Property possession and gifts when separating
Common-law relationships say that assets should be divided equally
Nathalie Boutet
REM
With sky-high rents and home ownership out of reach for many young Canadians, more couples are moving into properties with the help of their parents’ money, or even back into their childhood home. But not understanding the legal implications in case of a separation can lead to problems, considering that nearly four in 10 marriages will end in divorce. And while the number of young adults (18-34) who are getting married is on the decline, 58 per cent of Canadians in common-law relationships say that, despite the law being otherwise, assets should be divided equally when the relationship ends, according to a recent Angus Reid poll.
If a married or common-law couple have moved into the parental home but are not on the title, neither has any rights to the property and both can be asked to leave at any time. However, when one of the spouses in a couple already has ownership of a house, the law that applies to that house differs for common-law and married couples in the event of a separation or divorce.
Common-law couples in general have no right to any part of the assets that are in the spouse’s name, even if the common-law spouse who is not on title makes monthly payments that they think is meant to cover the mortgage or house-related expenses. There are exceptions when the non-titled spouse makes significant contributions towards the house, such as significant repairs. In these cases, it is possible, though very difficult and costly, for the non-titled spouse to seek some financial restitution corresponding to the value added by their contribution toward the property. Because these types of claims tend to be costly and hard to prove, it is recommended that common-law couples enter into a cohabitation agreement to clarify their intentions and rights towards properties before the non-titled spouse starts performing any work on the property. In general, making monthly payments to the spouse who is on title is unlikely to yield a right to any portion of the asset in the event of a separation.
As an example, a common-law spouse moved in with a woman who already owned a house. They agreed that, although he was paying her below-market rent, which was a benefit to him, she too was benefitting from the money received from him, which helped her pay the mortgage. In this case, they negotiated a cohabitation agreement where a percentage of his rent payments and any renovations he contributed to would be held in trust and given back in the event of a separation, but he would not be put on the title. Without this agreement, it is unlikely that the monthly payments or the contributions towards renovations would entitle the man to a payment in the event of a separation.
On the other hand, married couples are subject to equal division of all assets that were accumulated during the marriage. The spouses keep the value of any assets prior to the marriage but share the growth in value of these assets, along with new assets accumulated, during the marriage. There is an exception regarding the matrimonial home, though. If a spouse owned the matrimonial home before the marriage and the couple resides in that same home at the time of separation, then the entire value of the home gets divided equally and the spouse who owned it before the marriage cannot claim the pre-marriage value.
If parents wish to provide a gift in the form of property or cash, for married couples, a gift received before the marriage is considered a pre-marital asset and the value of the gift is not shared with the spouse on separation, but the growth in value during the marriage is shared with the separating spouse. The exception is if the pre-marriage gift is the matrimonial home, or money used towards the matrimonial home. If the married couple lives in the same house when they separate, the party who received the pre-marriage gift cannot retain the pre-marriage value and must share the entire value of the gift with the separating spouse on the date of separation.
If a family gift is received during the marriage and is left in a separate bank account, then it does not have to be shared with the other spouse. But if the gift is used to pay down the mortgage of the matrimonial home, then the excluded nature of the gift will be lost.
Parents who want to give money to their child who is getting married or who is married need to understand that if the gift is applied towards a home that the couple will reside in as a family and it’s the same home that the couple lives in when they separate, they end up sharing the gift with their spouse if there’s a separation. If this is not the desired outcome, the parents can ask for their child and their spouse to sign a marriage agreement before the gift is made.
In another example, a mother purchased a condo for her daughter who was single at the time, but who subsequently married. In an effort to be fair to her spouse while also protecting her condo in the event of a divorce, the couple drafted a marriage agreement that stipulated her husband would commit to pay a monthly amount towards certain family expenses, and a percentage of that would earn him an agreed-upon value of the condo in the event of a separation. If he didn’t pay, that value would be deducted from his entitlement. But he would not be added to the title and not be considered an owner.
These areas of the law are complicated, and it’s advisable to consult a family law lawyer.
© 2019 REM Real Estate Magazine