Divorce in Ontario: a spouse’s entitlement to the other spouse’s inheritance

Please note that the information provided herein is not legal advice and is provided for informational and educational purposes only. If you need legal advice with respect to getting a divorce in Ontario, you should seek professional assistance (e.g. make a post on Dynamic Lawyers). We have Toronto, Ottawa, Hamilton, Brampton, Mississauga and other Ontario lawyers registered to help you. 

A lot of people think they know the answer.  They’re asked a very specific question and then simply blurt out something like “that’s how it’s done”.  Unfortunately, these people are not lawyers and their “advice” is just plain wrong.  Lawyers know that, most of the time, the answer is “it depends on your specific situation”.  Legal answers aren’t always clear cut.  They are based on an examination of the facts in light of the legislation, caselaw, policy, and other sources.  At the end of the day, we make arguments to support conclusions.  Our conclusions may not be right if the person making the decision (e.g. a judge or politician) doesn’t agree, but that’s how it work!

So, with all that ranting said and done, I move on to the question at hand: if someone wants to get a divorce in Ontario, are they automatically entitled to an inheritance their spouse received?  The answer is “IT DEPENDS“.

Now before we get into what it depends on, I want to briefly explain how property and income from property are divided upon divorce.  I’ve blogged previously about it here.  It’s all about the equalization of net family property.  So you should read that blog first before this one to get an understanding of what happens when couples divorce in Ontario.

OK, so going back to the original question: what does it depend on?  I’ll go through some of things these and then you’ll get the point:

When was the Inheritance received?
If the inheritance was received before the marriage, it will not be included in “net family property”.  Therefore, you won’t be entitled to it, plain and simple under divorce laws.  You may be entitled to it if you don’t get a divorce and your spouse dies and leaves it to you as part of his or her estate.   But, for the purposes of getting a divorce, if your spouse inherited lots of property and money before he or she got married to you, you could be out of luck.

Is there a Domestic Contract?
If the inheritance was received by your spouse during the marriage, then more questions arise.  First, was there a Prenuptial Agreement or Marriage Contract entered into between the parties that addressed this situation (i.e. his or her inheritance either forming part of or being excluded from “net family property”?).  Prenuptial Agreements (entered into before the couples get married in contemplation of their marriage) and Marriage Contracts (entered into by married couples) can modify the rights of married couples under the Family Law Act.  They are private agreements which, if valid and enforceable, can govern things like how your spouse’s inheritance is to be treated.

Now, if there was a private domestic agreement which is enforceable and it reinforces the idea that your spouse’s inheritance (property, income from that property, etc.) won’t be included in “net family property” in case of a divorce, then you’re likely out of luck.  It could say, however, that you’re supposed to include those things in the calculation.   So it all depends on if such an agreement exists, is enforceable, and what it says.

What does the Act say?
OK, so if the inheritance was received DURING the marriage and there is NO domestic agreement to govern, you will need to look at the Family Law Act to determine your entitlements.  Section 4(2) of the Act says what you DON’T include when calculating net family property.  specifically, the value of property that was “acquired by gift or inheritance from a third person after the date of the marriage” is EXCLUDED!   So too is income from that property, but only if the donor or testator (the person who died and made the Will) expressly stated that the income was to be excluded from the spouse’s net family property.

So there you have it: the Family Law Act excludes inheritances to a spouse made during the course of a marriage.  Inherited property is excluded outright, whereas income from such property is excluded only if the person who gave it (i.e. the donor or testator) said that they didn’t want the income to be included in the recipient’s net family property.

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Common Law Agreement (Ontario)

This is the full and FREE DL Guide that comes with every purchase of a Cohabitation Agreement on Dynamic Lawyers:

When you purchase an Ontario Cohabitation Agreement from Dynamic Lawyers, you get a lawyer-prepared and customizable legal form, a VIDEO TUTORIAL showing you how to customize the legal form, the DL GUIDE (above), plus another DL GUDE (entitled “Is My Legal Form Valid and Enforceable?”) – all for a very low price of just $97 plus taxes! It would cost you thousands of dollars for a lawyer to prepare all of these things for you from scratch! So what are you waiting for? Get your package today!

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Cohabiting Couples | Common Law Marriage in Ontario

Please note that the information provided herein is not legal advice and is provided for informational and educational purposes only. If you need legal advice with respect to cohabitation, prenuptial or marriage contracts and agreements, you should seek professional assistance (e.g. make a post on Dynamic Lawyers). We have Toronto, Ottawa, Hamilton, Brampton, Mississauga and other Ontario lawyers registered to help you. You can contact me directly if you need a lawyer.

So I received an e-mail today from someone who asked: “When do cohabiting couples become common law spouses with support obligations under the Ontario Family Law Act?“  It was a very good question.  You see, if you have a Cohabitation Agreement that avoids creating financial obligations, then you don’t have to worry too much about the consequences of being in a common law relationship and finding yourself subject to paying SUPPORT to the other spouse.  The reason being that this Cohabitation Agreement can actually allow the parties to avoid any support obligation entirely!  The spouses essentially waive their right to claim support under the Family Law Act, the Succession Law Reform Act, others statute, the common law, or equitable grounds.

But what if you don’t have a Cohabitation Agreement?  Well, then you’re subject to what the Family Law Act says with respect to support obligations!  So what does it say? Well, Part III (“Support Obligations“) of the Act says that every SPOUSE has an obligation to provide for himself / herself AND for the other SPOUSE in accordance with the need, to the extent that he or she is capable of doing so (section 30). Indeed, a spouse has the right to apply to the court for an order for spousal support (section 33(1)).

