC 1759, Vernon Registry
51304).




Counsel for the Appellant:



N. Davies





Counsel for the Respondent:



R.S. Tretiak, Q.C.
B.D. Hastings





Place and Date of Hearing:



Vancouver, British
  Columbia

October 29, 2018





Place and Date of Judgment:



Vancouver, British
  Columbia

January 18, 2019









Written Reasons by:





The Honourable Mr. Justice Savage





Concurred in by:





The Honourable Madam Justice Bennett

The Honourable Mr. Justice Butler




















Summary:

The appellant challenged the
amount of a compensation payment, the failure to deal with distributive taxes,
and the awarding of spousal support after an equal division of assets. Held,
appeal allowed, new trial ordered. It was necessary for the court below to
determine whether the registration of title in joint tenancy was an inter vivos
gift to the husband, and to account for distributive taxes upon division of the
assets. The question of spousal support after an equal division of assets must
consider whether an award would amount to double dipping.

Reasons
for Judgment of the Honourable Mr. Justice Savage:

[1]

This appeal arises out of a family proceeding in which the appellant,
Gordon Paul Baryla, was ordered to pay a compensation payment and spousal
support to the respondent, Lorraine Marie Baryla.

[2]

Mr. Baryla challenges the amount of the compensation payment and
the order for spousal support. He says the compensation payment should be
reduced by the value of his mothers interest in a property that he received by
right of survivorship. He also says the trial judge erred by failing to
consider the tax consequences of disposing of certain family assets. After the family
assets were divided equally, Mr. Baryla says there was no basis for the
judges order that he pay spousal support, or for the particular quantum
ordered by the judge. Ms. Baryla supports the trial judgment.

[3]

For the reasons that follow, I would allow the appeal in part, and
direct a new trial.

I.         Background

[4]

In December 2014 the parties agreed to end their marriage of nearly 40
years. The parties were financially successful, having been able to retire in
their mid-40s and thereafter live off their investments, which were managed by Mr. Baryla.

[5]

On January 1, 2015, the parties entered into a letter of intent agreement
to dissolve their marriage and split their assets (the Letter Agreement).
Among other things, Mr. Baryla agreed to transfer a house (the 1513
Property) into Ms. Barylas name. The 1513 Property had originally
belonged to Mr. Baryla and his late mother in joint tenancy, but Mr. Baryla
had acquired full title through the right of survivorship upon her death.

[6]

The parties only partially performed the Letter Agreement. On June 29,
2015, Ms. Baryla brought the underlying action, claiming,
inter alia
,
spousal support and an equal division of family property. The matter proceeded
to trial in September 2016. During closing argument, the parties raised several
technical tax issues.

A.       1513 Property

[7]

The basic facts concerning the 1513 Property are not in dispute. In 2004
Mr. Barylas mother, Helen Baryla, sold her home and purchased, as joint
tenants with Mr. Baryla, the 1513 Property for $242,000. The 1513 Property
was next door to the parties family home (the 1511 Property).

[8]

Mr. Baryla says the judge misapprehended one aspect of the evidence.
The judge held that Mr. and Ms. Baryla contributed $169,605 of their
own funds towards the purchase price of the 1513 Property since Helen Baryla
had insufficient funds from the sale of her home. Mr. Baryla says the
opposite is true: that most of the purchase price ($169,605) came from the sale
of Helen Barylas former home and the balance came from the parties funds.

[9]

Helen Baryla died in 2013. Upon her death, Mr. Baryla became the
sole owner on title of the 1513 Property by right of survivorship. After
signing the Letter Agreement in January 2015, Mr. Baryla transferred title
to the 1513 Property into Ms. Barylas name. The parties also agreed that Ms. Baryla
would retain a cabin at Mabel Lake (the Mabel Lake Property).

[10]

As I have said, the Letter Agreement was never fully implemented. Mr. Baryla
claims, as he did at trial, that part of the 1513 Property should be excluded
from property division.

B.       Tax Issues at Trial

[11]

During submissions at trial, the mechanics of property division and the
tax issues relating to property division were raised by counsel and the judge.

[12]

The judge requested that the parties retain a joint expert to address
tax issues. Although the parties duly retained an expert (Cheryl Schmidt of
KPMG) who prepared seven reports dated February 6, March 3, 13, 24, April 5, 17
and May 23, 2017, the experts reports were not formally entered as exhibits at
trial.

