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Mar 12, 2019

For unmarried couples, splitting the house on separation is no sure thing

By Adam N. Black
Special to the National Post View original

In the eyes of an Ontario family law lawyer, one of the most significant consequences of marriage is the sharing of property regime that will apply in the event of separation. In other words, when married spouses separate, they will share the wealth they accumulated during the marriage through “equalization of net family property” in accordance with Ontario’s Family Law Act.

Equalization of net family property does not, however, apply to unmarried spouses in Ontario. In fact, there is no legislated sharing of property for Ontario couples who chose not to get married. In the event of a separation, an unmarried spouse must look to equitable, yet uncertain, principles such as unjust enrichment and resulting trust to correct any financial inequities between the separated spouses that arise in the context of their separation.

That is precisely what happened in a recent case in which the Ontario Courts were called upon to resolve the property issues between a separated, unmarried couple. In GMC v. AMF, Justice Gordon was asked to decide how the proceeds from the sale of a jointly owned home should be decided following a relatively short relationship of either two or five years (the couple did not agree on the date their cohabitation commenced).

    When the couple purchased the house, GMC contributed $116,000, which funds were proceeds from the sale of his previous home. AMF contributed only $5,000. The purchase price of the property was $570,000 in July, 2014. Shortly after the couple’s separation, the property was sold for $652,000 in December, 2016. Over the course of approximately two years, the value of the property had increased by $82,000.

    Notwithstanding the property was owned jointly, GMC took the position that he was entitled to all of the sale proceeds (net of the mortgage, line of credit and other expenses) as a consequence of his significantly greater contribution to the purchase. It was his position that he did not gift AMF one-half of the $116,000 he contributed to the home when it was purchased. Rather, AMF held one-half of the property in trust for him. AMF disagreed, taking the position she was entitled to half of the proceeds since the property was jointly owned.

    Justice Gordon begins his analysis by acknowledging that the couple in this case are unmarried. He goes on to note that:

    “Accordingly, the property provisions in the Family Law Act do not apply. Instead, in cases involving gratuitous transfers, or unequal contributions as here, the principles of trust law from the common law apply. These principles were developed long ago to resolve commercial or financial disputes. Application of same to domestic relationships is far more complex and not always with a satisfactory result. However, in the absence of legislation, it is all we have.”

    Justice Gordon examined the somewhat imperfect and conflicting evidence surrounding the purchase of the property. In the result, Justice Gordon concluded that GMC never intended to gift his contribution to the property to AMF. It followed that AMF held GMC’s share in trust for GMC. Each party was therefore entitled to the return of their initial investment in the property, with GMC receiving $116,000 and AMF receiving $5,000. GMC agreed that the increase in the market value of the property should be shared equally between the parties.

    Unhappy with the decision, AMF appealed to the Court of Appeal for Ontario. AMF’s appeal was heard on Feb 4, 2019. In short order, the Court of Appeal dismissed the appeal and ordered AMF to pay costs to GMC in the amount of $12,500.

    In the absence of a legislated property sharing regime for unmarried couples in Ontario, great uncertainty inevitably arises. The separated unmarried couple often looks to the court to resolve the financial issues between them. The cost of resolving the issues through litigation can eclipse the value of the benefit, as was likely the case in GMC v. AMF. The resolution of these issues also comes at a significant cost to the public, including the use of judicial resources to resolve disputes that arise, in large part, due to the absence of legislation.

    Many provinces and territories across Canada have implemented legislation that squarely deals with sharing of property for unmarried couples. Most recently, in late 2018 the Alberta legislature passed Bill 28 which amended Alberta’s Matrimonial Property Act to include “adult interdependent partners” in the sharing of property regime that previously only applied to married spouses. Adult interdependent partners include any two persons in a relationship outside of marriage who (i) share one another’s lives, (ii) are emotionally committed to one another, and (iii) function as an economic and domestic unit.

    Many believe that this legislative reform will bring certainty to the resolution of the financial issues arising from the separation of unmarried spouses. That said, such legislation will close the door for people who choose not to marry in order to avoid the sharing of property that arises as a consequence of marriage. People making that choice, however, likely do not appreciate the exposure, albeit uncertain, that exists through the availability of equitable remedies.

    Couples entering into a relationship of any permanence, be it through marriage or unmarried cohabitation, need to understand their future rights and obligations in respect of the sharing of property. In the absence of legislation, or in the presence of legislation that does not align with a couple’s intentions, domestic contracts, such as a marriage contract or cohabitation agreement, may be the most practical solution to ensure certainty in the unfortunate event of separation.

    This article was originally published in the National Post