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Ontario Matrimonial Home Laws: What Every Spouse Needs to Know About Asset Protection

4 minute read

In Ontario, a unique law within the Family Law Act (FLA) provides special treatment for matrimonial homes- the residence where the couple resided together and owned at the time of their separation. In the event of a separation, Ontario law mandates that the value of the matrimonial home on the date of separation is effectively shared evenly between the spouses as part of the larger equalization of property scheme, regardless of who initially purchased the home or whether one spouse received the home as a gift or inheritance prior to the marriage.

In layman’s terms, this means that the spouse who owns the home, despite their initial investment, cannot deduct its value from their net family property, unlike other assets they owned at the date of marriage. Additionally, even if ownership of the home is in the name of one spouse upon separation, it cannot be sold without the other spouse's consent if it was the matrimonial home at the time of separation. The law was initially developed with good intentions, aiming to protect the non-home-owning spouse by ensuring they receive a share of the home's value upon separation. Unfortunately, this could lead to a substantial asset loss for the home-owning spouse.

While most couples do not enter marriage anticipating divorce, awareness and preparation are vital for Ontarians, especially given Canada's significant increase in real estate value. According to Statistics Canada, real estate constitutes approximately 55 percent of household wealth, with mortgages accounting for about 75 percent of household debt. A home is often the most significant asset an individual owns, and due to this law, it could lead to substantial asset loss in the event of a divorce for the spouse who initially purchased the home prior to the marriage.

Despite the law's initial aim to protect the non-home-owning spouse by effectively granting them half of the home’s total equity as a result of the larger equalization scheme, changes in societal norms and property values now necessitate a re-evaluation. For instance, if the non-homeowner spouse is entitled to exclusive possession after separation, the property-owning spouse cannot undermine this by selling the home or encumbering the property after separation. This provision is particularly protective for stay-at-home parents and children, ensuring they maintain a stable residence during and after the separation process.

The dramatic rise in property values has made the provision for equal sharing of a home's equity upon separation contentious. To protect their assets, many people aware of this law now opt for a marriage contract, commonly known as a prenuptial agreement, which can be drafted before or even during a marital relationship. These contracts can allow the original matrimonial homeowner to protect the value of their property in the event of a separation. Without a marriage contract, the couple must share the equity value of the matrimonial home upon separation as part of the larger equalization scheme, without the benefit of a date of marriage deduction. Marriage contracts also address other assets, allowing for deductions of their value on the marriage date or even exclusions of certain assets altogether.

It is important to note that the matrimonial home exception may extend to a couple's cottage or vacation home, as long as it was ordinarily occupied by them at the time of separation. This law applies only to properties located in Ontario and only the residential portion is considered a matrimonial home if a home serves a dual purpose, such as farmland or a business. Properties used for investment or income generation are exempt from the matrimonial home rules and are treated as regular assets as long as they were not ordinarily occupied by the spouses as their family residence. A key clause to the matrimonial home exception is that if a spouse sells their original home owned on the date of marriage or moves to a new one during their marriage and before the separation, the value of the first home can be deducted from the home-owning spouse’s family assets.

Awareness of this law is crucial, especially given the challenges and high cost of home ownership in Canada. Many individuals rely on their home's value for retirement, making potential losses in a divorce particularly significant. Given the considerable value of homes today, this law may need adjustment as has been done in other provinces. Increased awareness of this exception and the use of marriage contracts can help protect primary assets during a divorce.
Those who have worked hard to purchase or inherit a home from their loved ones often do not want to lose a substantial portion of these assets if their marriage is unsuccessful. For now, awareness and proactive planning are the best defences against potential financial losses in the event of a divorce.

This article was originally published by Law360 Canada, part of LexisNexis Canada Inc.

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Ryan P. R. McNeil

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