Update: Who Shares Capital Gains Taxes at Separation or Divorce in BC? Family Law | YLaw

Who pays for capital gains at separation or divorce is a complicated and sometimes frustrating issue that can cost spouses a fortune.

In a nutshell, judges have the choice of making both spouses share in the payable capital gains taxes, or they can ignore such tax/debt as speculative. This can result unexpected and sometimes unfair outcomes.

Let’s look at this issue in more detail:

What are Capital Gains at Separation?

At separation spouses are to divide their assets generally on a 50/50 basis. Sometimes that division requires one spouse to buy out the other spouse’s share in an asset, or the couple may choose to sell an asset and divide the proceeds. 

Assets may have gone up in value since the time of purchase. In some cases, CRA will attach capital gains to these assets and compel the owner to pay taxes based on those.

For an in-depth discussion of capital gains and whether you have to pay them, click here. 

Who Pays for Distributive Taxes at Separation?

If a marital asset has gone up in value since the time of its purchase and is not exempt from distributive taxes:

• If it is sold at separation and such sale triggers capital gains, the spouses generally share the tax on a 50/50 basis.
• If one spouse buys out the other spouse, capital gains tax can be calculated but whether the tax should be shared is unclear.

Courts have dealt with this issue in inconsistent ways with some judges having both spouses share on taxes calculated based on the current value of the asset, and some judges not holding a spouse responsible for them.

It is critical to have the assistance of a family lawyer when you navigate these situations because sharing or not sharing capital gains can mean millions gained or lost.

The Latest BC Court of Appeal Case on Capital Gains

In the latest 2025 case of Dignard vs. Dignard, the wife appealed a judgement in which the trial judge did not hold her husband responsible for half of the capital gains when the judge ordered her to keep an asset that had accumulated capital gains:

1. The wife and husband decided not to sell all their properties. Instead, they asked the judge to allow each to keep some properties by essentially buying out the share of the other spouse;
2. The wife was to keep a condo in Langley which would have attracted capital gains if she sold it.
3. She had gone as far as obtaining an expert report that had calculated capital gains on the condo. She showed that report to the judge so the amount of the capital gains was clear. 
4. She asked the judge to have the husband be responsible for half of those gains since she buying out the husband’s share would be akin to a sale on which capital gains would be triggered and she would eventually have to pay them if/when she sold the property;

The judge had rejected her request as speculative and did not order her husband to share in the gains.

The Court of appeal reasoned as follows:

[51]         There is no question that a judge should take corporate and distributive taxes into account in the division of family property if there is evidence that a division of family assets will attract tax consequences. This is so even in cases where an asset does not have to be sold to allow the non-owning spouse to realize their interest: Sanai at para. 33. However, there is no absolute rule as to whether taxes should or should not be taken into account in the division of family assets: Sea v. He, 2024 BCCA 161 at para. 86, quoting Sanai at para. 155. A judge may decline to take taxes into account where it is not clear when or in what amount they will be payable, or where taxes are speculative: Maguire at para. 38. A trial judge must conduct a case- and fact-specific inquiry into the likelihood that distributive taxes will be incurred: Sea at para. 88.

The Legal Test Applying to Who Should Pay Distributive Taxes at Separation

The court of appeal cited the test of distributive taxes or capital gains as follows:

1.        where there is sufficient evidence to satisfy the Court of tax consequences or other costs inherent in a compensation order the Court should take these into account in setting the compensation amount;
2.        the onus is on the payor to provide the trial judge with the necessary evidence of the tax consequences arising from the division of assets or other consequences of having to acquire the funds to pay the           payee;
3.        there is no absolute rule as to how the compensation order might be calculated, depending, as it does, on the type of assets to divided, timing, the parties involved and other orders in the action;
4.        the matter should be considered as of the date of trial, not as of the date the matter comes back before the court; and
5.        the overriding principle is fairness.

The Result on Sharing Distributive Taxes According to BCCA

The Court decided not to interfere with the judge’s decision, explaining:

[54]         … there was also evidence to support the judge’s finding that the appellant had no intention of selling the property because she intended it to be a home for her children. Thus, there was no way to assess, for example: when a sale of the Langley Condo might occur, what its value would be on that future date, the applicable tax rate at the time of any sale, or whether estate planning tools might reduce the tax liability if the Langley Condo passed to the appellant’s children through her will.

[55]         It is not the law that tax consequences can only be accounted for if the order for property division requires sale of the property in question. However, it is also not the law that taxes have to be accounted for when it is impossible to know when, if ever, they will be incurred or in what amount. In the present case, I conclude that it was open to the judge on the evidence to find that the appellant’s tax liability was too speculative to be accounted for in the division of property. There is no basis for appellate interference with this conclusion.

Conclusion

Capital gains at divorce can cost spouses a fortune at separation. Whether you want to avoid having to pay them, or whether you want your spouse to share in those taxes, it is critical to have the assistance of an experienced family lawyer to make sure you strategize your case properly in order to deal with this issue.

In this case despite everything the wife did, she was still unsuccessful in having the husband share in those taxes. With proper strategizing and planning, the outcome may have been different.

To learn more about property division at separation, click here. 

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