Tag: matrimonial home

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Residential Real Estate

Court Orders Sale of Parents’ Two Properties as a Result of COVID-19-Related Economic Difficulties

In a recent, and at times strongly-worded, court decision, two parents were ordered to sell their jointly-owned matrimonial home and investment property to alleviate economic difficulties created by the COVID-19 pandemic.

Court’s Opening Remarks

Before getting to the facts of the case, the court began its endorsement by making the following remarks:

“COVID-19 has instantly made most of our “He Said/She Said” disputes sound pretty petty.

We’re still in the midst of an existential crisis. Medically. Economically. Socially.

But rather than brace together against the common enemy, parents are pounding on the family court door, begging us to open up so they can get a few more kicks in – as if a judge has the power to wake anyone from this pandemic nightmare.  

Business as Usual?  Gone.

Nonsense as Usual?  Here to stay.”

What Happened?

The father brought a motion to force the immediate sale of two jointly-owned properties, including the matrimonial home where the mother resided with their two children ages seven and four. The mother did not want either property sold.

The equity in the matrimonial home was about $1 million and the value of their Toronto investment property had a fair market value of approximately $700,000.

Parties’ Positions

The father advanced that COVID-19 had drastically and unexpectedly decreased his income. As a result, he claimed he could not longer afford to pay the mortgage and carrying costs in relation to the matrimonial home. Additionally, he could no longer afford to pay child and spousal support. Between 2016 and 2019 his annual personal income averaged $132,000; he estimated that his total 2020 earnings would be about $66,000. The father argued that neither he nor the mother couldafford the carrying costs in relation to either of the two properties.  

The mother argued that while the father claimed COVID-19 had resulted in a reduction in his income, he had made no reference to his personal savings, investments or other sources of income from which he could meet his financial obligations. Additionally, the mother argued that the COVID-19 restrictions were being reduced, so any reduction in the father’s business income would soon be resolved. The mother also claimed that the father could have applied for government financial assistance to help small businesses and employees during COVID-19, but he had elected not to pursue these options. Finally, the mother argued that the father was taking a scorched earth litigation strategy, seeking to sell properties when the real estate market was depressed. 

Decision

The court accepted that both parents were experiencing financial hardship and that COVID-19 had unexpectedly and unavoidably created a profound and indefinite financial crisis for the family. The court found no reason to doubt the father’s estimate that his income for 2020 would be about half of what it had been in previous years. The court stated:

“[T]his pandemic has created such immediate financial crisis for so many individuals and businesses, that it would be unrealistic and inhumane not to understand that people are really hurting – and they need help now. […] 

COVID-19 has at least temporarily ruined the financial prospects of both of these parties. And neither of them is to blame.”

While the court wondered why, in the face of economic uncertainty, the parents were spending money to pay lawyers to debate the sale of their homes, it acknowledged that the parents simply did not have enough money and that the sale of the two properties would free up at least $1.3 million dollars of joint funds, after clearing the parents’ debts.

The court then stated:

“I find that both of these parties are frightened, angry and stubborn. That’s not enough to either force a sale or block a sale.  

They are both acting so strategically and aggressively that they have lost sight of the harm they are doing to their children and to their bank accounts. 

And they definitely don’t seem to understand that in this COVID-19 economy, financially wasteful litigation is an indulgence they can no longer afford.”

However, the court concluded that the mother had not established any reason why either of the properties should not be sold. To the contrary, the court found that the father had clearly established that economic necessity required that both properties be sold, to alleviate a crippling debt load, and to free up significant available equity so that the parents can both get on with their lives.

As a result, the court ordered the immediate listing for sale of both properties.

Get Advice

Baker & Company has adopted all of the COVID-19 safety precautions and vulnerable employees have been invited to work from home. We are fully operational and continuing to work on client assignments. Where possible, meetings are being held via video link or by telephone conference.

Baker & Company’s lawyers have a reputation for closing residential purchase, sale and refinance transactions smoothly and without surprises. Whether you are buying or selling your home, cottage, investment property or vacant land, we can assist you from the beginning to the end of your transaction. We represent individuals and families in all kinds of real estate matters. We act diligently to ensure you have a positive and stress-free experience.

