Title Transfers, Creditors & Family Law
Aside from all of the other considerations that go hand and hand with business planning, owners, professionals and other entrepreneurs should take a moment to consider creditor protection planning. Since spouses are separate as to property, transferring property to the name of a spouse is, at times, a viable option. Notwithstanding the above, to avoid a challenge by creditors, transfers such as these should be completed well before becoming insolvent or nearly insolvent.
Although it is implicitly understood that business owners are entitled to the creditor protections offered by transferring property into the name of a spouse, businesses and individuals alike should refrain from doing so if a claim is already pending. In the event that a transfer is made subsequent to notice of a claim, it is likely that it will be deemed a “fraudulent conveyance” and set aside.
Though a transfer can serve as a potential shield against creditors, there are family law implications that should be taken into consideration when transferring real property solely into your spouse’s name.
If the property being transferred is your matrimonial home you run this risk of not sharing in any increase in value that occurs post-separation. This is a disadvantage that may be outweighed by the benefits of shielding a major asset from potential creditors.
It also important to note that the Section 2 of the Partition Act states:
“Who may be compelled to make partition or sale
2. All joint tenants, tenants in common, and coparceners, all doweresses, and parties entitled to dower, tenants by the curtesy, mortgagees or other creditors having liens on, and all parties interested in, to or out of, any land in Ontario, may be compelled to make or suffer partition or sale of the land, or any part thereof, whether the estate is legal and equitable or equitable only”. R.S.O. 1990, c. P 4. s.2. [emphasis is ours]
Thus, in the absence of being registered on title, one would be prevented from bringing a claim under the Partition Act. As such, the non-titled spouse cannot force the title holding spouse to sell the property. However, this does not diminish the rights to a matrimonial home afforded under the Family Law Act. As a spouse, regardless of whether both spouses are registered on title, both spouses have a right to equal possession of the matrimonial home. The spouse holding title cannot sell or dispose of the matrimonial home without the consent of the other. The non-titled spouse still holds a claim to the equity from the property through the equalization process provided under the Family Law Act, and may also have equitable trust claims against the property as well. It is important to remember that these property rights only apply to married parties and not to those in a common law relationship.
Questions relating to any of the above, please do not hesitate to contact Nav Shokar, an associate at Keyser Mason Ball, LLP and a member of the firm’s Family Law group at firstname.lastname@example.org or (905) 276-0402.
This article is provided for general information purposes and should not be considered a legal opinion. Clients are advised to obtain legal advice on their specific situations.