Property Protection

By David Crothers

It is becoming more common in our society for people in long-term relationships not to marry. Couples in their twenties and thirties who are in a permanent relationship are representative of a shift in attitude towards marriage: for them, marriage is not as important of a religious and social benchmark as it has been for prior generations. Furthermore, older people who have divorced are often choosing not to remarry when they start a new life with a new partner.

The law in Ontario does not yet reflect this trend towards what is called common law marriage as it relates to ownership and possession of property, and in particular the ownership of a couple's primary residence.

As the law currently stands in Ontario, if you are formally married and live in a property (or it is your intention to live in a property) that will be your principal residence or "matrimonial home," each spouse is entitled to 50 per cent of the net proceeds of the property if the marriage breaks down, regardless of how much money either spouse has contributed to the down payment, bills, and mortgage.

In addition, the principal residence of the married couple cannot be sold or financed without the written consent of both spouses, in spite of who holds the title to the property and of the quantum of financial contributions made by each spouse. This protection for spouses is entrenched in provincial Family Law legislation. The intent of the legislation is to recognize that a marriage is a partnership of many facets including, but not limited to, economic facets and as such, protection is afforded to a non-titled spouse (the spouse whose name is not on the title deed but who is contributing to the relationship in nonmonetary ways, such as the raising of children) should the titled spouse decide to sell or finance the property.

The equalization of the net value of the matrimonial home upon termination of a marriage cannot, generally speaking, be contracted out of; that is, if the non-titled spouse signs a pre-nuptial agreement or other domestic contract that purports to give up, reduce, or waive equalization rights in the matrimonial home, then any attempt to enforce that provision will in most instances be considered unenforceable by the courts.

If, however, you are in a common law relationship, the law does not give the non-titled partner the same protection of equalization of the principal residence as it does for married people. This is so even if you and your common law partner have children together, either biologically or by legal adoption. The reason for this incongruity is in my view two-fold. First, a common law relationship is not defined in any relevant legislation, therefore there is no certainty as to what constitutes a couple as being common law (such as length of time living together), whereas the state of marriage is black and white: either you are married or not.

Second, legislators have not yet seen fit to revise legislation to reflect the emerging trend of the common law relationship. Consequently, in instances where someone in a common law relationship does not wish to or has been told that it is not necessary to go on title, I recommend that each party consider going on title to provide the best protection of their economic interests. At the very least, they should have a written agreement prepared and reviewed by legal counsel that deals with the scenario of a property being sold or financed so that the appropriate equity or cash can be transferred to the non-titled partner.

Interestingly, the law may be further extended to include persons in same-sex relationships. Until recently in Ontario, same-sex partners were not spouses and were therefore viewed as common law. Now that the definition of marriage under federal legislation has been amended to include people of the same sex, it may be the case that same-sex married partners would be considered spouses, and therefore be entitled to the same protection concerning the sale and financing of their principal residence.

What about people who are business associates in an economic venture where property will be bought and sold for rent or investment purposes? In the case where all people involved in the venture are the registered title owners, they are all protected to the extent of their interests. However, if someone's name is not on the title, then the property can be sold or financed without the non-titled person's consent. In this instance it is important to have a proper legal agreement between all parties dealing with the purchase, sale, refinance, or other use of the property so that there will be a means to ensure a proper distribution of the net proceeds or rent profits as agreed between the investors.

At the present time, if you are in a permanent relationship with someone and you live in a home owned solely by one partner the law is clear: if you are formally married, your principal residence is essentially owned equally. If you are not formally married, the principal residence is owned by whoever is the title holder. In the latter scenario, as the non-titled holder you would be wise to take steps to ensure that your interest in the property is protected.