Rising Home Prices and Their Impact on Division of Property and Equalization in a Divorce

Written on behalf of Arbesman Hamilton LLP

Division of property

A shared home can be one of the most valuable assets a couple owns while together, and can, therefore, be the largest asset in division of property when going through a separation.

When a couple shares ownership of a house between themselves, it’s common for whole ownership to be acquired by one of the parties of the separation, or for the home to be sold with proceeds from the sale split between the couple. But what happens when a matrimonial home increases in value after separation, and is owned by just one person in the relationship? This is the question the Ontario Court of Appeal dealt with in a 2015 decision, and it a question that continues to be quite relevant given the exploding prices of homes in major cities Canada-wide.

 

A mortgage-free home owned by just one spouse

The husband and wife involved in the divorce were married in 1988 and had two children, who were 17 and 12 when the husband field for divorce in 2009. At the time of their separation, the couple lived in a home in Richmond Hill, Ontario which they had purchased in 2002 for $560,000. They had paid  for it in full with the proceeds from the sale of their previous home as well as a $150,000 gift from the husband’s  parents, a $50,000 gift from the wife’s parents, and accumulated joint savings. Because of these combined funds, the home was mortgage-free.

Ownership of the home was placed solely in the wife’s name. She stated at trial that this was done to protect the home from creditor claims that could have arisen due to the husband’s career as an investment advisor.

The home was worth $725,000 on the date the couple separated (V-Day), but had increased in value to $940,000 when the divorce went to trial in 2013.

Trial judge determines home to be a gift

It was the wife’s position at trial that, as the sole owner of the home, she alone was entitled to proceeds from the increased value of the house between V-Day and the trial – about $215,000.

The husband argued that he was entitled to an equal share of the increase in value of the house post V-day.

In considering these respective positions, the trial judge turned to the equalization provisions of the Family Law Act (the Act). He found that the husband had transferred the ownership of the home to the wife as a gift, out of love. As a result, he was entitled to his half of the value of the house only up to and including V-day.

When the [Husband] transferred the entire house to the [Wife] he did so because he loved her.  There were no strings attached to this gift.  I also find that the house was put into the [Wife’s] name to protect it from potential creditors so that the [Husband] could, at some time in the future, if necessary, protect “family” assets from third party creditors.

The equalization provisions of the [Act] give the [Husband] the protection afforded by our laws in the sense that these provisions will give him his lawful share in the rise in value of the property up to and including the date of separation.  While he may have made further contributions to the running costs of the property after the date of separation, those contributions, which were not categorized, nor proved, would fall into the category of support payments belonging to the [Wife].

The concept of constructive trust survives the equalization process set out in the [Act], it seems to me that it would be the rare case where it should be applied to prevent a clear injustice not cured by the usual equalization scheme.

The Ontario Court of Appeal does not agree

The husband appealed, and the Ontario Court of Appeal determined that there had been no clear intention of the home being a gift to the wife.

The court pointed out that the wife had stated at trial that the home was put in her name to protect it from creditors. The court found that the original judge ignored s.14 of the Act, which states that unless there is clear proof that interest in the property is a gift, the notion of a resulting trust (i.e. the right of the husband to share in post-separation increase of value of the home) could not be rebutted.

In short, if one spouse is the sole owner of a marital home on paper, they are only entitled to 100% of the post-separation value of the home if there is clear evidence that the other spouse intended to gift them sole ownership of the house.

Rising home prices across Canada, particularly in the greater Toronto area, mean that this could be an increasingly common issue for couples going through separation. At Arbesman Hamilton LLP, we help our clients through all stages of separation and divorce, including property division. Call us at 416-481-5604 or book an initial consultation online to speak to one of our lawyers today.