[13]

On September 18, 2017, the judge ordered the parties to disclose their
2016 tax returns and notices of assessment.

[14]

The judge released her reasons, indexed as 2017 BCSC 1759 (RFJ), on
September 29, 2017. The reasons were released before the parties had submitted
their 2016 tax information. The judge received and reviewed the seven expert
reports, which were not formally entered into evidence, but rejected them all
because they did not comply with the requirements of the
Supreme Court
Family Rules
, they went beyond the scope of an expert report, and they included
some unproven assumptions.

[15]

The judge ordered an equal division of family property to be effected by
a compensation payment from Mr. Baryla to Ms. Baryla. Having rejected
the expert reports, the judge said, I confess not to know the answer to the
tax issues that the parties raised in closing argument (RFJ at para. 106).
Apart from two exceptions, she found that she was not in a position to make
any allowances for taxes (RFJ at para. 114).

[16]

The exceptions were for the sale of the 1511 Property (the family home) and
the sale of the Mabel Lake Property. The judge ordered that the parties
equally share in the tax cost of each of them disposing of, or selling their
respective interest in [the 1511 Property] and the cabin at Mabel Lake (RFJ at
para. 112).

[17]

The 1511 Property was the parties principal residence and its sale
would not attract tax. Ms. Baryla sought and received the Mabel Lake Property
in the division of family assets and does not intend to sell it. On the other
hand, the 1513 Property was not the parties principal residence and it would attract
tax consequences on disposition. The same applies to a property the parties
acquired in Arizona (the Arizona Property), which Mr. Baryla retained in
the property division.

C.       Property Division and Spousal Support

[18]

The judge ordered an equal division of family property with a total net
value of $5,015,728.44 and a compensation payment of $641,772.54 (increased to
$828,829.38 after correction of a calculation error) to accomplish equal
division. Ms. Baryla also sought spousal support.

[19]

Neither party has had employment for many years. The parties retired in
1999 when Mr. Baryla was 46 years old and thereafter lived off income from
their investments. Mr. Baryla managed the financial assets during the
parties marriage. At the time of trial Mr. Baryla was 63 years old and Ms. Baryla
was 62.

[20]

After ordering the equal division of family property, the judge noted
that Mr. Baryla will continue to have the income earning capacity to make
investments and profit from his capacity to do so (RFJ at para. 101). On
the other hand, she found that Ms. Baryla does not have that capacity.

[21]

The judge ordered that Mr. Baryla pay spousal support to Ms. Baryla
at $2,650 per month for ten years, after which there would be a review.

II.        Issues

[22]

The parties raise the following issues on appeal:

(1)

Did the judge err in law in calculating the compensation payment by:

(a)

failing to find that a portion of Mr. Barylas interest in the 1513
Property was excluded property; and

(b)

failing to consider the tax implications of disposing of family
property?

(2)

Did the judge err in law in ordering Mr. Baryla to pay spousal
support, or alternatively in ordering the particular quantum of spousal support,
by:

(a)

failing to provide adequate reasons;

(b)

failing to consider the respective incomes of the parties after property
division; and

(c)

failing to consider the current income of the parties, especially after
ordering disclosure of their 2016 incomes?

III.       Discussion and Analysis

A.

Did the Judge Err in Determining the Compensation Payment?

[23]

The two issues concerning the compensation payment are whether the judge
erred in her treatment of the 1513 Property and whether tax implications beyond
those addressed by the judge should have been considered. With respect to the
treatment of the 1513 Property, Mr. Baryla says the judge erred in failing
to find that part of the property was excluded property as a gift or
inheritance. He says the judge also erred in her alternative findings that the
1513 Property ceased to be excluded property when Mr. Baryla transferred
it to Ms. Baryla and that its exclusion from property division would be
significantly unfair.

i.         1513 Property

[24]

Mr. Baryla agrees that Ms. Baryla has a part interest in the
1513 Property, since family funds contributed to the purchase. Mr. Baryla
says, however, that his mothers half-interest, which he obtained by right of
survivorship, is excluded property under s. 85 of the
Family Law Act
,
S.B.C. 2011, c. 25 [
FLA
]

as a gift or inheritance.

