Lack Of Clarity When Purchasing A Family Home Leads To Dispute When Common Law Couple Separates

Written on behalf of Arbesman Hamilton LLP

People living in common law relationships may find themselves getting advice from friends and family to get married in order to avoid legal trouble should the relationship ever sour. A recent decision from the Ontario Superior Court of Justice highlights some legal trouble involving a common law relationship.

The relationship and the family home

The couple involved in the case were living in a common law relationship. The father said the relationship commenced in 2014, while the mother says it dated back to 2011. The couple had a child in 2015 but separated on October 13, 2016. The father also had another child from a previous relationship.

Prior to living together the father had a house which he sold. He contributed the $116,000 he made from selling his house towards the purchase of the family home in July 2014. The mother contributed $5,000 towards the home through money borrowed from her RRSP. The couple, who by this point had a joint bank account, paid for renovations to the home through a joint line of credit.

The couple sold the home two months after their separation. The net sale proceeds were $140,909.20 with an increase in equity of about $19,909.20. The dispute arose in regards to whether the original contributions from the sale of the home should be returned in the same manner or divided equally between the father and the mother.

The relationship prior to the purchase of the family home

The mother said she began living with the husband in 2011, at which time she began spending most of her time there. She testified that she kept most of her personal items at his house, only returning to her parents’ house when the couple had arguments. The father, meanwhile, testified that the couple only began living together in 2014. Up until that time, the couple did not share finances. The mother also used her parents’ house as her address for purposes such as income tax and credit card statements. The husband also testified that he paid the mortgage, property tax, insurance and utilities for his home.

The purchase of the family home

In the spring of 2014 the couple agreed that the husband would sell his home so they could purchase a new one together. The husband’s net proceeds from the sale of his home were $116,000. This, along with $5,000 from the mother, was used as a down payment for the family home, which was purchased on July 15, 2014 for $570,000.

The couple each signed the offer as purchasers. There was no discussion with the lawyer in regards to which of the couple’s names would be on the title. However, the lawyer did email them on July 22, 2014, writing:

“I am assuming that you want to hold title as joint tenants (so if one of you passes away, the other becomes fully entitled to the property).  If I’m wrong about this please let me know.”

The husband responded with an email that read, “Yes to joint names on title, it also means that if you kill me off, you will need to pay off my debt bitch.”

The father said he told the mother prior to the purchase of the house that he wanted to protect the money he contributed towards its purchase so it could eventually go to his son. The husband said he understood that joint tenancy meant ownership passed to the survivor on death, but that he didn’t understand whether there were other consequences to holding title in this manner.

The father testified that he did not intend to gift the mother the proceeds from the sale of his previous home and that he expressed that to the mother. However the mother said no such conversation took place.

The couple lived in the home together, and deposited their pay cheques into their joint bank account. This continued until they separated on October 13, 2016, at which time the mother withdrew the maximum available on their line of credit ($7,288.39).

After the separation

The only thing the couple agreed to upon their separation was that the mother owed the father half of what she withdrew from their line of credit on October 13.

The father argued that he was the owner of his previous home and as such, he was entitled to the proceeds from its sale. He testified about specific conversations he had with the mother about his intention to protect the proceeds for his son. While he knew the family home would pass to her if he died, he said he had no intention to gift her with the proceeds from the sale of his former home.

The mother’s position was that the proceeds of the sale of the family home should be divided equally. She said the couple’s finances were integrated to the point that a joint family venture existed. This, in addition to her testimony that the father called the purchase of the family home a “fresh start” resulted in his intention to gift her with the proceeds of his former home.

The court’s analysis

Since the couple didn’t ever marry, the property provisions from the Family Law Act did not apply. Instead, the court had to rely on trust law from common law.

The court was critical of the lawyer who represented the couple when purchasing the family home, writing,

“The evidence of the parties indicates (the lawyer) did not inform them of title options, nor did he explain the full legal meaning of joint tenancy, nor did he inquire as to the intentions of the parties given his knowledge of their unequal contributions.  These are matters a reasonable competent real estate lawyer reviews with purchaser clients on every transaction, particularly when they are not married.  There is good question as to whether (the lawyer) met the expected standard required of a real estate lawyer.  That is not an issue requiring determination.  But, I would say this trial likely would have never occurred had (the lawyer) performed the services expected.  He should have ascertained the intent, particularly of (the father), and been able to take instructions from informed clients.  Failure to do so has compounded the dispute between the parties and put them to avoidable expense.”

Was the $116,000 a resulting trust, or a gift?

The mother’s lawyer submitted that the principles of resulting trust and unjust enrichment should be combined in resolving the matter. However, the court pointed out that the two are separate legal principles, with unjust enrichment looking at post-transfer events while a resulting trust is not impacted by post-transfer events.

The court determined that the issue was one of whether a resulting trust had been established. The court explained that the facts of the case lead to the presumption of a resulting trust in that the father contributed $116,000 and the mother contributed $5,000, yet the title was taken as join tenants. The onus was on the mother to prove that the money was a gift.

The court did not find the evidence of the couple to be persuasive. The relationship was riddled with arguments, with each party being suspicious of the activities of the other. While the court found “certain logic” in the father’s desire to protect his investment, the court did not see any evidence that he communicated that desire to the mother. Meanwhile, the mother’s testimony that the purchase of the house was discussed as a “fresh start” does not signify the intention of a gift.

Without any evidence that the $116,000 was intended to be a gift, the court was unable to find that the presumption of a resulting trust had been rebutted.

Was there any unjust enrichment?

The court then turned to the issue of unjust enrichment. The mother claimed that she should be entitled to some of the proceeds from the sale of the father’s previous home because of the work she put into maintaining it. While the court did find that she contributed to the household, it also noted that she benefited from living in the home, offsetting anything that would lead to unjust enrichment.

The court found that there is a resulting trust and there was no unjust enrichment. As such, the money the father contributed to the family home were to be held in trust for the father use as he wished.

Separation and divorce can be difficult situations to navigate through. It’s important to seek out sound legal guidance when going through a family law dispute. The experienced family law lawyers at Arbesman Hamilton LLP can help you establish intentions in situations similar to what was discussed in this blog as well as other areas of family law. Our approach is client-focused, and we deliver exceptional results in a cost-effective manner. Please contact us online or by phone at 416-481-5604 to talk today.