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Have You Ever Had to Explain to a Client The Consequences of Section 26(1) Of The Family Law Act?

INTRODUCTION

At times, a parent purchases a property, fully funded with their own money, however, the parent registers his/ her adult child on title as a joint tenant for estate planning purposes. The property is subsequently occupied by the adult child and their married spouse, making the property their matrimonial home.  Upon the death of the adult child the property may become the subject of a legal dispute between the joint owner parent and the surviving spouse.

THE FAMILY LAW ACT

Special provisions are made for matrimonial homes on the death of an owner spouse in terms of the Family Law Act[1](the “FLA”).  Section 26(1) states that where a matrimonial home is owned by a spouse in joint tenancy with a third party, the joint tenancy is deemed to have been severed immediately before death.

Since the FLA states that the joint tenancy is severed immediately before the death of the joint owner spouse  it signifies that the parent and the joint owner adult child were deemed to have owned the property as “tenants in common”.

This treatment is to be contrasted with that accorded to all other property owned in joint tenancy, which passes to the surviving joint tenants by operation of law.

WHAT REMEDIES ARE AVAILABLE TO THE PARENT TO ASSERT REGARDING THE DISPUTED PROPERTY?

In the event that the surviving spouse does not agree that the property belongs to the parent due to the fact that it was the couple’s “matrimonial home”, the parent still has various remedies available to him/ her.  However, excercising such remedies could be costly due to litigation costs.

In terms of section 26(1), the parent is the owner of a 50% interest in the property as a tenant in common. In respect of the other 50% interest held by the deceased child’s estate, the parent could have a claim against the estate, either for a claim of resulting trust or in the alternative, for unjust enrichment, to the extent that he/she can prove that he/she funded the purchase of the property.

A RESULTING TRUST CLAIM 

A resulting trust arises when title to property is held in the name of a party who gave no value for it.  In such circumstances, that party is obliged to return the property to the original title owner unless the deceased’s estate can establish that the property was gifted to the deceased.

The parent can pursue a claim based on the assertion that the deceased was holding the property in trust for him/her indicating that the deceased only held legal title to the property and the parent was the beneficial owner of the property.

In the case of a gratuitous transfer, a rebuttable presumption of resulting trust applies when the transfer is challenged.  The court commences the inquiry with the presumption, weighs all of the evidence and attempts to ascertain the actual intention of the transferor.

The presumption of a resulting trust applies to gratuitous transfers as between parents and adult children.[2]

In the recent case of Kent v Kent, the Court stated that if there is a finding of a resulting trust, then section 26(1) of the FLA does not apply.  If the adult child did not have a beneficial interest in the property, the interest cannot be transferred to the surviving spouse by virtue of the provisions of s. 26(1).[3]

THE CLAIM OF UNJUSTIFIED ENRICHMENT

At the heart of the doctrine of unjust enrichment lies the notion of restoring a benefit that justice does not permit one to retain.[4]

To successfully claim unjust enrichment against another person, a claimant must prove three things:

  1. The person received a benefit;
  2. The claimant suffered a loss corresponding in some way to the benefit; and
  3. There was no juristic reason for the benefit and the loss.

In Pacific National Investments Ltd. v. Victoria (City)[5] and in Garland v. Consumers’ Gas Co.,[6] the Court set out a two-step analysis for the absence of juristic reason.

The first step of the juristic reason analysis applies the established categories of juristic reasons; in their absence, the second step permits consideration of the reasonable expectations of the parties and public policy considerations to assess whether recovery should be denied.

In order to succeed with a claim of unjust enrichment, the parent is required to prove all three elements; that the deceased received a benefit (which is the 50% interest in the property) and as a result the parent has suffered a loss as he/she paid for the property, that there was no juristic reason for the benefit and the loss (there was no contract between him/her and the deceased, or a gift or a deed of donation). The court will also consider the reasonable expectations of the parties and public policy considerations to access whether recovery should be denied.

The remedies for unjust enrichment are restitutionary in nature; that is, the object of the remedy is to require the estate to repay or reverse the unjustified enrichment.

A successful claim for unjust enrichment may attract either a “personal restitutionary award” or a “restitutionary proprietary award”. [7] In other words, the parent may be entitled to a monetary or a proprietary remedy, depending on the facts of the case.

The Courts have recognized in some cases when a monetary award is inappropriate or insufficient, a proprietary remedy may be required.

The case of Pettkus v Becker is responsible for an important remedial feature of the Canadian law of unjust enrichment: the development of the remedial constructive trust.  Imposed without reference to intention to create a trust, the constructive trust is a broad and flexible equitable tool used to determine beneficial entitlement to property.[8]  Where the parent can demonstrate a link or causal connection between his or her contributions and the acquisition, preservation, maintenance or improvement of the disputed property, a share of the property proportionate to the unjust enrichment can be impressed with a constructive trust in his or her favour.[9]

CONCLUSION

In order to ensure that clients fully understand and appreciate the consequences of their actions, real estate lawyers have an obligation to advise clients when purchasing property in the context where section 26(1) of the FLA could become applicable. This will help circumvent any confusion and disappointment which could arise when clients are advised that they do not automatically acquire the property by right of survivorship, and are informed of the consequences of the costly litigation upon the death of the joint owner spouse in circumstances where the property becomes the subject of a legal dispute.

[1] RSO 1990, c F.3. (the “FLA”).

[2] Pecore v. Pecore, [2007] 1 S.C.R. 795, 2007 SCC 17.

[3] Kent v. Kent, 2019 ONSC 6873 (CanLII)

[4] Peel (Regional Municipality) v. Canada; Peel (Regional Municipality) v. Ontario, [1992] 3 SCR 762, 1992 CanLII 21 (SCC), at p. 788.

[5] 2004 SCC 75 (CanLII).

[6] 2004 SCC 25 (CanLII), [2004] 1 S.C.R. 629.

[7]Lac Minerals Ltd. v. International Corona Resources Ltd., 1989 CanLII 34 (SCC), [1989] 2 S.C.R. 574, at p. 669, per La Forest J.

[8] Pettkus, at pp. 843-844 and 847-848.

[9] Pettkus, at pp. 852-853.

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