If parties execute a separation agreement agreeing to transfer property, but the property never gets transferred, who holds title to the property? If the agreement was meant to resolve property claims arising from marital breakdown, does the agreement give the intended recipient a proprietary interest in the property? One recent case dealt with these questions, while also showing how family law and estate law can interrelate, and how a separation or divorce can impact estate planning.

Transferor Holds Property for the Benefit of the Transferee

In D’Onofrio v. Riley, the applicant was the common law spouse and estate trustee for the deceased. The respondent was previously married to the deceased. The applicant sought the court’s direction on whether the deceased held an interest in a residential property at the time of his death, and whether the value of the property was available for estate creditors. At the time of their separation, the respondent and the deceased signed a separation agreement which dealt with the property in question, their former matrimonial home. The agreement stated that the home would remain with the respondent as part of the financial settlement of separation.

The first issue the court had to address was whether the respondent was the beneficial owner of the property. Justice Dietrich noted that the jurisprudence had established that “once there is a valid agreement to transfer property, the transferee becomes the beneficial owner of the property”. Essentially, if there is an agreement to transfer property, but if the transferor continues to hold legal title, then they are deemed to be holding that property in trust for the transferee.

Agreement Removes Property From Estate of Transferor Spouse

In Godfrey v. Godfrey, the husband argued that a court order that had been made, created from that moment a beneficial interest in the home. Once the order was made, he was to have an equitable interest in the property and a right to have the home transferred to him, while the wife became a trustee over the property for the husband. The argument was compelling, and the judge accepted that an order that property be transferred between spouses would create a right that would “remove the property from the estate of the transferor spouse”.

Klymas v. Burkholder was a 1976 case that also addressed a similar point. In this case, the spouses had entered into a separation agreement in which the wife was to transfer her interest in a property to her husband. However, before the transfer occurred the wife made an assignment into bankruptcy. The court found that when the agreement was executed, equitable title to the property was passed to the husband and the wife only continued to hold legal title in trust for the husband.

Separation Agreement Confirmed Transfer of Property

Justice Dietrich determined that an agreement between parties to transfer property is similar to an agreement of purchase and sale. In Simcoe Vacant Land Condominium Corporation No. 272 v. Blue Shores Developments Ltd. the Court of Appeal considered the trust relationship between the vendor and purchaser post-agreement. There, the court explained that “a valid contract for the purchase and sale of land gives rise to a trust relationship, with the purchaser acquiring a beneficial interest in the property”. Essentially, the vendor becomes a trustee for the buyer, who acquires beneficial ownership.

In this case, the respondent argued that the terms of the separation agreement confirmed that the beneficial interest in the deceased’s half interest in the property passed to her upon the signing of the separation agreement. The language in the agreement specifically stated that the property “will remain” with the respondent and “take the place of any spousal support” she may have been entitled to. In the agreement the deceased also acknowledged that she agreed to forgo spousal support in return for the deceased’s interest in the property.

Property Fell Outside of the Deceased’s Estate

Significantly, in the agreement the parties confirmed that all “property” had been “divided”. The judge looked to the reasoning in Schreyer v. Schreyer, where the Supreme Court of Canada explained the distinction between dividing property and dividing the value of property. The Supreme Court explained that provinces have tried to address the inequities “arising out of the distribution of family assets after the breakdown of a marriage or of a common law relationship” and have chosen between an equalization or division of property model. The equalization model involves an accounting of the family assets eventually dividing the value of the assets between the spouses. Alternatively, a division of property model gives rise “to a proprietary or beneficial interest in the assets themselves, not just in their value”. In D’Onofrio v. Riley, the agreement stated that property had been divided, so the judge agreed that the reasoning in Schreyer applied. The deceased agreed to transfer his interest in the property to the respondent, consequently she acquired the one-half share of the property, which the deceased held in trust for her.

The deceased’s will, which was made after the separation agreement also corroborated the terms of the separation agreement. The will stated that the respondent was entitled to the property as part of the parties’ financial settlement. Overall, the judge found that by entering into the separation agreement the deceased became a trustee of his one-half share of the property that he agreed to transfer to the respondent, while she became the beneficial owner of the entire interest in the property. Moreover, the deceased acknowledged this in the will by confirming that she was entitled to “our house”.

Ultimately, the judge determined that the property did not form part of the deceased’s estate, and it was not available to creditors of the estate.

The Importance of Reviewing Your Separation Agreement for Clarity

Where there is an agreement to transfer property, the transferor can end up holding legal title in trust for the recipient, who becomes the beneficial owner. This case highlights the need for clarity when drafting domestic contracts and shows how the wording can impact the interpretation and eventual treatment of family property. Since family law can impact estate matters, this case also demonstrates the complexities that can arise and the importance of making sure your intentions are accurately reflected in legal documents.

Contact Johnson Miller Family Lawyers for Trusted Legal Representation in Complex Property Division Matters

At Johnson Miller Family Lawyers, our team of compassionate and experienced family lawyers provide comprehensive, tailored legal advice on a variety of family law issues. From separation and divorce to property division and spousal support claims, our family law team ensures that every client understands their rights and options under the law. Contact us online or by phone at 519.973.1500 to arrange a confidential consultation with one of our family lawyers to learn how we can assist you.