So who counts as a “spouse”? Well, turning to section 29, “spouse” is defined to include married couples but also “either of two persons who are not married to each other and have cohabited continuously for a period of not less than three years”.  WOW!  So if you cohabit continuously with another person for 3 years, you become their spouse for the purposes of spousal support under the Ontario Family Law Act.  But the Act goes on to say that a “spouse” also includes “either of two persons who are not married to each other and have cohabited “in a relationship of some permanence, if they are the natural or adoptive parents of a child”.  OK, so this second definition of “spouse” seems to be a bit more relaxed than the first, but there’s a child involved.

Now, going back to the first definition – “cohabit continuously with another person for 3 years” – the question which then needs to be answered: what does “cohabit continuously” mean?  Do they have to be living under the same roof every day for 3 years?  What factors are relevant?  What have the courts said?

Well, in the recent case of Sternat v. Hell, [2010] O.J. No. 1620, the Ontario Superior Court of Justice was dealing with a motion for temporary spousal support in respect of a non-married couple.  The couple never married and had no children.  The woman claimed that she was a common law spouse and entitled to temporary spousal support under the Act.  The man denied that they were spouses as they lived apart EACH WINTER!  Hmmm…so what did the court say about this?  Well, the Court turned to the frequently quoted authority on the issue of “conjugal relationship” – the Ontario District Court’s decision in Molodowich v. Penttinen (1980), 17 R.F.L. (2d) 376 (which had been cited with approval by the Supreme Court in M v. H. (1999) 2 S.C.R. 3).  In Molodowich, the Court outlined 7 factors which helped determine whether a conjugal relationship existed.  Those factors were:

1. Shared Shelter: did the parties live under the same roof? what were the sleeping arrangements?  Did anyone else occupy or share the available accommodation?
2. Sexual and Personal Behaviour:  did the parties have sex?  If not, why not?  Did they maintain an attitude of fidelity to each other? What were their feelings towards each other? Did they communicate on a personal level?  Did they eat their meals together?  What if anything did they do to assist each other with problems or during illness?  Did they buy gifts for each other on special occasions?
   
3. Services: what was the conduct and habit of the parties in relation to preparing meals, washing and mending clothes, shopping, household maintenance, and any other domestic services?
4. Social: did the couple participate together or separately in neighbourhood and community activities?  What was their relationship and conduct towards members of their respective families and how did the families behave towards the parties?
5. Societal Perception of the Couple: what was the attitude and conduct of the community towards each of them and as a couple?
6. Economic Support: what were the financial arrangements between the parties regarding the provision or contribution of necessities of life (e.g. food, shelter, recreation, etc.)?  What were the arrangements concerning the acquisition and ownership of property?  Was there any special financial arrangement between them which both agreed would be detrimental of their overall relationship?
7. Children: were there any?

The Court in Sternat acknowledged that these factors were to be used flexibly with an objective view (such that it could respond to a variety of relationships that existed in Canada’s diverse society).  Relying on these factors, the Court found that the woman and man were common law spouses.  The Court came to that conclusion, in part, based on the fact that:

• the couple spent 7 months a year together in the same residence for the past 5 years;
• the couple were sexually active;
• the man provided the woman with a significant level of financial support after they separated;
• the couple participated together in community activities (however infrequent); and
• the woman gave up financial independence and became financially dependent on the man.

As a result, the common law husband had to pay $2,000 per month in temporary spousal support to his common law wife based on his ability to pay.  WOW!

Remember: you can try to avoid the Family Law Act and a judge from determining whether you owe support to a person you are cohabiting with by entering into a COHABITATION AGREEMENT!  If you need a lawyer to help prepare or review one of these agreements for you, make a post!

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Pre-nups | Marriage Contracts (Part 2)

Please note that the information provided herein is not legal advice and is provided for informational and educational purposes only. If you need legal advice with respect to cohabitation, prenuptial or marriage contracts and agreements, you should seek professional assistance (e.g. make a post on Dynamic Lawyers). We have Toronto, Ottawa, Hamilton, Brampton, Mississauga and other Ontario lawyers registered to help you. You can contact me directly if you need a lawyer.

This is the second of a series of blog posts about prenup or prenup agreements in Ontario. In my first blog, I talked about how property is usually divided when married couples separate under the EQUALIZATION OF NET FAMILY PROPERTY REGIME under the Family Law Act.  Here, I’m going to talk about how pre-nups, marriage contracts, and separation agreements can change the way that property is divided when married couples separate.

So under the Family Law Act, couples can enter into written agreements called DOMESTIC CONTRACTS to change the way the Act would normally apply to the division of property between married spouses when they separate.  Indeed, the Act could take a back seat to what the couples specifically want and agree to!  Now, there are different kinds of domestic contracts for married spouses:

• Prenuptial Agreements (entered into before the couple marries);
• Marriage Contracts (entered into after the couple marries); and
• Separation Agreements (entered into when the couple separates).

Basically, all 3 types of domestic contracts allow the parties to agree on their respective rights and obligations under the marriage on or separation to deal with ownership in or division of property.  That’s what sections 52(1)(a) and 54(a) say.  To be valid and enforceable, the contract must (among other things) be in writing and signed by the parties and witnessed: section 55(1).  Now also keep in mind that the agreement itself must be substantively valid (i.e. it must be clear, complete, and certain enough to be enforceable) and procedurally valid (i.e. it must be entered into without undue influence, duress, misrepresentation, fraud, etc.).   These are standard principles of contract that apply to all agreements – including family law agreements such as domestic contracts.

