Protect a home from divorce claims

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

Who do you call?

Family lawyers and financial advisors. You need to know the legal and financial implications of Clarisse’s relationship with Matt when it comes to her property.

What they say

Natacha Leite

If the parties marry and title registration of the property shows that both Clarisse and her dad are joint and equal owners, only 50% of Clarisse’s house will become family property. The other 50% is still owned by her father, so it wouldn’t be included in the calculation.

But, notwithstanding the title documentation, if Clarisse’s dad contributed, say, 75% of the property costs, he may have grounds for a trust claim against Clarisse (since he provided her benefit beyond 50% of the house’s value). He could also claim Clarisse owed her father money to reconcile the fact that he has been paying for 75% of the property expenses.

The experts

Natacha Leite

Family and divorce lawyer, Gelman & Associates, Toronto

Melanie Adams

Financial advisor, Sun Life Financial, Barrie, Ont.

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

But even if Clarisse and Matt are just cohabitating, the home is still in jeopardy. Matt could bring a trust claim against the home by showing he “unjustly enriched” Clarisse by contributing to the property through making payments on the mortgage, or paying for roof repairs or a new deck. Such contributions don’t have to be monetary; they could also be actions that improve Clarisse’s property, like painting the house and the front yard fence, doing landscaping and fixing electrical wires.

Since the couple is getting married within a year, they could enter into a marriage contract. (Most cohabitation agreements have a clause stating that, if a couple marries, their agreement would turn into a marriage contract.) The contract 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 where Matt could have some claim. For example, Matt could only be entitled to the increase in value of Clarisse’s 50% from the date of marriage to date of separation, but he would 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 that Clarisse and her dad own, and Clarisse could release any claims to Matt’s pension plan and RRSP accounts in return.

Often, the marriage contract has a clause that will deal with contribution payments. Although Matt is paying contributions, the marriage contract could state that any such payment by Matt covers his 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 (which would happen to their assets in case of separation), or provisions to outline what would happen if one marriage partner dies.

What you learn

Having 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.

Melanie Adams

Having a marriage agreement is great, but I would definitely recommend for Clarisse to also have a will that would address not just how to protect her property, but her overall investments too. Having a will that outlines what should happen when she or Matt dies would help them prepare for the unexpected.

If the home is deemed a matrimonial asset where Matt would have a potential claim—and if Clarisse’s father changes his mind and allows Matt to have part ownership—will Matt be able to buy Clarisse’s stake on the property, and vice versa?

If there are buyout provisions, how will they be able to fund those agreements? For instance, they could use savings, life insurance, or RRSPs or even borrow against the property to fund the buyout. Usually the person who’s going to keep the home would obtain financing in order to buy out the other partner.

Evelyn Juan is a Toronto-based financial writer.