CRA, ex-wife paid earlier than man’s creditor after matrimonial house bought

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Many separated {couples} assume they’re equal house owners of their house, irrespective of whether or not each are on the title, however who really owns the home issues if there’s a separation, particularly if one of many spouses has unpaid debt.

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Beneath Canada’s structure, property and civil rights are beneath provincial jurisdiction, which means that joint tenants’ rights differ by province. A current Ontario Court docket of Enchantment ruling in Senthillmohan vs. Senthillmohan is an effective reminder to third-party collectors about how tough it may be to implement a judgment towards a jointly-held property.

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After the Senthillmohans separated, the spouse obtained a courtroom order to promote the jointly-owned house. The web proceeds had been to stay in belief after its sale. In the meantime, one of many husband’s collectors, a numbered firm, sued the husband over a debt.

The husband didn’t defend the lawsuit towards him, and the corporate obtained a default judgment in September 2021 and put a lien towards the house. This was not the husband’s solely debt. He additionally owed a big tax invoice to the Canada Income Company.

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A month after the default judgment was granted, the events entered into an settlement of buy and sale for the home. The ex-spouses then consented to a household courtroom order to sever the joint tenancy. A number of months later, the spouse requested that her one-half share of the web proceeds be paid out to her.

The web proceeds of the sale had been about $1.2 million. Because the CRA has precedence over different unsecured collectors when taxes are owed by a taxpayer, there was not sufficient to pay each the husband’s CRA invoice and the $1.7-million debt owed to the numbered firm.

Unsurprisingly, the corporate objected to the spouse getting her one-half share of the web proceeds, since if the web proceeds had been launched to the spouse, the corporate could be repaid even much less of the $1.7 million it was owed.

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The corporate based mostly its argument on the best way property regulation defines a joint tenancy, which suggests there’s “unity of title, unity of curiosity, unity of possession, and unity of time.”

In brief, joint tenancy implies that every joint tenant holds an undivided curiosity within the entirety of the property. The corporate argued that joint tenants are basically one proprietor, which is why when a joint tenant dies, the survivor retains the jointly-held property and turns into the only real proprietor.

The possession of the property really modifications when a joint tenancy is severed. Every proprietor then owns an undivided one-half curiosity within the property as “tenants in widespread.”

As tenants in widespread, every celebration can then direct of their will that their undivided one-half share goes to whomever they could select. After the demise of one of many tenants in widespread, the unique co-tenant won’t be the only real proprietor; they may proceed to personal solely that undivided one-half of the property, and can then personal it along with whomever the deceased named of their will.

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Relying on the province, property held in joint tenancy may be severed by the events’ actions, reminiscent of getting a courtroom order to sever, or, in Ontario, by transferring one’s personal curiosity within the house to oneself.

Within the Senthillmohan case, the corporate claimed it had the appropriate to implement its debt towards all of the home proceeds as a result of the spouses had been nonetheless joint tenants when the husband turned indebted to the corporate.

The corporate relied on a Manitoba case that mentioned proceeds of a property held by joint tenants are to be paid within the following order: bills regarding the sale; something owed to a secured celebration (reminiscent of a mortgage); any subsequent encumbrances or liens, so as of their registration; and solely then will the remaining web proceeds be paid to the house owners.

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Against this, the Executions Act of Ontario is obvious {that a} sheriff could implement a judgment with a “writ of execution,” which permits the sheriff to grab lands of the debtor, together with “any curiosity of the debtor in property held in joint tenancy.”

Nonetheless, the Court docket of Enchantment went on to search out that when a sheriff seizes property in joint tenancy, the joint tenancy is severed. As soon as it’s severed, the debtor joint tenant has no additional declare to the entire of the property. Due to that, the creditor is restricted to claiming towards the debtor’s share of the tenancy in widespread.

In Senthillmohan, the courtroom determined it didn’t need to parse the timing of the joint tenancy severance, because the enforcement by the sheriff was sufficient to sever the joint tenancy.

Consequently, the spouse obtained her one-half of the web proceeds, about $600,000. The husband’s CRA debt was deducted from his share of the web proceeds, leaving about $323,000 to fulfill the $1.7 million owing to the judgment creditor, an quantity considerably lower than what it hoped it might accumulate.

Laurie Pawlitza is a senior associate within the household regulation group at Torkin Manes LLP in Toronto. lpawlitza@torkinmanes.com

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