Canada: The High Cost Of Asset Accumulation In A Common Law Relationship

Last Updated: December 5 2016
Article by Jordan McKie

After separation, married people are obligated to account to one another for their respective increases in net worth from the date of marriage to the date of final separation, known as the valuation date. So, if you want to keep your growth and net worth protected from your conjugal partner, the trick is to not get married, right?

Wrong.

Following a landmark decision in two cases by the Supreme Court of Canada, known most commonly by the name of one of the cases, Kerr v Baranow, Ontario Courts have been approaching the accumulation of wealth during a period of conjugal cohabitation where the parties are not legally married, in a manner that is similar to the approach taken by part 1 of the Family Law Act, which applies only to legally married persons.

As described by the Supreme Court of Canada in Kerr v Baranow, a joint family venture exists where the parties' "joint effort has led to the accumulation of specific property... or... an accumulation of assets generally".1

The Court's inquiry into whether the parties made a joint effort to the accumulation of property is much broader than an investigation into whether one party made a direct or indirect contribution to the property of the other. Instead, the Courts look at such factors as:

  • the mutual effort of the parties to accumulate wealth together;
  • the level of the parties' economic integration;
  • whether the parties had the intent to create and share wealth; and
  • the priority which the parties placed on the family.

These categories are sometimes interpreted in a way which could cause a large number of common-law spouses to be treated as having entered into a joint family venture. This can be seen from a recent case, Gibson v Mead,2 where Justice Sutherland awarded the Applicant $125,000.00 as compensation for the difference between her wealth and the wealth of the Respondent after their relationship of 21 years ended. Justice Sutherland arrived at this sum, primarily, by considering the value of the home in which the parties lived with their children, but which was solely owned by the Respondent. The court also accounted for the difference in the wealth accumulation over the course of the relationship more generally, incorporating the Respondent's boat and motor vehicles into the value of the award. The rationale for making the award was that the court found, after applying the factors from Kerr v Baranow, that the parties had engaged in a joint family venture.

The Court found that the parties had made a mutual effort to accumulate wealth, not because the parties worked together, or shared an investment portfolio, but by virtue of the length of the relationship, the fact that the parties raised two children, their mutual contributions to the expense of the home, and the domestic labour provided by the Applicant, including the laundry and landscaping.

The parties were found to have attained the requisite level of economic integration, despite the fact that they maintained separate bank accounts, because their income was used for the benefit of the family.

In the Court's view, the fact that the parties represented themselves as a married couple was evidence that they intended to generate wealth together, despite the fact that they kept separate assets and debts.

Finally, the parties had placed a high priority on their family, particularly their children. The Respondent considered planning for the children's future to be a strong factor in his decision to work so hard and earn the income which contributed to his ability to purchase assets.

The facts of Gibson v Meade are familiar and unremarkable; the parties' story is the story of many families, whether the spouses are married or are in a common-law relationship. What is noteworthy is that the Respondent was ordered to pay the Applicant $125,000.00, in addition to paying child support and spousal support, because he left the relationship with a disproportionate amount of the assets.

In Kerr v Baranow, the Supreme Court was quick to rule that the sharing of wealth between common-law spouses should not be presumed, and that cohabitation, by itself, does not entitle one party to share in the other's property. However, as Gibson v Meade demonstrates, parties who have cohabited together for long periods will often have their lives intermingled in such a way that a party who claims that he or she was engaged in a joint family venture with his or her common law spouse will often have numerous examples of integration to point to. Indeed, such integration is almost inevitable after a long co-habitation. Once a Court accepts that parties have jointly accumulated wealth, the fact that a disproportionate share of that wealth is in one spouse's hand is increasingly seen as in injustice which must be remedied.

The most common redress for the spouse in a common law relationship who is leaving the relationship with considerably less wealth than the other spouse is to obtain a monetary award under equitable principles based on constructive trust. On occasion, in some cases, the Court may award an individual an actual interest in the property giving that spouse equitable ownership of an interest in the asset itself. This approach does not necessarily lead to full equalization of the wealth imbalance, as equitable sharing, does not necessarily mean, in every case, equal sharing. Nonetheless, it is clear that parties who were in long-term common law relationships cannot use the fact that they are not legally married, and therefore not covered by part 1 of the Family Law Act, to avoid some measure of wealth sharing, which could in some cases amount to an equal sharing of the wealth depending on the facts of the particular case.

The Court's shifting focus to the question of whether non-married spouses each have a "proportionate" share of assets when the relationship ends is particularly concerning for home-owners who are in long-term, unmarried relationships. As the most valuable asset which most people own and the one which the non-titled party may feel the strongest connection to, the house becomes a natural target in joint family venture litigation. Home-owners may have a false sense of security if they labor under the mis-belief that avoiding marriage will also avoid property obligations which arise upon separation.

To protect themselves, home-owners who are entering into, or have entered into, what could be a long-term relationship should consider meeting with a lawyer to discuss whether a domestic contract is necessary to protect their home from a possible claim by their common-law spouse in the event of a separation. Many people are reluctant to enter into domestic contracts, because it is a difficult and uncomfortable subject to raise with their partner. Thinking about, much less discussing, the potential end of a healthy relationship is a distressing topic. However, the prudent homeowner needs to remember that there are no guarantees in life and love and that protecting one's principal asset is a respectable goal. Maintaining a common-law relationship does not provide that protection. By taking it for granted that remaining unmarried will protect your assets, you may avoid the ring, but find yourself caught in a snare.

Footnotes

1 2011 SCC 10 at para 78.

2 22015 ONSC 6935.

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