Most first-time clients believe that, on separation, property is divided.  For example, they assume that one-half of Husband Hugh’s bank account goes to Wife Wendy.  Or Wendy’s 2010 Mustang “half-belongs” to Hugh.  This is one of the biggest misconceptions about Ontario family law that we encounter.

In Ontario, when married spouses separate, there is a formula, which applies to deal with their property rights and obligations. It falls under what is known as Part I of the Family Law Act.  In the simplest sense, it measures how each spouse’s net worth (that is, their assets minus their debts/liabilities, referred to as their “net family property”) has changed during the marriage.  A good deal of number crunching may be involved in order to determine this.  The person who has done “better” in terms of increasing his or her net worth owes a compensatory money payment to the other.  How they make that payment is up to him or her as long as the payment is made.  They can write a cheque or, if agreed upon, can transfer property to make up the amount of the payment.  Often, if the home is being sold and if it is jointly owned, the payment can be made out of his or her share.  The idea of owing a money payment to the other is different from the misconception that each asset that each of Hugh and Wendy own is ‘sliced’ in half.

The formula has its quirks.  One of the strangest concerns what is known as the “matrimonial home”.  Remember, the starting date for measurement of Hugh’s net worth and Wendy’s net family property is the date on which they got married.  Let’s take a simple example:  Assume that on the day of marriage, Hugh’s only asset was a bank account with $50,000.00 in it.  Assume that Hugh had no debts.  Assume that Wendy had neither assets nor debts on the date of marriage. Under the formula, Hugh would receive a credit of $50,000.00 when calculating his net family property.  This result is a good one for Hugh.

Now, let’s change the facts slightly. Instead of the bank account with $50,000.00 in it, on date of marriage, Hugh owns a house at 123 Forest Drive.  He bought the house long before he met Wendy and now Wendy is about to move in.  Let’s also assume that the house is worth $50,000.00 more than the amount of Hugh’s mortgage.  In other words, Hugh’s “equity” in 123 Forest Drive is $50,000.00 at the beginning of the marriage.  Hugh and Wendy live at the Forest Drive house as their family residence or “matrimonial home” for a time but then the property is sold and they move to 456 Maple Lane, which becomes their new matrimonial home.  Hugh and Wendy separate some years later.  When calculating Hugh’s net family property, Hugh still gets a credit of $50,000.00 representing his equity in Forest Drive at the time of marriage.  This result too, is a good one for Hugh.

Finally, let’s assume that Hugh and Wendy never move during the marriage.  The Forest Drive home remains the matrimonial home right from the date of marriage to the date of separation.  Hugh loses the $50,000.00 credit when calculating his net family property.  It is not only any increase in the value of the home during the marriage that forms part of the calculation but even the equity that Hugh had already built up at the time of the marriage.

These three examples seem to say that if you bring money or other assets into the marriage other than the matrimonial home, you get credit.  If you bring a house into the marriage, which becomes your matrimonial home, but it is sold during the marriage and a new house becomes your matrimonial home, you get credit.  If you bring the same house into the marriage that remains your matrimonial home throughout the marriage, you don’t get credit.  Does this make sense?  Is it at all fair?  I don’t think so yet our lawmakers have not seen fit to change the legislation since it was enacted in 1985.

A properly drafted agreement can change how the formula works and protect one or both spouses against these or other unintended results if they one day separate.  Especially if one of the spouses is bring into the marriage significant assets and/or debts, it is important to have a properly negotiated marriage contract (some call it a “pre-nup” however I do not favour that term as the contract can be made before or after marriage).  If, as in our example, one is bringing into the marriage what will become the matrimonial home, a marriage contract is essential.

Also, whose name is on title can be extremely important.  What if Hugh, for example, owns 123 Forest Drive on the date of marriage but then, afterward, transfers title to Wendy and himself jointly, thinking that it is merely a formality to make Wendy “happy”?  In fact, Hugh has legally given half of the home to Wendy.  This can also produce some unintended results if the parties one day separate.

As if this weren’t vexing enough, there can be more than one matrimonial home under the Act.  A family cottage, for example, which is used by the parties ordinarily as their recreational property, can qualify.

A matrimonial home also receives other kinds of protections under the Family Law Act.  For example, regardless of whose name it is in, a matrimonial home cannot be sold, mortgaged or even rented out without both spouses’ agreement or a court order.  Also, both spouses have an equal right to occupy a matrimonial home on separation unless they agree that one had exclusive possession of the home or there is a court order awarding it to one of them.

None of the above applies to common law spouses.  The Family Law Act formula does not cover them.  The determination of their rights and obligations regarding property is much more complicated and unpredictable.  In future blogs, I will review their family law rights and obligations.