Now, recall in the previous blog I wrote that something a spouse can EXCLUDE from their NET FAMILY PROPERTY through a DOMESTIC CONTRACT is PROPERTY.  That’s exactly what section 4(2)6 says: the value of property that the spouses have agreed by a domestic contract is not to be included in the spouse’s net family property does NOT form part of the spouse’s net family property.  So, for example, if one of the spouses owns the matrimonial home, he or she can agree with the other spouse not to include that value in his or net family property.  As I’ve previously blogged about, while you can address ownership issues of a matrimonial home in a domestic contract, you can’t contract out of a spouse’s right to possess the home after the breakdown of the marriage.

Remember: if you need help with your divorce concerning the division of property, support (child / spouse) or other matters, make a post on Dynamic Lawyers. We have family law lawyers who can help you!

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Pre-nups | Prenuptial Agreements (Part 1)

Please note that the information provided herein is not legal advice and is provided for informational and educational purposes only. If you need legal advice with respect to cohabitation, prenuptial or marriage contracts and agreements, you should seek professional assistance (e.g. make a post on Dynamic Lawyers). We have Toronto, Ottawa, Hamilton, Brampton, Mississauga and other Ontario lawyers registered to help you. You can contact me directly if you need a lawyer.

This is the first of a series of blog posts about prenup or prenup agreements in Ontario.  Here, I’m going to talk about how property is normally divided when a married couple separates.  It’s called an Equalization of Net Family Property Regime.  Now a prenup or marriage contract can change how this regime operates.  But if you don’t know how it operates, you won’t understand how to change it!

So the basic idea is that, under section 5(1) of the Ontario Family Law Act, when a married couple gets a divorce (or through a court order declaring the marriage a nullity) or is separated and there is no reasonable prospect that they will resume cohabitation, then their NET FAMILY PROPERTY is divided in half.  This reflects an “EQUALIZATION PAYMENT” which each spouse is entitled to.  OK so what is NET FAMILY PROPERTY and how do you calculate the EQUALIZATION PAYMENT?  That’s where this blog comes into play.  I’ll discuss these two things in 8 steps.

Step 1: Determine value of property on Separation Date
You need to understand where we’re going in order to get there.  We are going to end up figuring out the NET ACCUMULATION of wealth of each spouse DURING the course of the marriage.  Once we have this figure (and make certain adjustments) for each spouse, then we’ll be able to compare one spouse’s with the other.  The difference between the two will then be divided in half, resulting in an “EQUALIZATION PAYMENT” being owed to each spouse.

So the first step to getting there means looking at the end of the marriage.  What property did each spouse own at the end of the marriage?  Property will include things like real property (e.g. land, buildings, homes, cottages, condos, etc.) or personal property (e.g. money, securities, RRSPs, paintings, chattels, cars, boats, collectibles, etc.).  Once each spouse puts together a list of their property, they need to determine the VALUE of the property.  Determining VALUE requires two things: (1) a valuation method and (2) a date on which to value the property.  The valuation method is FAIR MARKET VALUE.  In other words, what would it cost to go out in the market and buy this piece of property from a complete stranger (instead of a friend or family member who would give you a deal)?  We don’t care about the book value (i.e. what was the original cost of the property) because this won’t reflect the fair worth of the property.  The DATE on which the property is being valued is the earliest of the following dates:

• date of separation (where there is no reasonable prospect that the couples will resume cohabitation);
• the date a divorce is granted;
• the date the marriage is declared a nullity; or
• the date that one of the spouses dies, leaving the other spouse surviving.

Now there are no doubt going to be some assets that are hard to value (e.g. pensions, securities, business interests, etc.).  You may need the assistance of an accountant.  If both spouses own property together (e.g. joint bank account), then you attribute half of the value of that property to each spouse.  Finally, it’s important to keep in mind that not all property is to be included in this calculation.  There is some property (e.g. pre-marital assets, gifts or inheritances received during the course of the marriage, life insurance proceeds, etc.) that are NOT TO BE INCLUDED – but I’ll get into this below.  It’s just a good idea to keep in mind.

So, lets say, for arguments’ sake that here are the values of the two spouse’s property as of the date of separation:

• Husband: $200,000
  
• Wife: $100,000

Step 2: Subtract debts on Separation Date
Recall that we’re looking for the NET INCREASE IN WEALTH for each spouse during the course of the marriage.  That’s why we need to subtract the total debts of each spouse from their property values as of the date of separation.  This will give us a net amount for each spouse as of the Separation Date.  This would include things like credit card debts, lines of credit, loans, etc.  So, in our example above, let’s assume that the husband had debts of $100,000 and the wife had debts of $50,000.  That means that each of their net asset value as of the date of separation would be as follows:

• Husband: $100,000
• Wife: $50,000

Step 3: Determine value of property on Marriage Date
By this stage, we now have the final figure to be used in determining what the NET INCREASE IN WEALTH for each spouse was during the course of their marriage.  Now we need to do the same thing AT THE BEGINNING OF THEIR MARRIAGE!  So we start off by listing the property and determining the value of that property at the beginning of the marriage.  We would use, however, the FAIR MARKET VALUE of the property on the DATE OF MARRIAGE (not the current date).  So lets assume the following values can be attributed to each spouse at the beginning of their marriage:

• Husband: $150,000
• Wife: $25,000
  

Step 4: Subtract debts on Marriage Date
As with when you’re trying to find the NET WEALTH of each spouse on the date of separation, you must also do the same for each spouse on the date of their marriage.  That means you must subtract their debts and liabilities from their assets as of that date.  So let’s assume that the husband had debts of $50,000 and the wife had debts of $100,000.  Taking into consideration their assets (Step 3), that would mean that the husband and wife were worth the following at the beginning of the marriage, respectively:

• Husband: $50,000
• Wife: -$75,000

Now, just to clarify, how is it that a person can have a negative net worth at any given point?  Well, they can have assets (e.g. car, home, money in bank account).  But their debts and liabilities are simply greater than their assets.  Perhaps they have lots of credit card bills.  Or maybe they borrowed money to acquire some of their assets.  Or maybe they spend more than they earn so they don’t have disposable income.  That explains why the Wife, in this example, had a negative net worth of $75,000 at the date of the marriage.