[25]

Section 85 reads as follows:

85 (1) The following is excluded from family property:

(a)
property acquired by a spouse before the relationship
between the spouses began;

(b)
inheritances to a spouse;

(b.1)
gifts to a spouse from a third party;

(c)
a settlement or an award of damages to a spouse as
compensation for injury or loss, unless the settlement or award represents
compensation for

(i)
loss to both spouses, or

(ii)
lost income of a spouse;

(d)
money paid or payable under an insurance policy, other
than a policy respecting property, except any portion that represents
compensation for

(i)
loss to both spouses, or

(ii)
lost income of a spouse;

(e)
property referred to in any of paragraphs (a) to (d)
that is held in trust for the benefit of a spouse;

(f)
a spouse's beneficial interest in property held in a
discretionary trust

(i)
to which the spouse did not contribute, and

(ii)
that is settled by a person other than the spouse;

(g)
property derived from property or the disposition of
property referred to in any of paragraphs (a) to (f).

(2)
A spouse claiming that property is excluded property
is responsible for demonstrating that the property is excluded property.

[Emphasis added.]

[26]

Joint tenancy and tenancy in common constitute the main forms of
co-ownership in Canadian law. A defining characteristic of joint tenancy is the
right of
survivorship
,
whereby when a joint tenant dies, his or her interest in the property is
extinguished, and the surviving joint tenant obtains the full interest to the
property:
Zeligs v. Janes
, 2016 BCCA 280 at para. 41.

[27]

The right of survivorship in a joint tenancy is discussed in D.W.M.
Waters, M.R. Gillen & L.D. Smith, eds.,
Waters Law of Trusts in Canada
,

4th ed. (Toronto: Carswell, 2012) at 404405:

When property is bought by one
person and title taken in joint names, a joint tenancy will arise, which
confers upon each party an equal entitlement to the property, which includes a
so-called right of
survivorship
. This right, which
is not a separate right but merely an incident of joint tenancy, will cause the
whole property to vest in the survivor. The reason is that
in a joint
tenancy, if one joint tenant dies, his interest simply disappears and nothing
passes to his estate. The result is that the interest of the surviving joint
tenant is effectively converted into sole ownership. It is this effect which is
often described as a right of
survivorship
.
If A supplies the purchase money and conveyance is taken in the joint names of
A and B, B during the joint lives will hold his interest for A; B will also
hold his right of
survivorship
 again by way
of a resulting trust  for A's estate, because that right is merely one aspect
of B's interest. In other words, the starting point is that B holds all of his
interest on resulting trust for A, or A's estate. However, evidence may show
that, while A intended B to hold his interest for A during the joint lives, it
was also A's intention that, should he (A) predecease, B should take the
benefit of the property. The presumption of resulting trust would then be
partially rebutted, in relation to the situation that has arisen, so that B
would not hold his interest (now a sole interest and not a joint tenancy) on
resulting trust. He would hold it for his own benefit.

[Emphasis added.]

[28]

In
Pecore v. Pecore,
2007
SCC 17, the Supreme Court of Canada considered the nature of rights of
survivorship in the context of joint bank accounts. The Court concluded that
since the right of survivorship vests when a joint account is opened, the right
of survivorship is an
inter vivos
gift, rather than a testamentary gift.
Justice Rothstein explained:

48         the rights of survivorship, both legal and
equitable, vest when the joint account is opened and the gift of those rights
is therefore
inter
vivos
in nature. This has also been the conclusion of the
weight of judicial opinion in recent times: see e.g.
Mordo v. Nitting
, [2006] B.C.J. No. 3081
(QL), 2006 BCSC 1761
, at paras. 233-38;
Shaw v. MacKenzie
Estate
(1994),
4 E.T.R. (2d) 306
(N.S.S.C.), at para. 49; and
Reber v. Reber
(1988), 48 D.L.R.
(4th) 376
(B.C.S.C.); see also
Waters' Law of Trusts
, at
p. 406.



50        Some judges have found
that a gift of survivorship cannot be a complete and perfect
inter vivos
gift because of the ability of the transferor to drain a joint account prior to
his or her death: see e.g. Hodgins J.A.s dissent in
Re Reid
. Like the
Ontario Court of Appeal in
Re Reid
, at p. 608, and
Edwards v.
Bradley
, at p. 234, I would reject this view. The nature of a joint
account is that the balance will fluctuate over time. The gift in these
circumstances is the transferees survivorship interest in the account balance
 whatever it may be  at the time of the transferors death, not to any
particular amount.

