Married Couples in Ontario have access to the property-sharing regime that complements entitlements and obligations under common law. Specifically, Ontario's Family Law Act, 1990 (FLA) regulates the rights of spouses and their dependants regarding property, child and spousal support, inheritance, domestic contracts (e.g., prenuptial, marriage, separation agreements), and other matters of family law. Both spouses have possessory rights in the matrimonial home, according to FLA, Part II, regardless of the legal ownership arrangements.
Special Treatment of the Matrimonial Home under Law
Matrimonial home has special treatment under section 18 of the FLA. That is, its value cannot be deducted or excluded because it must always be included in the net family property of the title holder. Therefore, transferring an interest in a matrimonial home can take time and effort. One must be mindful of the separation of joint tenancy by operation of law or conduct and financial contributions, if any, of the non-title holders who may get equitable ownership of the share of the property. Below, we discuss a couple of scenarios involving severance of joint tenancy, including by operation of law under section 26(1) of the FLA, and financial contributions of non-title holders that lead to the creation of equitable ownership of the share of the property.
For instance, if one of the spouses owns a home or was the only title holder to the property before the marriage, it does not mean that they will remain the sole owner of that property once the married couple starts living together in that home and use it as their matrimonial home. The Ontario courts indicated that despite access to the protections that the marital status offered to non-titled spouses, the status of a matrimonial home is not "immutable". As Folga v Folga (1986) demonstrates, a spousal owner may regain the right to deduct the value of a matrimonial home at separation at valuation day under section 4(1)(b) of the FLA, which states in part that "debts and liabilities related directly to the acquisition or significant improvement of a matrimonial home" are not included in the calculation of pre-marriage property. If the spouses own a matrimonial home as joint tenants on a valuation day, it is necessary to have one-half of the total value in each spouse's net family property.
In another scenario involving the death of one spouse – Hansen Estate v Hansen (2012) – the situation became complicated. Based on the right of survivorship, the wife claimed exclusive ownership of the matrimonial home as the surviving joint tenant. However, before his death, the husband had executed a new will that distributed his estate to his four daughters. As the deceased's estate trustees, they claimed that the joint tenancy had been severed by a "course of dealing" before their father's death. The Court of Appeal for Ontario found joint tenancy was severed, and they were tenants in common.
The Rules for Severing Joint Tenancy
In addition to confirming that a will only serves as evidence to demonstrate the severance of joint tenancy, Hansen Estate v Hansen restated three important common law rules arising from Williams v Hensman (1864) pertaining to the legal process of severing the joint tenancy. These are as follows:
Unilateral actions by one of the spouses;
Mutual agreement between the co-owners to sever joint tenancy or "mutuality" requirement; and
Conduct by parties, including negotiations to divide into shares or any other course of dealing.
Now, let's examine each rule in greater detail.
Based on these three common law rules, there are three ways to file for severance of joint tenancy in Ontario. First, one can register a new transfer on title by transferring to self. Typically, a lawyer can assist in drafting a statement when transferring: "I am a spouse, and I am transferring to myself to sever the joint tenancy." In addition to transferring to self, one of the spouses may bring an application for partition of land under the Partition Act, 1990 (Act). This tactical move contains a risk of forced sale of land. The following sections of the Act are informative in this regard:
Who may be compelled to make partition or sale
2 All joint tenants, tenants in common, and coparceners, all doweresses, and parties entitled to dower, tenants by the curtesy, mortgagees or other creditors having liens on, and all parties interested in, to or out of, any land in Ontario, may be compelled to make or suffer partition or sale of the land, or any part thereof, whether the estate is legal and equitable or equitable only
Who may bring action or make application for partition
3 (1) Any person interested in land in Ontario, or the guardian of a minor entitled to the immediate possession of an estate therein, may bring an action or make an application for the partition of such land or for the sale thereof under the directions of the court if such sale is considered by the court to be more advantageous to the parties interested.
Second, spouses may agree to draft a mutual agreement. The catch is that this agreement must be made public or known to third parties to satisfy the mutuality requirement under common law. Third, a course of dealing may include attempts to divide property before a divorce and discussing dividing interests in property, as we have discussed earlier in this blog in Hansen Estate v Hansen.
