One way to protect the matrimonial home

Perhaps your client owns a home or cottage that has been in the family for generations. Or maybe your client is considering helping her child purchase his first home. Protecting those residences from future marital breakdown can be complicated if they are matrimonial homes under Ontario’s Family Law Act (FLA).

Matrimonial homes are subject to special rules in the FLA regarding equalizing family property. The full value of a matrimonial home is included in determining a person’s net family property (NFP), and no deduction is allowed for the value of a matrimonial home owned at date of marriage that is also owned at date of marriage breakdown (or death of the first spouse).

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Each spouse also has a right of possession in every matrimonial home while married, regardless of whether they have an ownership interest in the property. A spouse who is not on title must also receive prior notice of, and consent to, any mortgage or sale of the property.

A marriage contract is one way to protect a residence in the event of separation or divorce.

Another planning option is a discretionary trust. In a 2012 case (Spencer v. Riesberry), the Ontario Court of Appeal held that where a discretionary trust holds a residence, a beneficiary does not acquire a direct ownership interest in a residence, which prevents it from being a matrimonial home under the FLA.

Details of the case

Sandra Spencer and Derek Riesberry married in 1994. Before marrying, Sandra’s mother Linda purchased a property. The same day, she settled a trust called the Spencer Family Realty Trust (SFRT) and transferred the property’s ownership to the SFRT. Linda was the trustee as well as the beneficiary of the trust while she was alive.

The SFRT’s capital at the time of Linda’s death was to be divided equally among her children. Linda transferred three more properties to the trust—each of which was occupied by one of her four children and the child’s respective spouse. Sandra and a sister eventually replaced Linda as trustees.

Derek and Sandra separated in 2010. If the home Sandra and Derek had lived in was a matrimonial home, Sandra would need to include its full value in her NFP. Both the trial judge and Court of Appeal agreed that Sandra’s only interest was in the SFRT and not in any specific asset held by it—as a result, the home did not qualify as a matrimonial home.

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Since the property was not a matrimonial home, the value of Sandra’s interest in the SFRT on the day she married Derek was deductible from her NFP. That meant only the increase in value of her interest during marriage was includable for the purposes of the equalization calculation.

Under Ontario law, a matrimonial home is any property occupied by married spouses or by a spouse and their children as a family residence and in which at least one of the spouses has an interest. Married couples may have more than one matrimonial home.

The Court’s decision has other important implications: Derek would have had no right to remain living in the home for a time upon separation and his consent would not have been needed if the property had been sold or mortgaged during the marriage.

If your client is considering a trust to protect an interest in a property that could qualify as a matrimonial home, it is important to seek professional assistance under local law that governs matrimonial rights to ensure it is properly implemented and other matters are considered, including tax implications. Thought should also be given to whether other assets outside the trust would be available to satisfy any equalization payment.