Investment Properties at Risk to Common Law Spouses

The Supreme Court of Canada just changed the rules on 19 February 2011. Periodically, the Court will conclude that existing laws are out of date with reality.

The Court brought the division of property for common law spouses into the 21st century.

The previous law had been difficult and challenging for long term partners to acquire a fair share of the assets. The laws had been strict. If it was not in your name you had no claim to it unless you could prove that it was held upon a constructive trust. Most of the time, that evidence was just not available.

So, the Supreme Court applied the legal doctrine of “unjust enrichment”. Basically, this boils down to a “fairness test”. If it would be unfair for one party to profit at the expense of the other, then the doctrine will apply and the spoils will be divided as appropriate.

In one of the cases under consideration, Michelle Vanasse and David Seguin:

  • The couple lived together fro 12 years
  • They had two children
  • The wife stayed home to look after the children
  • The wife sacrificed her career
  • The husband built a successful business, unencumbered by child-rearing constraints

Here is what Justice Thomas Albert Cromwell said:

“In my view, where both parties have worked together for the common good, with each making extensive, but different, contributions to the welfare of the other and, as a result, have accumulated assets, the money remedy for unjust enrichment should reflect that reality,”

“The money remedy in those circumstances should not be based on a minute totalling-up of the give-and-take of daily domestic life, but rather, should treat the claimant as a co-venturer, not as the hired help.”

It should be cautioned that this new rule will not apply to everyone. Common law spouses should still have a co-habitation agreement which sets out their rights in the case of uncertainty. However, in this particular case, the wife probably would have been out of luck. In this case, her “good fortune” was that there was no agreement in place which restricted her entitlement.

This case has profound implications for common law spouses and their real estate holdings. This case goes beyond the requirements of the Family Law Act. It is now clear, that a common law spouse may have an entitlement to participate in the proceeds of sale of a property which is a matrimonial home, a business property, an investment property or any other similar interest in land.

Until this Judgment, business owners and entrepreneurs had believed that they were reasonably safe in protecting their assets if:

  • They didn’t get married, and
  • They didn’t sign any co-habitation agreements

This strategy will no longer work. The principle of “fairness” will be applied, and some assets previously considered “safe” will now be “at risk”.

This would be an opportune time for a business owner to seek some legal advice from a lawyer.

Brian Madigan LL.B., Broker

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