Written on June 21, 2013 – 8:00 am | by Corina Weigl
In previous blogs I referred to the family cottage as being that “ubiquitous of assets”. Today I want to raise one of the issues that must be considered whenever implementing a plan for the family cottage. That issue is the implications that arise as a result of family law considerations. Whenever property is being conveyed to a child, whether by gift or by sale, this is an area that must be explored.
One of the primary reasons family law considerations must be considered is because of the special status that is attributed, in Ontario at least, to a property that constitutes a matrimonial home. A “matrimonial home” is a property that, as at a relevant date, was ordinarily occupied by a person and his/her spouse as their family residence.
The common perception about what happens on divorce or separation is that there is a 50:50 sharing of property between married spouses. This is not quite an accurate statement. For married spouses, the Family Law Act provides for an equalization of what is referred to as “net family property”. In essence, the goal of the legislation is to ensure the spouses share equally in the growth in value of their assets acquired during their marriage. Married spouses are entitled to deduct the value of all property that was owned on the date of marriage and to entirely exclude from the calculation property that was gifted or inherited during marriage. However, this is where the family cottage is given special status.
If the family cottage qualifies as a matrimonial home, and a spouse can have more than one, then the deduction and exclusion I just referred to do not apply. Rather, the non-titled married spouse will receive the benefit of 50% of the value of the family cottage. Although, this equalization process will not necessarily result in the spouse of your child acquiring an ownership interest in the cottage – because the law does not result in a transfer of ownership – a sale of the cottage may be needed if your child cannot otherwise satisfy the equalization payment s/he may owe.
You may think that because I have only been referring to married spouses that none of this applies to common law spouses. While that may be the case, as common law spouses do not benefit from the concept of equalization of net family property, common law spouse have other equitable claims and remedies at their fingertips to assist them in acquiring an interest in the family cottage.
The upshot is – the best way to protect the family cottage from the claims of our much loved in-laws is to ensure your children and their respective spouses have a domestic contract that expressly protects the family cottage.