Step 5: Determine Net Family Property
Now that we have a starting figure (net wealth of each spouse at beginning of marriage) and an ending figure (net wealth of each spouse at end of marriage), we can find out the difference.  This figure represents the net family property of each spouse.  Now don’t get ahead of yourself: you still need to make certain adjustments (Step 6), but this is the starting point.  So based on our example above:

• Husband: $100,000 – $150,000 = (-$50,000)
• Wife: $50,000 – (-$75,000) = $25,000

Now, if net family property for a spouse is a negative number (e.g. the Husband above), then he or she is given a “0″.  In other words, there is NO NEGATIVE VALUE attributed to his or her net family property.  It can never be a negative number.  Only “0″ if the spouse was actually worth LESS on the date of separation than they were at the date of marriage.  That’s what section 4(5) of the Ontario Family Law Act says.  So now our NET FAMILY PROPERTY for each spouse would be:

• Husband: $0
• Wife: $25,000

Step 6: Subtract certain items
Now before we go ahead and find the difference between each spouse’s NET FAMILY PROPERTY, we need to exclude certain items.   This is what the Ontario Family Law Act says.  Here are the things to exclude:

• gifts or inheritances from a third person after the date of the marriage;
• income from gifts or inheritances from a third person after the date of the marriage IF the donor or testator has expressly stated that it is to be excluded from the spouse’s net family property;
• damages or a right to damages for personal injuries, nervous shock, mental distress or loss of guidance, care and companionship, or the part of a settlement that represents those damages;
• proceeds or a right to proceeds of a policy of life insurance, as defined under the Insurance Act, that are payable on the death of the life insured;
• property which things mentioned above can be traced and attributed to (e.g. gifts or inheritances used to purchase certain property);
• property that the spouses have agreed by a domestic contract (e.g. Pre-Nup, Marriage Contract, or Separation Agreement) is not to be included in the spouse’s net family property; and
• unadjusted pensionable earnings under the Canada Pension Plan.

OK, so in our example, since the husband had a net family property of $0, there’s no point in deducting anything else.  We simply look at the wife’s net family property of $25,000 and see if we can deduct the value of any of the above.  If we assume, for example, that the wife inherited $5,000 as a gift from her father’s estate after he died, then we can exclude that (assuming that there’s nothing in prenup, marriage contract, or separation agreement that says otherwise).  This means that the wife’s adjusted net family property will be $20,000 ($25,000 – $5,000).

• Husband: $0
• Wife: $20,000

Step 7: Find difference between Net Family Property
OK, so now that we have both spouse’s net family property, we find the difference between the two.  In this case, the difference is $20,000 (the husband had $0 and the wife had $20,000).

Step 8: Divide difference of Net Family Property by 2
The final step is to divide the difference between the Husband and the Wife to create an EQUALIZATION PAYMENT which each spouse is entitled to when they separate.  Dividing $20,000 by 2 means that each spouse is entitled to $10,000.

That, my friends, is a detailed example of how property generally gets divided pursuant to an EQUALIZATION OF NET FAMILY PROPERTY REGIME under Ontario Family Law.  You find the NET INCREASE IN WEALTH for each spouse, take the difference between the two spouses, and then divide that figure by two to determine the EQUALIZATION PAYMENT which each spouse is entitled to.

So now that you understand how property is GENERALLY DIVIDED, in the next blog, I’ll talk about how this REGIME can be altered through a prenuptial agreement (entered into before marriage), marriage contract (entered into during the marriage) or separation agreement (entered into at the end of the marriage).  All of these agreements are called domestic contracts and are governed by the Ontario Family Law Act.

Remember: if you need help with your divorce concerning the division of property, support (child / spouse) or other matters, make a post on Dynamic Lawyers.  We have family law lawyers who can help you!

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Equalization of Net Family Property: what’s it all about?

Please note that the information provided herein is not legal advice and is provided for informational and educational purposes only. If you need legal advice with respect to cohabitation, prenuptial or marriage contracts and agreements, you should seek professional assistance (e.g. make a post on Dynamic Lawyers). We have Toronto, Ottawa, Hamilton, Brampton, Mississauga and other Ontario lawyers registered to help you. You can contact me directly if you need a lawyer.

When a marriage breaks down, the Ontario Family Law Act kicks in with an EQUALIZATION OF NET FAMILY PROPERTY REGIME.

Note: the Act says that this regime applies when a divorce is granted or a marriage is declared a nullity, or when the spouses are separated and there is no reasonable prospect that they will resume cohabitation.

What about a “community of property” regime? Well, on breakdown of the marriage, there is no “community of property” scheme that applies (which I previously blogged about).  This means that one spouse does not have an interest in the other spouse’s property.  Rather, the spouses are left with a judgment for a specific dollar amount.  Either spouse can do as they please with their own property.  If one spouse fears that the other will squander or waste their property and be unable to pay the equalization payment, then an application can be made to the court to try to stop that spouse from doing so.

The idea behind equalization of net family property is that the net wealth of a couple during their marriage is divided equally between them.  There are certain things that will generally be excluded from this calculation (e.g. life insurance proceeds, gifts and inheritances from third parties, and things excluded in a prenuptial agreement or marriage contract).  So the NET INCREASE IN WEALTH of a couple is shared, not specific ASSETS.