[29]

This Court
reviewed
Pecore
and the earlier authorities on the characterization of the right of
survivorship in
Bergen v. Bergen
, 2013 BCCA 492. Madam Justice Newbury summarized
that all of these cases in my view turned on the donor's
intention
to
make a gift of the right of survivorship  which I understand to mean an
immediate gift of a joint interest consisting of whatever balance exists in the
account on the transferor's death, assuming he or she dies first (at para. 37,
emphasis in original).

[30]

The Court in
Bergen
endorses the proposition that:

[41]       The gift of a joint
interest in real property is an
inter vivos
rather than a
testamentary gift and cannot be retracted by the donor. It is a 'complete and
perfect
inter
vivos
gift' ..." [citation omitted].

The Court explained, however, that [a]t the same time,
in cases where the property was provided by the transferor, the transferee must
still prove that a gift was intended − i.e., he or she must rebut the
presumption of resulting trust (at para. 41).

[31]

Applying this reasoning to the 1513 Property, by registering the
property in the joint names of Mr. Baryla and Helen Baryla, Helen Baryla
gifted the right of survivorshipbut to whom? If Helen Baryla made the gift to Mr. Baryla,
then on its face it would qualify as excluded property under s. 85(1)(b.1)
of the
FLA
as gifts to a spouse from a third party. However, arguably it
is not clear to whom Helen Baryla gifted the right of survivorship. Was the
gift to Mr. Baryla alone, or to both Mr. Baryla and Ms. Baryla
as both had contributed to the purchase price? The judge did not undertake the
analysis necessary to dispose of this issue.

[32]

The next question that arises is whether the transfer of the 1513
Property to Ms. Baryla extinguished Mr. Barylas excluded property
claim. If it did then the question of to whom the
inter vivos
gift was
made would be academic. In my view, it did not.

[33]

The
FLA
does not eliminate common law and equitable concepts
relating to property but rather builds on those principles, preserving concepts
such as gifts and trusts, and evidentiary presumptions such as the presumption
of advancement. Thus, excluded property, or the proceeds thereof, that is gratuitously
transferred between spouses during the course of a relationship may lose
excluded status unless the presumption of advancement is rebutted:
V.J.F. v.
S.K.W.
, 2016 BCCA 186 at para. 74.

[34]

The trial judge relied on
V.J.F.
and held that the 1513 Property
was not excluded property because Mr. Baryla had voluntarily transferred
it to Ms. Baryla (RFJ at para. 63). In my view, however, the
presumption of advancement does not apply in this case. The parties were
separated at the time of the transfer. The transfer of the 1513 Property to Ms. Baryla
by Mr. Baryla was not a gift between spouses; it was in partial fulfillment
of the terms of the Letter Agreement. That said, after the fact conduct may be
relevant to the parties understanding of the intent behind Helen Barylas gift.

[35]

Mr. Baryla also challenges the judges alternative holding that it
would be significantly unfair to exclude the value of the 1513 Property from property
division since a significant portion of the purchase price came from the
parties joint funds. In my view, this argument cannot be considered until the parties
actual contributions to the purchase price are ascertained.

ii.        Tax Costs of the Disposition of Assets

[36]

The parties brought tax information to the judge by filing with the
court seven tax opinions of an accountant, which sought to address questions
raised by the parties and the judge. The judge found that information unhelpful
for various reasons, as mentioned, and inadmissible for technical reasons.

[37]

The judge then made an order limiting the sharing of tax burdens to an
asset not subject to tax on disposition (the 1511 Property, the parties principal
residence) and an asset that was not intended to be sold (the Mabel Lake Property,
a recreational property). The judge did not determine the tax issues on which professional
opinions had been sought. There is no explanation for the judges failure to
consider tax implications associated with the 1513 Property, the Arizona
Property or the parties investment accounts.

[38]

This Court has held that corporate and distributive taxes can and should
be taken into account where there is appropriate evidence:
Maguire v.
Maguire
, 2016 BCCA 431 at paras. 38­39;
Sinai v. Mahmoud
, 2017
BCCA 155 at paras. 3135. Simply put, if some assets have inherent tax liabilities
and others do not, it could be unfair to allocate the assets equally, without
taking into account the tax liabilities.

[39]

In this case the parties made significant efforts to bring before the
judge the necessary information to take tax considerations into account. While the
judge may have had justification for rejecting some of the opinions before her,
in my view there was not justification for substantially abandoning the effort
to take tax consequences into account, on which both parties made submissions.