At Baker & Company in Toronto, we take the time to meet with you and understand your unique needs in order to guide you through your next residential real estate transaction.  We rely on our broad base of experience and expertise to provide exceptional legal advice and risk management. Call us at 416-777-0100 or contact us online for a consultation.

Categories
Residential Real Estate Uncategorized

No Right of First Refusal in the Sale of a Matrimonial Home

In a recent Ontario Court of Appeal decision, the court reiterated the principle that spouses may not be granted a right of first refusal in a matrimonial home.

A right of first refusal in real estate is a mechanism that gives a party the right to be the first allowed to purchase a particular property if it is offered for sale. 

What Happened?

The husband and wife separated and went to trial to resolve the ensuing financial issues. After a four-day trial, the trial judge ordered the husband to pay the wife an equalization payment of $226,670. 

Additionally, the trial judge ordered that, after a fair market value assessment, the husband had the “right to conclude the purchase” of the wife’s interest in the jointly-owned matrimonial home within 30 days, and to obtain the release of the wife from her obligations under the existing first mortgage registered against the matrimonial home.

Parties’ Positions

The wife appealed and asked the Court of Appeal to vary the trial judge’s order to omit the husband’s right to conclude the purchase of the matrimonial home. She sought the sale of the matrimonial home and the division of its net proceeds.

The husband contested the appeal, first, because he argued that the appeal should instead be heard by the Divisional Court and that it was on the trial judge to explain his order. Also, the husband wanted to purchase the wife’s interest in the matrimonial home. Finally, he stated that he had been required to live in a trailer while the matrimonial home sat vacant as the wife was living with her mother; the husband sought compensation for his resulting expenses and hardship.

Court of Appeal Decision

After dismissing the husband’s procedural objections, the court stated that the case raised a single issue: the arrangements for selling the matrimonial home. 

The court explained that a right of first refusal is a substantive right that has economic value. It cited previous case law which has established that, absent consent between the parties, one spouse does not have a special right to purchase the matrimonial home and that once the matrimonial home is ordered to be sold, each spouse is entitled to receive fair market value for his or her interest in it. In the cited 1992 case, the Ontario Court of Appeal had previously stated:

“A right of first refusal will most often work to discourage other interested buyers. If a spouse is granted a right of first refusal, the effect of it is to remove that spouse from the competitive market for the matrimonial home. The existence of a right of first refusal distorts the market, because it provides a benefit to one party, which eliminates the need for that party to compete with any other interested purchaser. Finally, if the spouse with a right of first refusal is in possession, the existence of the right of first refusal will provide a disincentive to maintaining the property, so as to increase its value and saleability.”

Consequently, the court explained that a right of first refusal falls outside the boundaries of what is ancillary or what is reasonably necessary to implement the order for sale of the matrimonial home. It distorts the market for the sale of the matrimonial home by eliminating the need to compete against any other prospective purchaser, thus potentially reducing the amount the joint owning spouse realizes on the sale.

The court found that, in the absence of consent, the right of first refusal should not have been granted by the trial judge in this case. It stated that if the husband wanted to purchase the matrimonial home, he would have to compete with any other interested purchaser.

As a result, the court allowed the appeal and ordered that the matrimonial home could be listed for sale immediately by the wife.

Get Advice

Baker & Company has adopted all of the COVID-19 safety precautions and vulnerable employees have been invited to work from home. We are fully operational and continuing to work on client assignments. Where possible, meetings are being held via video link or by telephone conference.

Baker & Company’s lawyers have a reputation for closing residential purchase, sale and refinance transactions smoothly and without surprises. Whether you are buying or selling your home, cottage, investment property or vacant land, we can assist you from the beginning to the end of your transaction. We represent individuals and families in all kinds of real estate matters. We act diligently to ensure you have a positive and stress-free experience.

At Baker & Company in Toronto, we take the time to meet with you and understand your unique needs in order to guide you through your next residential real estate transaction.  We rely on our broad base of experience and expertise to provide exceptional legal advice and risk management. Call us at 416-777-0100 or contact us online for a consultation.