Now does that mean that the “community of property” doctrine is dead?  Not necessarily.  Why?  Because the Family Law Act allows couples to have private agreements (such as pre-nups and marriage contracts) that allow parties to create community of property regimes.  These are private contracts, the breach of which may be enforced through court.  Now creating a community of property regime is not easy.  There are lots of nuances and problems which can arise.  For example, if a couple has immediate and equal rights to own and possess property acquired during the marriage, then how will they manage that property?  How will disputes be resolved?  It can get very thorny.  Another problem arises when proceeds from selling “community of property” assets are used to improve only one spouse’s situation.  Is the community of property entitled to the benefits from that spouse?  What if a spouse has improved community of property assets?  See how it can get very complicated…

In this day and age, most couples go with an easier route: a modified version of the Family Law Act‘s EQUALIZATION OF NET FAMILY PROPERTY regime.  The couple simply indicate, through a pre-nup or marriage contract, that they want to include or exclude certain things when calculating their net family property.  An example could be to exclude real estate, antiques, or other things owned by one of the spouses.  Things like RRSPs, professional licenses, or ownership interests in businesses (e.g. securities, partnership equity, etc) could also be excluded from net family property.  The spouses could also agree that such assets WILL NOT BE SOLD or otherwise encumbered (e.g. mortgaged) in order to satisfy any equalization judgment owing to the other party.

In the next few blogs, I’ll get into how property and support (spousal and child) can be addressed in a pre-nup or marriage contract.

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Community of Property: What’s it all about?

Please note that the information provided herein is not legal advice and is provided for informational and educational purposes only. If you need legal advice with respect to cohabitation, prenuptial or marriage contracts and agreements, you should seek professional assistance (e.g. make a post on Dynamic Lawyers). We have Toronto, Ottawa, Hamilton, Brampton, Mississauga and other Ontario lawyers registered to help you. You can contact me directly if you need a lawyer.

So what is “Community of Property” all about? Well, traditionally, the idea used to be that, instead of separating property between married spouses upon a breakdown of their relationship, courts could find that the spouses’ assets had been combined into a unified “community of property“.  Each spouse would own one-half of the community of property on the assumption that they each contributed equally to the economic assets of the marriage.  So if each spouse’s separate assets had been intermingled with property acquired during the period of marriage to the extent that it couldn’t be identified, then a presumption could arise that it became part of the “community of property“.

Now, the question to ask is whether present Ontario courts have the power to view marital assets as a “community of property“.  The answer is, to a large extent: NO.  The Ontario Family Act governs ownership and division of property when married spouses part ways.  It does so through an EQUILIZATION OF NET FAMILY PROPERTY REGIME.  The Act does not create a traditional community of property regime or grant any powers in respect thereof to the courts.  As the Superior Court of Justice held in Braga v. Braga [2006] O.J. No. 2600:

6 The Family Law Act does not create a community of property regime. Chattels are not held in common. Other than s. 9 and s. 10 of the Act the court has no power to allocate property between the parties. The court values the property owned by each. If a dispute as to the ownership and right to possession of specific property arises the court may determine that issue under s. 10 applying the rules for determining ownership which every lawyer learns in first-year property classes. Once the property of each party is valued, then, subject to statutory exclusions and deductions a money judgment is issued in an amount sufficient to equalize the value of each party’s “net family property”. Only after the court has determined the quantum of the payment necessary for equalization does the court have the right to transfer property under S. 9 of the Act in satisfaction of the money judgment.

So what do sections 9 and 10 of the Act say?  Well the gist of section 9 gives the court the power to order a spouse to pay the other spouse an amount owed under the Act.   OK.  So there’s nothing about community of property there.  Furthermore, section 10 allows the court to answer questions between spouses concerning the ownership or right to possess particular property (other than as arising out of an equalization of net family property).  So basically, the court doesn’t give any regard to the old “Community of Property” thinking.  Rather, the court is told by the legislature to follow a structured EQUILIZATION OF NET FAMILY PROPERTY REGIME under the Act.

I’ll discuss an Equilization of Net Family Property regime next…

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Prenup Agreement Templates (Part 6)

Please note that the information provided herein is not legal advice and is provided for informational and educational purposes only. If you need legal advice with respect to getting a prenuptial agreement, you should seek professional assistance (e.g. make a post on Dynamic Lawyers). We have Toronto, Ottawa, Hamilton, Brampton, Mississauga and other Ontario lawyers registered to help you. We will soon be offering Prenuptial Agreements in our Legal Forms + Video Guides section. You can contact me directly if you need a lawyer.

This is the sixth of a series of blog posts I’m writing about prenups or prenuptial agreements for Ontario. In the first blog, I discussed what they are, when are they used, and what is required for them to be valid and enforceable. In this blog, I’ll discuss how they can be challenged. In the second blog, I reviewed Loy v. Loy – a Ontario Superior Court of Justice case which reviewed the jurisprudence concerning how prenuptial agreements (and other domestic contracts) can be challenged. In the third blog, I’m discussed some tips that will help mitigate against future challenges to prenups. In the fourth blog, I talked about about what happens if a prenup is set aside (in other words, what will govern the division of property, spousal support, etc.)? I also discussed the doctrines of UNJUST ENRICHMENT, CONSTRUCTIVE TRUST, and RESULTING TRUST -  which can be used by a party to claim to assert property claims. In the fifth blog,  discussed  ownership and division of property can be dealt with in a prenuptial agreement template.  In this blog, I’m going to focus on the idea of requiring a spouse to release your estate from claims through your prenuptial agreement.