[40]

Although Mr. Baryla would have this Court make orders to facilitate
property division by asset class to address some of these concerns, those are
matters for the trial court to determine on receipt of appropriate evidence. The
same would apply to his related submission that the court place a temporal
limit on any obligation to share in the tax consequences of the disposition of
property.  That too is a matter for the trial court.

B.       Did the Judge Err in Ordering Spousal Support?

[41]

The judge ordered that Mr. Baryla pay Ms. Baryla spousal
support of $2,650 per month for ten years. She also made the order for spousal
support retroactive to January 1, 2015.

[42]

As mentioned, the order for spousal support was in addition to the order
for a substantial compensation payment to effect equal property division. The
family assets included typical things a family acquires: a home, chattels and
investments. Investments formed a large part of their asset base. In this case
the family had lived for many years on their investment income.

[43]

I would not interfere with the order for spousal support pending the new
trial. I have agreed with Mr. Baryla that the judge was obliged to
consider the tax implications of property division. Determining whether spousal
support is payable does not only involve determining whether there is a
significant disparity in income but also: (1) whether in principle, having
divided assets equally, there should be an order for spousal support at all, and
(2) how the fact that Mr. Baryla has the capacity to manage financial
assets himself should impact the amount, if any, of spousal support payable.

[44]

That would comport with this Courts decision in
Puiu v. Puiu
,
2011 BCCA 480, where Mr. Justice Groberman cautioned against awarding
spousal support pursuant to the
Spousal Support Advisory Guidelines
in
cases where the parties income was derived from assets, and those assets had already
been divided. The Court held that such a practice would improperly facilitate double
dipping on family assets. Groberman J.A. explained:

[15]

Neither
of the parties, then, has any income other than from their accumulated assets.
Those assets were divided by consent in a manner fully consistent with the
provisions of the
Family Relations Act
, R.S.B.C. 1996, c. 128.

[16]

Ms. Puiu
has received her share of family assets. To allow her now to seek a share of
the income from Mr. Puius assets would be to allow the sort of double
dipping that was found to be improper in
Boston v. Boston,
2001 SCC 43.
In the circumstances, allowing Ms. Puius claim for ongoing support would
be tantamount to re-dividing assets that have already been divided.

[17]

Caution
must be exercised in applying the formulas set out in the
Spousal Support
Advisory Guidelines
to a case such as the present, where the sole source of
income for the parties is income from assets that have been divided under the
Family
Relations Act
. Section 12.6.3 of the
Guidelines
provides as follows:

12.6.3
Boston v. Boston


... [T]he
Advisory Guidelines on amount and duration do not change the law from
Boston
v. Boston
governing double-dipping, mostly from pensions. That law remains
in place, as a possible constraint upon the amount of support, determining if
some portion of income should be excluded from the formula because it has been
previously shared under property division.

[Bold in original.]

[45]

In
Boston v. Boston
, 2001 SCC 43, Justice Major described double
dipping as follows:

1          "Double
recovery" or "double dipping" are terms that have come to
describe the situation where, after an equal division of assets on marriage
breakdown, one spouse claims continued support from the previously divided or
equalized assets of the other spouse.

[46]

In my view, in this case, it was incumbent on the trial judge to address
the issue of double dipping, which she failed to do. The judge noted that Mr. Baryla
had skill in managing financial assets whereas Ms. Baryla did not. However,
it does not follow from that observation that ten years of spousal support is
payable, rather than, say, an allowance for a management fee. By that, however,
I am not suggesting any particular outcome to this issue.

[47]

As I have found that the judge erred in failing to consider the effect
of property division on Ms. Barylas claim for spousal support, I find it
unnecessary to consider Mr. Barylas remaining two arguments that the
judge erred in providing inadequate reasons and in failing to consider the
parties current income in awarding spousal support.

[48]

I would vary the order for spousal support to make spousal support in
the amount determined by the judge payable until the new trial.

IV.      Conclusion

[49]

In my view, the judge erred in her analysis of whether the 1513 Property
was excluded property, in failing to properly consider and apply the tax
implications of property division, and in ordering ongoing spousal support, for
the reasons I have given. I would allow the appeal in part and direct a new
trial.

[50]

I would not interfere with the order that family property be divided
equally or that spousal support as determined be payable from January 1, 2015,
but only until the new trial.

The Honourable Mr. Justice Savage

I agree:

The Honourable Madam Justice
Bennett

I agree:

The Honourable Mr. Justice Butler


