What happens if the character of "excluded" property has changed? For example, what happens if sale proceeds from a sale of a house that a spouse owned prior to the start of the spousal relationship are put towards the purchase of a new house purchased during the relationship that would otherwise be considered family property? This is where the concept of "tracing" is applicable.
The starting point in a division of property claim is to determine what is "included" or "excluded" family property. The starting point for "included" family property is that it is divisible equally.
If one spouse can prove that a particular piece of property is "excluded" family property, then the value of that particular piece of property and anything "derived" from that piece of property may be declared as "excluded" and retained by that spouse claiming the exclusion.
The concept of "tracing" relates to the issue of determining what is indeed "derived" from otherwise excluded property.
The pertinent sections of the Family Law Act are 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.
The case of Shih v. Shih, 2015 BCSC 2108 (CanLII)
is instructive on this point and as set out below:
 … Where it is asserted that excluded property has changed character, each link in the chain required to trace the property into a currently owned asset must also be established. Depending on the nature of the claim in question, this may mean, in practical terms, that it is impossible for a party to meet the onus without documentary evidence. For example, where the claim in question is a bank account that one party says pre-existed the relationship the court may conclude that a party’s viva voce testimony of the balance in the account at a particular point in time several years earlier is unreliable, and therefore insufficient to meet the onus, if not corroborated by a bank statement. On the other hand, where the claim in question is founded upon an unusually memorable event, such as an inheritance, the court may conclude that a party’s viva voce testimony as to the value of the inheritance is reliable without corroborating documents. In other words, in determining whether the onus has been met, the court will assess the credibility and reliability of the whole of the evidence tendered in the context of the specific case, but having regard for the precision mandated by the more formulaic approach of the FLA.
What can be gleaned from the above passage is that when excluded property has changed character, the evidence required to prove the "exclusion" to the satisfaction of the court will depend on what grounds the exclusion is claimed.
The Court of Appeal has recently provided more guidance on the above principle which is set out below in the case of Shih v. Shih, 2017 BCCA 37
 The flaw I see in the Asselin analysis adopted by the judge is that it rests on the assumption that the FLA demands “precision” or “mathematical certainty”. I can see nothing in the Act that demands “precision” or “mathematical certainty” in the standard of proof for establishing a claim to excluded property.
 The inherent challenge which confronts litigants under the FLA is that in many relationships of any significant length, documents will have been destroyed and memories dimmed. A legal standard that demands mathematical certainty or precision risks defeating legitimate claims.
 In my opinion, the proper test for establishing a claim to excluded property under s. 85 of the FLA is the same as in any civil case – proof on a balance of probabilities. The requirement of certainty and precision in my view improperly tips the standard closer to the criminal standard of proof beyond a reasonable doubt.
 I do not quarrel with the proposition that, in order for a party to establish excluded property, he or she must do so with clear and cogent evidence. If documentary evidence is not available, the party bearing the onus of proof will need to testify as to their recollection of the transactions in dispute. That evidence will be scrutinized for credibility.
 However, in balancing the evidence as a whole, the trial judge must be permitted to draw reasonable inferences from evidence that is less than certain or precise in order to do justice between the parties.
 In P.G. v. D.G., 2015 BCSC 1454 (CanLII), Madam Justice Fenlon (as she then was) discussed the purpose of the excluded property model of the FLA and emphasized the need to fit with parties’ expectations of fairness.
 ... In the British Columbia Ministry of Attorney General’s White Paper on Family Relations Act Reform: Proposals for a new Family Law Act,(2010), online: <http://www.ag.gov.bc.ca/legislation/shareddocs/fra/Family-Law-White-Paper.pdf> the reason for introducing an excluded property regime was described as follows (at 81):
The most compelling reasons for moving to an excluded property regime are to make the law simpler, clearer, easier to apply, and easier to understand for the people who are subjected to it. The model seems to better fit with people’s expectations about what is fair. They “keep what is theirs,” (such as pre-relationship property and gifts and inheritances given to them as individuals) but share the property and debt that accrued during their relationship.
 With the appropriate standard of proof in mind, balance of probabilities, I turn to address the property Mr. Shih submits was improperly excluded...
The court then went on to assess the Mr. Shih's excluded property claims to various assets.
With regard to bank accounts, the Court of Appeal found that there was sufficient evidence at trial based on his "pattern of saving" argument to support the value of his excluded property claim. To put it simply, Mr. Shih was claiming that funds in his bank account which were "excluded property" were used to purchase real property which was subsequently sold. He then sought to exclude the value commensurate with the "excluded" amount in the bank accounts from the sale proceeds of the real property that was sold. This exclusion was denied at trial but was accepted on appeal.
With regard to the Telus options, the Court of Appeal determined that at trial Mr. Shih did not proffer evidence regarding the after-tax value of said options which he alleged was traceable to equity real estate.
With regard to the equity in a separate property, the court allowed the appeal and found that the purchase documents tendered into evidence at trial was sufficient to permit the court to make a determination as to the value of the exclusion claimed.
With regard to the RRSP's, the Court of Appeal did not accept this ground of appeal and accepted that the trial judge did not have sufficient information to permit adequate "tracing" of the alleged value of the RRSP's which pre-dated the relationship.
 I would dismiss Mr. Shih’s argument that the judge misinterpreted the Consent Order. I would allow the appeal to the extent that Mr. Shih’s claim for excluded property relating to the Bank of Montreal accounts ($30,730) and the mortgage of the West 4th Avenue property ($71,975) are excluded assets that can be traced to the proceeds of sale of the Braemar home. I would dismiss Mr. Shih’s claim that the Olympia Trust RRSP is an excluded asset. I would dismiss Mr. Shih’s arguments that he received an unfair trial.
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