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Keeping Your Piece of the Pie

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11597904_sHow in your divorce you can wind up losing one of your most important investments?

For most people in Ontario their home represents one of their largest and most important investments, yet most people might be surprised how the law treats the home on marriage breakdown.

When a couple separates, their net family property (the increase in all of their assets, less their accumulated liabilities, after assets and liabilities brought into the marriage are first taken out by them) is shared equally between them.  The spouse holding the greater amount of net family property makes an “equalization payment” to the other spouse so they end up with an equal share of the pie.

However, the matrimonial home has special status.  While it might seem sensible that a spouse who paid in full for the matrimonial home and brought it into the marriage should end up with their investment back at the end of the day (as is the case with other assets brought in, above), think again!

Under the Family Law Act, it does not matter if a spouse independently purchased the home prior to the date of marriage, or made a significantly larger contribution to the acquisition of the matrimonial home before or after marriage (regardless of the source of funds, even inheritances or gifts).  Once both parties reside in the home as the primary family residence, the law provides that the value of the matrimonial home be shared equally between the parties if the marriage ends.

The current state of the law creates a serious risk of a highly inequitable result.  Consider this example:

Before Jack and Jill married, each had $300,000 in the bank.  Following the marriage, Jack used his $300,000 to purchase a home for the family. Jack and Jill later divorce.  While the law permits Jill to exclude from equalization the value of her pre-marriage bank account, Jack is required to equally share the value of the matrimonial home with Jill.   Even though Jack came into the marriage with the same amount of assets as Jill, since it was used to acquire the matrimonial home he cannot recover the full amount.

The law provides for an exception to this.  If a spouse brings a home into the marriage that becomes the matrimonial home, but it is subsequently sold, that spouse’s equity in the original home will then be exempt from equalization (in other words, that person gets to take that amount out first).

Clearly, none of this makes sense. Yet that is the state of the law. So what does this mean for you?  If you are the one who brings the home into the marriage, you should try and get it sold and buy another house for the family to live in.  But if you are the spouse who did not bring it in, you want to stay in it! Family lawyers in Ontario have been pushing for years to change this nonsensical provision of the Family Law Act.

Marriage and cohabitation agreements can sometimes assist to restrict the effect of the Family Law Act over your assets, but there are still some limits with respect to the matrimonial home.

If you are uncertain of your situation or have questions, you should contact an experienced family lawyer.  Being proactive to ensure you keep your fair share of the pie is always a good idea, in the event the unthinkable comes to pass.

Article compliments of Stephen Durbin Professional Corporation. For information contact info@stephendurbin.ca

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