Implication of section 26(1) of the Family Law Act
Aside from the three common law rules for severing joint tenancy discussed above, joint tenancy may be severed by operation of law. If a spouse owns a matrimonial home with one or more third parties in joint tenancy, the joint tenancy is deemed to have been severed immediately before that spouse's death under section 26(1) of the FLA.
One can unilaterally transfer an interest in a matrimonial home to someone else, for example, one's mother or father. According to the Family Law Act, an owner of the matrimonial home cannot dispose of or encumbering a matrimonial home without their spouse's consent. However, in Horne v Horne Estate (1987), the Ontario Court of Appeal held that a conveyance by one joint tenant to themselves to sever the joint tenancy does not "dispose of" an "interest" in a matrimonial home within the meaning of section 21 of the FLA. The appellate court found that, although the right of survivorship is eliminated, each spouse retains their proprietary right to an undivided one-half interest in the property. Thus, spouses who wish to leave their share of a matrimonial home to someone other than their spouse, or a child from a previous marriage, can do so by registering a transfer to themselves, severing the joint tenancy.
Yet, if everyone is registered on title – spouses and their children – section 26(1) of the FLA does not apply.
Registering a Caution on Title
Given the effect of section 26(1), the living spouse can register a caution on the title under the Land Titles Act, 1990, section 128(1) to transfer an interest in a matrimonial home. However, the duration of the caution is only sixty (60) days. Furthermore, the caution cannot be renewed once it expires.
Holding Property in Trust
One may decide to hold the interest in the property in trust for the beneficial owner hence being on title with all the rights of purchase and sale. To implement this arrangement and constitute an actual notice of a trust, a lawyer must register a notice of trust on title because having a trust agreement in place is insufficient.
According to section 62 of the Land Titles Act, a notice of a trust shall not be shown on the register. If an owner is described as a trustee, no person needs to inquire into the trust, and the trust binds no person if they acquire the property from the owner. For example, in Randvest Inc v 741298 Ontario Ltd. (1996), Justice Linden concluded that when land is held "in trust" under the registry system, it does not constitute an actual notice of trust. Actual trust does not exist unless the trust document is registered or unless the terms of the trust are communicated to the purchaser.
The Non-Titled Party as the Equitable Holder of the Beneficial Interest
When a third party, who is not on title, contributes financially to the purchase of the property, they become an equitable holder of the beneficial interest (Hamilton v Hamilton, [1996] O.J. No. 2634 at paras 34-39, per Osborne J.A. (Ont. C.A.).) and subsequently a tenant in common (Hollett v Hollett [1993] N.J. No. 103,106 Nfld. & P.E.I.R. 271, per Green J. (N.L.T.D.):
Accordingly, where two persons contribute to the cost of the acquisition of property but the title is taken in the name of only one of them, equity will, in the absence of evidence indicating a contrary intention, presume that the property is to be held beneficially by both contributors in proportion to their respective contributions, as tenants in common.
In a family law context, a gratuitous property transfer may satisfy the resulting and constructive trust requirements, as indicated in the appellate-level decision in Kent v Kent (2020). In Kent v Kent, a mother transferred title to her home to herself and her daughter as joint tenants for nominal consideration in 1996. Her daughter's family moved in with her in 2008. The daughter died in 2014, and her husband was the beneficiary of her will. Then, in 2015, the mother moved into a long-term care home and conveyed the property to herself, her son-in-law, the surviving spouse, and the two grandchildren as joint tenants. The mother paid all expenses of the property until she died in 2016. The surviving spouse brought an application for a declaration that he owned two-thirds of the home. Reviewing the lower court level decision, the appellate court confirmed that a resulting trust arose due to the 1996 transfer and that it was not a gift of an interest in the property to the daughter. In allowing her daughter and her family to live on the property, the mother did not make it their matrimonial home. The daughter did not have an interest in the property within the meaning of s. 18(1) of the FLA. When the daughter died, she did not own an interest in the property as a joint tenant with her mother. Notably, section 26(1) of the FLA did not apply to give the son-in-law an interest in the property.
Contact Us
This material is for informational purposes only and should not be relied upon as legal advice. To book a consultation with Buzaker Law Firm regarding your matrimonial home or other real estate property, contact us at info@vblegal.ca or (905) 370-0484.