So in a certain section of the prenup, the idea is that the parties agree not to make claims against the other party’s estate when they die.  This provision may become relevant in the case of intestacy (i.e. one of the parties dies without a will) or where a Will is involved.  This provision may also become relevant where a party is a spouse under the Succession Law Reform Act and is asserting a claim as a dependent to proper support from the deceased spouse’s estate.

Worth mentioning is that the language of the release is of utmost importance.  If a release is too general, it may not succeed in covering things which the parties may have intended.  For example, in Dimma v. Algoma Steel Corp (1979), 98 D.L.R. (3d) 160, the Ontario High Court of Justice held that a general release in a separation agreement (a type of domestic contract, just like a Prenuptial Agreement) did not prevent a wife from getting her deceased husband’s pension benefits.  The separation agreement between the husband and wife provided a release “from all claims and rights that (she) may have, had, or afterwards may acquire: (b) upon the death of the other, under the laws of any jurisdiction”.  The Court held that this language only prevented the wife from claiming statutory rights, but not contractual rights, such as pension benefits, or the ability to dispose of assets under a Will.

Similarly, in Re Saylor (1984) 3 D.L.R. (4th) 434, the High Court of Justice held that a general release in a separation agreement did not prevent a wife from claiming that she was a dependent and entitled to support under the Succession Law Reform Act.  In this case, the wife and husband’s separation agreement contained a general release which said that the parties accepted the terms of the agreement “in satisfaction of all claims and causes of action each now has … including … claims and causes of action for … possession of or title to property, and any other claims arising out of the marriage of the husband and the wife”.  Now, after the husband died, new legislation (the Succession Law Reform Act) came into force.  Under that legislation, a dependent of a deceased could apply to the court for proper support from the estate.  The wife claimed entitlement to the matrimonial home, which she had previously transferred to her deceased husband as part of the separation agreement.  The Court held that the general release did not prevent her from claiming a right to the matrimonial home.  Among other things, the Court held that the language of the release was clear enough only to bar inter-vivos claims, BUT NOT CLAIMS AGAINST ESTATES!

The lessons to be learned from these cases (and others) is that you must be as precise and comprehensive as possible if you wish to prevent a party to a Prenuptial Agreement from making claims at common law, statute, equity, trust, or in contract.

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Prenuptial Agreement (Part 5)

Please note that the information provided herein is not legal advice and is provided for informational and educational purposes only. If you need legal advice with respect to getting a prenuptial agreement, you should seek professional assistance (e.g. make a post on Dynamic Lawyers). We have Toronto, Ottawa, Hamilton, Brampton, Mississauga and other Ontario lawyers registered to help you. We will soon be offering Prenuptial Agreements in our Legal Forms + Video Guides section. You can contact me directly if you need a lawyer.

This is the fifth of a series of blog posts I’m writing about prenups or prenuptial agreements for Ontario. In the first blog, I discussed what they are, when are they used, and what is required for them to be valid and enforceable. In this blog, I’ll discuss how they can be challenged. In the second blog, I reviewed Loy v. Loy – a Ontario Superior Court of Justice case which reviewed the jurisprudence concerning how prenuptial agreements (and other domestic contracts) can be challenged. In the third blog, I’m discussed some tips that will help mitigate against future challenges to prenups. In the fourth blog, I talked about about what happens if a prenup is set aside (in other words, what will govern the division of property, spousal support, etc.)? I also discussed the doctrines of UNJUST ENRICHMENT, CONSTRUCTIVE TRUST, and RESULTING TRUST – whichcan be used by a party to claim that they are entitled to certain property.  In this blog, I’m going to talk about how ownership and division of property can be dealt with in a prenuptial agreement template.

The parties may have already decided a certain percentage or simply say that they get whatever they put into the relationship during its term.  The parties may want to also evidence here how much they’ve contributed (e.g. buying a house together or in a joint account).  Property rights can be waived and the parties can release each other from claims to the other’s property.  The parties can also waive rights they may have to property under doctrines of trust.  In what follows, some of the more important issues concerning property will be discussed.

Excluded Property
When married parties divorce, there is an EQUALIZATION OF NET FAMILY PROPERTY.  Essentially, you take the value of spouse’s property at the date of separation, subtract the value of their property at the date of marriage, and split that amount between the two spouses.  If the parties want to exclude certain of their property from NET FAMILY PROPERTY, they can do so through a Prenuptial Agreement.  The key thing to remember is that, while certain assets will not be included in Net Family Property because they were owned outside of the marriage (e.g. before the parties got married), the assets may nevertheless be capable of growth, sale, and further investment.  If the property is capable of increasing in value or providing income, then these things should be excluded from NET FAMILY PROPERTY as well as the asset itself (if that is the parties’ intention)!  So too should any property that is substituted for that property, as well as any appreciation in value or income that can be derived from the substituted property.

Constructive Trust
With respect to ownership or division of property, one of the parties may be able to assert a right based on the remedy of CONSTRUCTIVE TRUST.  I previously discussed this remedy in my last blog.   Basically, if a court find there to be an unjust enrichment and there was a link between the contribution that founds the action and the property in which the constructive trust is claimed, then the complaining spouse may receive an ownership interest in that property. To recap, the idea behind a constructive trust is as follows.  The marriage ends.  Only one spouse holds title to property.  If there was an unjust enrichment and monetary damages would not be a sufficient remedy, then the complaining spouse may receive an ownership interest in the other spouse’s property.