Categories
Estate Planning, Will Planning, Succession Planning & Inheritance Planning Family Law Second Marriage Issues Wills & Estates

Estate Planning Concerns for Later in Life Relationships

Most people understand the importance of putting a carefully considered estate plan into place in order to ensure that one’s wishes are carried out with respect to the distribution of their assets after death. Married and common law couples generally plan their estates so that their assets pass to their spouse after death, who will then in turn pass all of the couple’s assets onto the couple’s children, if they have them.

When a young couple marries or moves in together before having children or acquiring significant assets, estate planning is generally not a complicated prospect. When two people share children and build their wealth together from the start, each party usually has similar long-term goals with respect to their estates and beneficiaries. However, when couples marry or enter into a common law relationship later in life due to divorce or the death of their first spouse, estate matters can become considerably more complicated. Each person is more likely to have grown children, established assets and other interests that were built before the relationship began. This can drastically affect the estate planning process in multiple ways.

How Much to Leave to a Surviving Second Spouse

When an estate plan involves a second spouse or common law partner as well as grown children from a previous relationship, determining the best method for the distribution of assets is key. The risks of leaving everything to the surviving spouse with the intention that they will then leave assets to one’s children after their death are numerous. The surviving spouse may not respect the intention of the original plan, gifting funds during their lifetime to their own children, charitable organizations or elsewhere, leaving little or nothing to gift to the children of the deceased when they pass. The surviving spouse may also enter into a new relationship, one that may involve other children and different or shifting financial priorities.

Aside from the potential for one’s assets to be depleted by the surviving spouse, there is also an emotional component to consider. Grown children may feel hurt, angered or forgotten should a  spouse who is not their parent inherit the entire estate in favour of them, even if the intention exists that the spouse will, in turn, leave assets to the children upon their death. This option leaves a lot of room for uncertainty, which is often what a testator is most trying to avoid when making an estate plan.

Another factor to consider is the taxability of certain assets. Assets such as Registered Retirement Savings Plans (RRSPs), Registered Retirement Income Funds (RRIFs), and Tax-Free Savings Accounts (TFSAs), may or may not be subject to taxes, depending on the beneficiary. Each of these assets can be transferred tax-free upon death to a surviving spouse, however, if they are left to children of the deceased, all will face tax penalties. This may not be a reason to leave these to a spouse rather than to one’s children, but if making decisions on which assets to leave to whom, this should be taken under advisement.

Leaving too little to a second spouse or partner is also a concern, particularly when there is a significant disparity in the parties’ assets and income. Leaving too little may result in insufficient assets, and the surviving spouse may find themselves needing to postpone retirement or facing the need to significantly curb spending in their later years.

A qualified estate planning lawyer will review all aspects of your financial situation and advise on how to determine a happy medium to the benefit of all family members over the long term.

The Matrimonial Home

When a couple shares a home, traditionally they will both go on title as joint tenants, which means that upon the death of one spouse, full ownership will transfer by right to the surviving spouse. When a couple each have children from previous relationships, they may choose instead to own the home as tenants in common. This means that they can allocate the percentage of ownership between them (often a 50/50 split) and when one spouse dies, their share in the property will be distributed according to their will. However, this can result in an awkward ownership split between a surviving spouse and the deceased’s children. Depending on family dynamics, this option could be just fine, but it may cause problems if any tension exists between the surviving spouse and the deceased’s children.

Another option that couples sometimes choose, particularly in common law relationships where the home is solely owned by one party, is for the spouse who owns the home to designate a life estate in the home for their surviving spouse or partner in their will. This option guarantees the right of the surviving spouse to remain in the home for their lifetime (a right not inherent in common law relationships), with the property ownership transferring to the owner’s children upon their death (or sooner, if the surviving spouse enters into a new relationship and/or chooses to leave of their own volition).

Obtaining Independent Legal Advice

When planning an estate involving later in life spouses or common law partners and children from previous relationships, it is advisable that both parties retain their own independent legal counsel. This will ensure that each party receives advice designed to protect their individual interests and allow the design of a plan that adequately addresses each party’s stated intentions.

At Baker & Company, our Toronto estate planning lawyers can help you establish an estate plan tailored to your needs, no matter your current family status. We have extensive experience and expertise in providing you with estate planning advice and implementing your desired plan. Call us at 416-777-0100 or contact us online for a consultation.