A couple can agree ahead of time on how to divide their property if they separate, and may wish to do so if the law in Ontario does not seem fair for their particular situation. They would do this by creating a valid cohabitation agreement or marriage contract. See my earlier post: Should I Have a Pre-Nup?
In the absence of a cohabitation agreement or marriage contract, when a married couple separates, Ontario’s Family Law Act provides for the division of the value of the property that the couple owns at the date of separation. The Family Law Act calls this “equalization of net family property”. Property is broadly defined, and includes things like real estate, personal property, savings accounts, investments, RRSPs, RESPs, pensions, stock options, shares in both publicly-traded and privately-held corporations (including businesses owned by one of the spouses), and the value of a partnership or sole proprietorship. Some things are excluded from net family property, so it can be wise to consult a lawyer about your specific situation. Exclusions include: gifts or inheritances acquired during the marriage, sometimes the income from a gift or inheritance, damages for personal injury, proceeds from a life insurance policy and more.
In calculating a married spouse’s net family property, debts and other liabilities are deducted from the value of property owned at the date of separation, as is the value of property that the spouse owned at the date of marriage. However, there are special rules with respect to the matrimonial home. If the property owned at the date of marriage becomes the matrimonial home, or if a spouse uses a gift or inheritance to pay for a matrimonial home, the exclusion can be lost. A person who owns a home that will be used as the matrimonial home after marriage, or who is considering using a gift or inheritance acquired during the marriage to purchase, fund, or improve a matrimonial home would be wise to seek legal advice about the possible financial consequences of these actions, and about how he or she might protect the asset in the event of a breakdown of the relationship.
Common law spouses do not have the same right to an equalization of net family property. Title to property (registered ownership if ownership can be registered, and paperwork documenting ownership, if the asset is not one for which ownership is registered), therefore, is very important when common law spouses separate. If a common law couple separates, subject to any arguments about constructive or resulting trusts, the titled spouse keeps the asset. The law may use the concept of a constructive trust to remedy a situation where a common law spouse has made a substantial contribution to the property of the other spouse that has not been recognized. In certain circumstances, the principle of resulting trust can be used to rectify a situation where one spouse has advanced money for the purchase of an asset, but is not on title.
A common law spouse who wants to avoid a dispute about the existence of a constructive or resulting trust might consider signing a cohabitation agreement that clearly spells out their understanding about ownership of property.
It can be a good idea to review your particular situation with a lawyer, whether you intending to stay with your spouse or thinking about a separation, to protect against unintended consequences if there is a separation.