The Supreme Court in Rawluk v. Rawluk, [1990] 1 S.C.R. 70 dealt with the issue of constructive trust in the matrimonial law context and laid down some general principles which are worth repeating here.  While this case did NOT involve a Prenuptial Agreement, it is still important to understand (particularly, if couples are trying to avoid Constructive Trust claims via a Prenuptial Agreement).  In that case, a husband and wife had separated.  Throughout the years, the wife had assisted the husband in their business operations.  After the separation, the value of certain property (farm machinery and realty) increased dramatically.  While the wife was entitled to an equalization of net family property up to the date of separation, she was not entitled to any increase in value of the net family property after that date under the Ontario Family Law Act.  The only way she could claim entitlement to a distribution of half of the increase in value after separation was through the doctrine of CONSTRUCTIVE TRUST!

The trial judge and the Ontario Court of Appeal held that those properties were impressed with a Constructive Trust which gave the wife a beneficial half interest in the properties at the time of separation and entitled her to participate, as owner, in the value of the properties AFTER SEPARATION AS WELL! The husband appealed the decision that a spouse could assert a remedial constructive trust to determine ownership in equalization proceedings under the Family Law Act.  The Supreme Court of Canada disagreed with the husband and upheld the lower courts’ decisions:

56 In this case fairness requires that the dedication and hard work of Jacqueline Rawluk in acquiring and maintaining the properties in issue be recognized. The equitable remedy of constructive trust was properly applied.

So the bottom line is that, absent a private agreement (e.g. Prenuptial Agreement) that says otherwise, where both spouses have contributed to the acquisition or maintenance of property, the non-titled spouse should be able to assert an interest in the property by way of Constructive Trust and realize the benefits that ownership may provide.   Therefore, the remedial Constructive Trust is an available equitable principle or remedy that may be used to calculate beneficial ownership of property. The interest arises when the unjust enrichment first arose, although it is judicially declared at a later date.

Assuming that the parties to a Prenuptial Agreement understand how Constructive Trust operates, they can specify how they would like to deal with it.  This may involve, for example, the parties agreeing that no principles of equity or trust (e.g. resulting trust, constructive trust, restitution, unjust enrichment, etc.) will affect ownership or division of property.

Gifts / Inheritances
Gifts or inheritances (other than the Matrimonial Home) that are received from a third party during the marriage are specifically EXCLUDED under the Family Law Act from NET FAMILY PROPERTY. But what about INCOME from such gifts or inheritances?  The Act says that that income is to be excluded IF the donor or testator expressly stated that it was to be excluded.  But what if they didn’t say anything?  Well, then you may want to specify how income is to be dealt in the Prenuptial Agreement.

Matrimonial Home
As discussed in my previous blog, while you can deal with issues such as ownership of the Matrimonial Home, you can’t deal with rights to possess it (which is governed by the Family Law Act).   The Matrimonial Home must be viewed in light of (1) who owns it and (2) who is entitled to possess it.  If a party who owns it tries to prevent the other party from possessing it contrary to the Act, disaster could result!  Ownership of the Matrimonial Home can be dealt with in a number of ways.  First, one part could be entitled to own the whole thing.  Second, the parties could divide ownership according to some formula.  For example, the parties could value the Matrimonial Home as of the date of marriage and agree to repay that amount from selling it and then divide any remaining proceeds equally or in accordance with some mutually-acceptable formula.  Remember: if during the course of the marriage, you move to another Matrimonial Home, you may want the same terms and conditions in the Prenuptial Agreement to apply mutatis mutandis to the new Matrimonial Home!

Specific Property
Specific property may include business interests (e.g. partnership units, limited partnership units, corporate shares, etc), pensions and annuities, licenses to practice, etc.  With respect to Canada Pension Plan, this is a complicated area of law, and you are advised to speak with a lawyer if you have comments, questions, or concerns.

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Please note that the information provided herein is not legal advice and is provided for informational and educational purposes only. If you need legal advice with respect to getting a prenuptial agreement, you should seek professional assistance (e.g. make a post on Dynamic Lawyers). We have Toronto, Ottawa, Hamilton, Brampton, Mississauga and other Ontario lawyers registered to help you. We will soon be offering Prenuptial Agreements in our Legal Forms + Video Guides section. You can contact me directly if you need a lawyer.

This is the fourth of a series of blog posts I’m writing about prenups or prenuptial agreements for Ontario. In the first blog, I discussed what they are, when are they used, and what is required for them to be valid and enforceable. In this blog, I’ll discuss how they can be challenged. In the second blog, I reviewed Loy v. Loy – a Ontario Superior Court of Justice case which reviewed the jurisprudence concerning how prenuptial agreements (and other domestic contracts) can be challenged. In the third blog, I’m discussed some tips that will help mitigate against future challenges to prenups.  In this blog, I’m going to talk about what happens if a prenup is set aside (in other words, what will govern the division of property, spousal support, etc.)?  I’ll also discuss the doctrines of UNJUST ENRICHMENT, CONSTRUCTIVE TRUST, and RESULTING TRUST – which all doctrines based on equity which can be used by a party to claim that they are entitled to certain property.

What happens if a prenuptial agreement is set aside?
If a court sets aside a Prenuptial Agreement, then that Agreement will not apply to the termination of the parties’ relationship.  So what COULD govern the ownership or division of property and support obligations?

• Well, the Family Law Act would govern the ownership and division of property, while the Divorce Act would govern spousal and child support issues.
• Under the Family Law Act, absent a valid domestic contract (such as a Prenuptial Agreement), the net worth of the couples during the course of their marriage is equalized (i.e. split in two).  Essentially, you take the value of spouse’s property at the date of separation, subtract the value of their property at the date of marriage, and split that amount between the two spouses.  This is called EQUALIZATION OF NET FAMILY PROPERTY.
• Finally, if the Prenuptial ends because one of the parties dies, then the Succession Law Reform Act could impose support obligations on the deceased party’s estate.  That Act COULD apply if the parties were spouses (as defined above under the Family Law Act) and the deceased spouse was providing support or was under a legal obligation to provide support immediately before his or her death. Here, if the deceased spouse failed to provide proper support for the remaining spouse, the latter could apply to the court for proper support.

