Prenuptial Agreement | Prenup Form Template (Part 5): How is ownership and division of property dealt with?

Prenuptial Agreement (Part 5)

Please note that the information provided herein is not legal advice and is provided for informational and educational purposes only. If you need legal advice with respect to getting a prenuptial agreement, you should seek professional assistance (e.g. make a post on Dynamic Legal Forms). We have Toronto, Ottawa, Hamilton, Brampton, Mississauga and other Ontario lawyers registered to help you. We will soon be offering Prenuptial Agreements in our Legal Forms + Video Guides section. You can contact me directly if you need a lawyer.

This is the fifth of a series of blog posts I’m writing about prenups or prenuptial agreements for Ontario. In the first blog, I discussed what they are, when are they used, and what is required for them to be valid and enforceable. In this blog, I’ll discuss how they can be challenged. In the second blog, I reviewed Loy v. Loy – a Ontario Superior Court of Justice case which reviewed the jurisprudence concerning how prenuptial agreements (and other domestic contracts) can be challenged. In the third blog, I’m discussed some tips that will help mitigate against future challenges to prenups. In the fourth blog, I talked about about what happens if a prenup is set aside (in other words, what will govern the division of property, spousal support, etc.)? I also discussed the doctrines of UNJUST ENRICHMENT, CONSTRUCTIVE TRUST, and RESULTING TRUST – whichcan be used by a party to claim that they are entitled to certain property. In this blog, I’m going to talk about how ownership and division of property can be dealt with in a prenuptial agreement template.

The parties may have already decided a certain percentage or simply say that they get whatever they put into the relationship during its term. The parties may want to also evidence here how much they’ve contributed (e.g. buying a house together or in a joint account). Property rights can be waived and the parties can release each other from claims to the other’s property. The parties can also waive rights they may have to property under doctrines of trust. In what follows, some of the more important issues concerning property will be discussed.

Excluded Property
When married parties divorce, there is an EQUALIZATION OF NET FAMILY PROPERTY. Essentially, you take the value of spouse’s property at the date of separation, subtract the value of their property at the date of marriage, and split that amount between the two spouses. If the parties want to exclude certain of their property from NET FAMILY PROPERTY, they can do so through a Prenuptial Agreement. The key thing to remember is that, while certain assets will not be included in Net Family Property because they were owned outside of the marriage (e.g. before the parties got married), the assets may nevertheless be capable of growth, sale, and further investment. If the property is capable of increasing in value or providing income, then these things should be excluded from NET FAMILY PROPERTY as well as the asset itself (if that is the parties’ intention)! So too should any property that is substituted for that property, as well as any appreciation in value or income that can be derived from the substituted property.

Constructive Trust
With respect to ownership or division of property, one of the parties may be able to assert a right based on the remedy of CONSTRUCTIVE TRUST. I previously discussed this remedy in my last blog. Basically, if a court find there to be an unjust enrichment and there was a link between the contribution that founds the action and the property in which the constructive trust is claimed, then the complaining spouse may receive an ownership interest in that property. To recap, the idea behind a constructive trust is as follows. The marriage ends. Only one spouse holds title to property. If there was an unjust enrichment and monetary damages would not be a sufficient remedy, then the complaining spouse may receive an ownership interest in the other spouse’s property.

The Supreme Court in Rawluk v. Rawluk, [1990] 1 S.C.R. 70 dealt with the issue of constructive trust in the matrimonial law context and laid down some general principles which are worth repeating here. While this case did NOT involve a Prenuptial Agreement, it is still important to understand (particularly, if couples are trying to avoid Constructive Trust claims via a Prenuptial Agreement). In that case, a husband and wife had separated. Throughout the years, the wife had assisted the husband in their business operations. After the separation, the value of certain property (farm machinery and realty) increased dramatically. While the wife was entitled to an equalization of net family property up to the date of separation, she was not entitled to any increase in value of the net family property after that date under the Ontario Family Law Act. The only way she could claim entitlement to a distribution of half of the increase in value after separation was through the doctrine of CONSTRUCTIVE TRUST!

The trial judge and the Ontario Court of Appeal held that those properties were impressed with a Constructive Trust which gave the wife a beneficial half interest in the properties at the time of separation and entitled her to participate, as owner, in the value of the properties AFTER SEPARATION AS WELL! The husband appealed the decision that a spouse could assert a remedial constructive trust to determine ownership in equalization proceedings under the Family Law Act. The Supreme Court of Canada disagreed with the husband and upheld the lower courts’ decisions:

56 In this case fairness requires that the dedication and hard work of Jacqueline Rawluk in acquiring and maintaining the properties in issue be recognized. The equitable remedy of constructive trust was properly applied.

So the bottom line is that, absent a private agreement (e.g. Prenuptial Agreement) that says otherwise, where both spouses have contributed to the acquisition or maintenance of property, the non-titled spouse should be able to assert an interest in the property by way of Constructive Trust and realize the benefits that ownership may provide. Therefore, the remedial Constructive Trust is an available equitable principle or remedy that may be used to calculate beneficial ownership of property. The interest arises when the unjust enrichment first arose, although it is judicially declared at a later date.

Assuming that the parties to a Prenuptial Agreement understand how Constructive Trust operates, they can specify how they would like to deal with it. This may involve, for example, the parties agreeing that no principles of equity or trust (e.g. resulting trust, constructive trust, restitution, unjust enrichment, etc.) will affect ownership or division of property.

Gifts / Inheritances
Gifts or inheritances (other than the Matrimonial Home) that are received from a third party during the marriage are specifically EXCLUDED under the Family Law Act from NET FAMILY PROPERTY. But what about INCOME from such gifts or inheritances? The Act says that that income is to be excluded IF the donor or testator expressly stated that it was to be excluded. But what if they didn’t say anything? Well, then you may want to specify how income is to be dealt in the Prenuptial Agreement.

Matrimonial Home
As discussed in my previous blog, while you can deal with issues such as ownership of the Matrimonial Home, you can’t deal with rights to possess it (which is governed by the Family Law Act). The Matrimonial Home must be viewed in light of (1) who owns it and (2) who is entitled to possess it. If a party who owns it tries to prevent the other party from possessing it contrary to the Act, disaster could result! Ownership of the Matrimonial Home can be dealt with in a number of ways. First, one part could be entitled to own the whole thing. Second, the parties could divide ownership according to some formula. For example, the parties could value the Matrimonial Home as of the date of marriage and agree to repay that amount from selling it and then divide any remaining proceeds equally or in accordance with some mutually-acceptable formula. Remember: if during the course of the marriage, you move to another Matrimonial Home, you may want the same terms and conditions in the Prenuptial Agreement to apply mutatis mutandis to the new Matrimonial Home!

Specific Property
Specific property may include business interests (e.g. partnership units, limited partnership units, corporate shares, etc), pensions and annuities, licenses to practice, etc. With respect to Canada Pension Plan, this is a complicated area of law, and you are advised to speak with a lawyer if you have comments, questions, or concerns.

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