Manage property claims before marriage

These days, lots of parents are helping their kids buy houses. But what happens when those kids marry? Consider this example.

Clarisse bought a house in London, Ont. with her father two years ago. Each owns half the house. Six months later, Matt, her boyfriend of the past three years, moved in. He pays rent, which reduces her mortgage payment, and the couple got engaged last month and plan to marry within the year. Clarisse’s dad told her he doesn’t want the house to go to Matt in the event of divorce.

We got advice on how to manage the legal and financial implications of Clarisse’s relationship with Matt when it comes to her property from Natacha Leite, a family and divorce lawyer at Gelman & Associates, Toronto.

She notes that if the two marry and title registration of the property shows that both Clarisse and her dad are joint and equal owners, only 50% of the house will become family property. The other 50% is still owned by her father and isn’t included in the calculation.

But, regardless of what the title says, if Clarisse’s dad contributed more than half (say it was 75%) of the property costs, he may have grounds to claim Clarisse owes him money to reconcile the difference (in this case 25% of the property expenses).

If Clarisse and Matt marry but don’t draft a marriage contract, Matt would be entitled to make a claim against Clarisse’s half of the house. Ontario law directs spouses seeking divorce to divide the net worth accumulated from the date of marriage to the date of separation. (Deductions and exceptions can affect certain assets, such as inheritances.)

But even if Clarisse and Matt are cohabitating, the house is still in jeopardy. Matt could bring a trust claim against by showing he “unjustly enriched” Clarisse because his rent payments went to the mortgage, or if he paid for roof repairs, or for a new deck. Further, contributions don’t have to be monetary; they could also be actions that improve Clarisse’s property, like painting the house or doing landscaping.

Since the couple is getting married within a year, they could enter into a marriage contract. It should state that Clarisse’s 50% interest in the home will never be divided, and that Matt has no claim to the home. They could also agree to a certain formula whereby Matt could have some claim. For example, he could only be entitled to the increase in value of Clarisse’s 50% from the date of marriage to date of separation, but also be responsible for half of all property-related expenses from the date of marriage onward.

Matt could also agree to release any claims to the property Clarisse and her dad own, and Clarisse could in return release claims to certain of Matt’s assets, including his pension plan and RRSP.

Marriage contracts often have clauses dealing with contribution payments. Although Matt is paying contributions, the marriage contract could state those payments cover Matt’s own living expenses and accommodation; so Clarisse would owe Matt nothing if they separate.

Everybody is afraid to talk about it, but discussions about a marriage contract should be held immediately after you get engaged. The contract can also include clauses about spousal support, property division (what happens to their assets in case of separation), or provisions outlining what would happen if one marriage partner dies.

A marriage agreement that gives a clear picture of what would happen to each party’s assets is crucial before saying “I do.” Tell clients to discuss financial issues with a future spouse, because being prepared is much better than having to deal with unfair claims against your assets in the event of an unexpected separation.