In addition to these statutes which could govern the ownership and distribution of property, there are other arguments which parties could make if the statutes didn’t apply for some reason.  For example, absent an agreement that says otherwise, gifts and inheritances are typically excluded from NET FAMILY PROPERTY under the Family Law Act.  But under an equitable doctrine such as Unjust Enrichment, Constructive or Resulting Trust (discussed below), the other spouse could claim an interest to such property.

UNJUST ENRICHMENT
The doctrine of unjust enrichment is not found in any statute.  Rather, it is an old judge-made law that allows one party to claim compensation from another party on the basis of an unjust enrichment.  3 requirements must be met in order for a spouse to claim unjust enrichment:

(1) an enrichment enjoyed by the other spouse;

(2) a corresponding deprivation suffered by the complaining spouse; and

(3) the absence of a juristic reason for the enrichment.

Now, it these 3 elements exist, then a spouse may be entitled to damages. Where simply having the other spouse pay money is not enough, then the doctrine of CONSTRUCTIVE TRUST comes into play.

CONSTRUCTIVE TRUST
If there was an unjust enrichment and there was a link between the contribution that founds the action and the property in which the constructive trust is claimed, then the complaining spouse may receive an ownership interest in that property. To recap, the idea behind a constructive trust is as follows.  The marriage ends.  Only one spouse holds title to property.  If there was an unjust enrichment and monetary damages would not be a sufficient remedy, then the complaining spouse may receive an ownership interest in the other spouse’s property.

RESULTING TRUST
When married spouses separate and only one of the spouses own a property, the Court will ask whether or not there was an agreement or COMMON INTENTION that the other spouse was to take a beneficial interest in that property.  The court will look to the facts and circumstances surrounding the acquisition, or improvement, of the property. If the spouse with no title in the property has contributed, directly or indirectly, in money or money’s worth, to acquire or improve the property, the doctrine of resulting trusts is engaged. An interest in the property is presumed to result to the one advancing the purchase moneys, or part of the purchase monies.

So when will a Court find COMMON INTENTION if there is no agreement? The Court will have to gleam this from the conduct of the parties if it is not expressly made.  The Court will look at financial arrangements in acquiring or maintaining the property.  The Court may also look at who benefited from the property (either directly or indirectly).

So, there you have it: UNJUST ENRICHMENT, CONSTRUCTIVE TRUST, and RESULTING TRUST.

What about the matrimonial home?
Even if a prenuptial agreement deals with the matrimonial home (e.g. it will be owned solely by one person upon termination of the marriage, etc.), that Agreement cannot supersede each spouse’s right to possess the matrimonial home under the Family Law Act.

Part II of the Family Law Act deals with the “Matrimonial Home”.  This is the home that either a spouse has an interest in or, if the spouses are separated, was at the time of separation “ordinarily occupied by the person and his or her spouse as their family residence”.  OK, so what’s so special about the matrimonial home?  Well, section 19(1) of the Act says that BOTH spouses have an EQUAL right to POSSESSION of a matrimonial home.  Section 19(2) goes on to say that, when only ONE spouse has an interest in a matrimonial home, the other spouse’s right to possession ends when they cease to be spouses (unless a separation agreement or court order says otherwise).

So what does this mean for you?  Well, even if a Prenuptial Agreement says that only ONE spouse will be the owner of the matrimonial home, the OTHER spouse will still have a right to possession.  This means that the ONE spouse who owns the matrimonial home CANNOT dispose of (i.e. sell, transfer, gift, etc.) or encumber (e.g. mortgage, use as collateral, etc.) any interest in a matrimonial home UNLESS:

• the OTHER spouse signs the paperwork;
• the OTHER spouse consents to the transaction;
• the OTHER spouse has released all rights under Part II of the Family Law Act by a Separation Agreement;
• a court has authorized the transaction or has released the property from Part II of the Family Law Act; or
• the property is not designated by both spouses as a matrimonial home and a designation of another property as a matrimonial home, made by both spouses, is registered and is not canceled.

Importantly, if only ONE spouse owns the matrimonial home tries to dispose or encumber the matrimonial home without falling under one of the above situations, then that transaction may be SET ASIDE by a court.  Finally worth mentioning is that, regardless of who owns the matrimonial home or its contents, and despite a spouse’s right of possession, a spouse can ask the court for exclusive possession of the home (among other things).  In determining whether an order for exclusive possession is appropriate, a court must consider the following factors under sections 24(3) and (4):

• the best interests of the children affected (i.e. possible disruptive effects of a move to another home and the child’s  views and preferences – if they can be ascertained);
• any existing orders under Part I (Family Property) and any existing support orders;
• the financial position of both spouses;
• any written agreement between the parties;
• the availability of other suitable and affordable accommodation; and
• any violence committed by a spouse against the other spouse or the children.

Interestingly, even if a court orders that ONE party be given exclusive possession of the matrimonial home, it can still direct that party to make periodic payments to the other spouse (among other things), pay for all or part of the repair and maintenance of the matrimonial home, and keep or remove certain contents of the matrimonial home.  Finally worth mentioning is that under section 25, if a court is satisfied that there has been a material change in circumstances, it can discharge, vary or suspend any order made concerning possession of the matrimonial home (as noted above).

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