Matrimonial Home and Bankruptcy of a Spouse in Ontario

When your spouse becomes insolvent, the family home is often the first thing you worry about. Will it be sold? Do you keep your share? What happens to the money one of you may be owed from the marriage?

This article walks through how Ontario family law treats the matrimonial home and equalization, and flags the points where bankruptcy changes the picture. The effect of a bankruptcy on the home is complicated and depends on the facts, so use this as background for a conversation with a lawyer and a licensed insolvency trustee.

The starting point: how family law treats the home and equalization

Married spouses generally split property acquired during the marriage equally when it ends, and the money owed to the spouse with the smaller share is called an equalization payment. The family home must be divided equally unless the spouses agree to a different split, and a family home that was gifted or inherited does not count as excluded property.

The Court of Appeal has confirmed that a half-owner of a matrimonial home is entitled to one-half of net sale proceeds, less any unpaid share of upkeep costs. That is a useful baseline when you are thinking about what a sale could mean for you.

What bankruptcy adds to the picture

A bankruptcy brings in a trustee and a separate body of federal law. How it affects the home, your share and any equalization amount depends on the facts, including whose name is on title, how much is owed and when the debts arose. A lawyer can explain how these rules apply to your situation.

One point has been contested in the courts. In Rusinek & Associates v. Arachchilage, an application judge held that a bankrupt's trustee could not commence an equalization claim against the bankrupt's former spouse, and the Court of Appeal treated that order as appealable under s. 6(1) of the Courts of Justice Act rather than under the Bankruptcy and Insolvency Act. This shows that the trustee's ability to pursue equalization is a live legal question, not something to assume either way.

Because of that, do not assume that a bankruptcy erases your own rights, and do not assume that a trustee can or cannot claim against you. Get advice on your specific situation.

Protections that attach to a matrimonial home

A transfer or mortgage of a matrimonial home under Part II of the Family Law Act requires a spousal statement, for example that the person consenting is the spouse or that the spouse has released rights by separation agreement, or a court order under FLA s. 23. One spouse alone may designate property as a matrimonial home on title, and the designation stays on the parcel register until the registering spouse removes it.

These protections have limits. In Home Trust Company v. Fierro Estate, a spouse's attempt to set aside a mortgage under FLA ss. 21 and 23(3) failed because he did not prove the lender had actual or constructive notice that the borrower's partner was a spouse and the property was a matrimonial home. If you are worried about debts secured against the home, find out what is registered on title.

Other claims and issues that can arise

• Trust claims: under FLA s. 10, constructive or resulting trust claims may be advanced prior to equalization.
• Unequal division: an unequal division under FLA s. 5(6) is available only where equalization would be unconscionable.
• Time limits: the deadline for married spouses' property claims is six years from separation or two years from the final divorce, whichever comes first.
• Agreements: spouses can vary the default rules by a domestic contract, which may affect what is owed.
• Transfers between spouses: if property is transferred to a spouse, the transferee and transferor can be jointly and severally liable under the Income Tax Act up to the excess of the property's fair market value over what was given.

The tax rule above has an exception for transfers made under a court order or written separation agreement while the spouses were living separate and apart because of a relationship breakdown, subject to listed conditions. If a transfer of the home or other assets is being considered, ask about the tax consequences before it happens.

What to do next

If your spouse is insolvent or considering bankruptcy, avoid quick moves such as signing transfers or releases without advice. Both family law and insolvency rules matter, so you may need input from a family lawyer and a licensed insolvency trustee.

• Get a current title search to see who owns the home and what is registered against it.
• List the mortgage, lines of credit and other debts, and whose names they are in.
• Gather your marriage date, separation date and any domestic contract.
• Note the value of the home and your contributions to it.
• Do not sign a transfer, mortgage or release until you have had legal advice.
• Ask a family lawyer about equalization and your time limits, and ask the trustee what to expect.
• Consider a Family Law Information Centre for general information on separation, divorce and family mediation. Free mediation at the courthouse is offered on the day you are scheduled to be in court.

Frequently asked questions