Joint Tenancy Does not offer Creditor Protection

By Brian Madigan LL.B.

We looked at a case where a joint interest in a matrimonial home effectively thwarted bankruptcy.  But, that was a peculiar case. In Re: Cameron, it was the bank which placed the deceased’s estate in bankruptcy, months after he had passed away. That was too late!

Had the bankruptcy taken place during the lifetime of the deceased joint tenant, then the one-half interest in the property would have been available to satisfy the debts owed to creditors.

This is due to the fact that the bankrupt’s assets are conveyed to the Trustee. This conveyance severs the joint tenancy and the property is now held as tenants-in-common. This statutory severance allows the creditors to seize and liquidate the bankrupt’s interest.

As you know, for joint tenancy to continue, four unities must be present:

1)     Unity of Interest

2)     Unity of Possession

3)     Unity of Time

4)     Unity of Title

However, if there is really no expectation of bankruptcy, and the widow acquires the title by survivorship on death, then the deceased no longer holds title, and it’s too late for the bank to take proceedings.

Here’s an excerpt from the reasons for Judgment by Judge Mesbur:

·        “When a joint tenant becomes bankrupt and the joint tenancy is severed, the bankrupt’s half interest in the property as a tenant in common then vests in the Trustee, and is available for the creditors.  In a case such as this, the joint tenancy is never severed, there is nothing to vest in the Trustee, and nothing is available from the property for the creditors.

·        When one joint tenant dies, its interest in the property is extinguished, and the rights of the remaining joint tenant or tenants are correspondingly enlarged.  The enlarged interest immediately vests in the remaining joint tenant or tenants.

·        The characteristic of an estate in joint tenancy is that the joint tenants have the same interests … and upon the death of one of the joint tenants the entire estate remains in the survivor in whom the whole estate immediately vests.”

In Re: Cameron having property registered in joint tenancy actually worked quite favourably.

But, you have to remember, that you have to be “dead” to take advantage of the opportunity.

For someone who is concerned about their creditors, joint tenancy does not afford protection during their lifetimes, only after death. So, this is not a good estate plan.

Take the reasonable precaution to ensure that property is held in the name of the spouse who does not have an exposure to creditors. That step works well during one’s lifetime and afterwards as well.

It is also noteworthy to remember that the joint interest is available to execution creditors. Those who have judgments may obtain an execution. It is not simply a remedy available in bankruptcy.

Be sure to obtain legal advice from a lawyer or solicitor practicing real estate law or estate law before making a determination with respect to title.

See the decision of Judge R. Mesbur in the Cameron Estate ats. Bank of Nova Scotia (31 October 2011, Ontario Superior Court).

Brian Madigan LL.B., Broker

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