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When one party incurs expenses after separation, it can be unfair for the innocent party also to share the burden of the debt. Instead, certain financial adjustments may be necessary to reimburse a spouse and ensure that spouses are responsible for their own expenses after separation. A recent case shows that when one spouse accrues debts after separation, such as mortgage refinancings undertaken without the other spouse’s knowledge or consent, the spouse who incurred the debt will be responsible for it as a post-separation adjustment.
Husband Claims Interest in the Matrimonial Home After Divorce
In Alami v. Haddad, the matrimonial home was solely in the wife’s name. The wife also refinanced it three times without the husband’s consent. Two occasions were during the marriage, but the third occurred after the parties separated. After the parties divorced, the husband claimed a resulting trust interest in the home.
During the proceedings, the trial judge found both parties had credibility problems and approached their evidence with caution. Nevertheless, the judge concluded that the wife owned the home, and the husband had a 50% interest in the home based on a resulting trust. Additionally, the wife was to be solely responsible for the mortgage registered after the separation date. The wife appealed the decision.
The Court of Appeal first dealt with the wife’s arguments concerning the finding of a resulting trust over the home. The wife argued that the trial judge incorrectly found that the husband had a beneficial interest in the matrimonial home. She suggested that because the parties had already divorced when the husband claimed a resulting trust interest in the home, section 14 of the Family Law Act did not apply. Section 14 concerns the presumption of a resulting trust when dealing with questions of the ownership of property between spouses.
A Presumption of Resulting Trust Applies to Gratuitous Property Transfers
The Court of Appeal found that the trial judge did not make an error applying a resulting trust over the parties’ former matrimonial home. The Court pointed out that section 10(1) of the Family Law Act enables courts to determine issues of ownership or the right to property between the spouses. This includes “whether legal title actually reflects beneficial ownership”. Also, before undertaking equalization, the net family property of each spouse needs to be determined. As the Court in Korman v. Korman noted, “property entitlements must be determined before they can be equalized”. Overall, there was no error in the trial judge considering whether the husband had an interest in the home.
The Court then explained that when dealing with a gratuitous transfer, the general rule is that a rebuttable presumption of resulting trust applies. Previously, in Belokon v. Kyrgyz Republic, the Court noted that this presumption derived from the fact that “equity presumes bargains and not gifts”. Yet, in Pecore v. Pecore, the Supreme Court of Canada clarified that the presumption can be rebutted on a balance of probabilities by evidence that the transferor intended the transfer of property to be a gift. Now, the justices in Alami pointed out that section 14 of the Family Law Act merely codifies that doctrine specifically for spouses while also providing two exceptions to the presumption.
Court of Appeal Upholds Finding of Resulting Trust
After reviewing the evidence, the trial judge determined that both parties contributed funds used to purchase their first home, even though it was only registered in the wife’s name. And when the original home was sold, the proceeds went towards the purchase of the second home. Looking at the parties’ financial situation, the trial judge also found it was “highly improbable” that the wife solely provided the funds for the purchase of the first or second home. The evidence was that she was primarily responsible for the care of their children and therefore only earned a modest income. On the other hand, the husband claimed he was the “primary breadwinner” and paid most of the purchase price.
Overall, the trial judge accepted that the husband did financially provide for the acquisition of the second home and that he never intended to gift his interest in the home to his wife. Consequently, the presumption of a resulting trust applied. The Court of Appeal found that there was no error in the trial judge’s findings, and the wife’s argument that section 14 of the Family Law Act did not apply was ultimately of no consequence.
Wife Denied Responsibility for Second Mortgage Placed on Property Post-Separation
When it came to addressing the mortgage, the wife argued that the trial judge erred when relying on section 5(6) of the Family Law Act to find that the wife was responsible for the second mortgage placed on the property. This section of the Family Law Act permits courts to award an unequal division of net family property in certain circumstances.
In this case, the wife registered the mortgage after the parties had separated and after the husband had filed his Answer requesting the sale of the matrimonial home, division of the proceeds of sale, and an unequal division of net family property. The wife suggested that since the trial judge did not find that an equalization payment was owed, the judge could not invoke section 5(6).
Spouse Who Incurred Post-Separation Debt is Responsible for It
On review, the Court of Appeal acknowledged that the trial judge did discuss unconscionability and an equal division of property pursuant to section 5(6), in the context of the refinancing that the wife undertook after separation, and that was without the husband’s consent. The Court accepted that since equalization and net family property are calculated as at the date of separation, the unequal division “lens” was not the appropriate framework for analyzing this issue.
Nevertheless, despite that analysis, the trial judge ultimately treated the mortgage as a post-separation adjustment that needed to be resolved in the husband’s favour. The judge ordered the parties’ net family property to be equalized, with the parties sharing the full amount of the current mortgage. The judge then determined there should be an adjustment out of the proceeds of the sale of the matrimonial home “to ensure that the wife is solely responsible for that portion of the current mortgage attributable to the second mortgage”.
The appeal court agreed this was the appropriate way to resolve the issue. The second mortgage was a post-separation debt solely incurred by the wife, so she was responsible for it. The Court of Appeal concluded that the judge’s erroneous framing of the issue did not impact the outcome, so this part of the wife’s appeal was rejected.
Johnson Miller Family Lawyers: Windsor-Essex Family Lawyers Experienced in Complex Property Division Matters
The Alami case demonstrates that property entitlements must be determined before equalization. As seen in the case, this can include assessing whether a non-titled spouse holds an interest in the parties’ matrimonial home.
If you are navigating property division and debt responsibility after separation, having experienced legal guidance can protect your rights and financial future. At Johnson Miller Family Lawyers, our family and divorce lawyers can help you understand your options, negotiate a fair separation agreement, and ensure post-separation debts are addressed appropriately. Contact us online or call 519-973-1500 to schedule a consultation.
