Protecting the Family Cottage

Posted on 18 September 2017 Back to News

Protecting the Family Cottage

Sonya Jain Lawyer

By: Sonya Jain

Associate, HGR Graham Partners LLP

 

Cottages are special places where many families make great memories and enjoy idyllic vacations and weekends away.  However, cottages are also highly valuable family assets that require a lot of money and work to maintain.  Often families share the use of the cottage, contribute to the upkeep, maintenance and improvements (whether financial contribution or “sweat equity” by doing the renovations). If the cottage is jointly owned by family members and one of them separates from their spouse, their ownership interest could become a contentious family law issue. This article discusses how our clients can best protect the family cottage in the context of family law.

The Problem

In the context of family law, the cottage could pose a problem.  The reason for this is that it might be characterized as a “matrimonial home” on separation.  The Family Law Act contains provisions specifically impacting a “matrimonial home” when determining the equalization.  The definition of “matrimonial home” has been broadly interpreted by the courts to include cottages and other recreational properties in certain circumstances.

When a marriage ends, the parties are entitled to equalize their net family property (NFP).  A spouse’s net family property is defined as the value of all the property that a spouse has on the valuation date, (except for excluded property as defined in section 4 (2) of the FLA) and less that spouse’s debts and liabilities on the valuation date and the value of property, other than the matrimonial home, that the spouse owned on the date of the marriage.  The “matrimonial home” is an exception to the exclusions under section 4 (2) of the FLA.  Therefore, where a cottage is inherited, it is not necessarily excluded.  In addition, if one of the parties owned the matrimonial home on the date of marriage, the value of the home or cottage at the date of marriage is not deductible at the valuation date, (if it is still a matrimonial home at that time).  In many situations, especially where there are no pensions or savings, the largest asset of a marriage is the matrimonial home.

Section 18 (1) of the FLA, a matrimonial home provides, “Every property in which a “person has an interest and that is or, if the spouses have separated, was at the time of separation ordinarily occupied by the person and his or her spouse as their family residence is their matrimonial home.” This means that there can be more than one matrimonial home.  Therefore, if the non-titled spouse can show that the family “ordinarily occupied” the cottage as a “family residence,” they may be able to claim that the cottage qualifies as a matrimonial home.  This can be shown by providing evidence of a substantial contribution by the non-titled spouse to the acquisition, management, maintenance, operation or improvement of the cottage; or, just evidence of enjoyment of the cottage as a family. If, upon separation, the property is deemed to be a “matrimonial home” the titled spouse could then lose the “Date of Marriage Deduction,” (if they owned the property prior to the marriage) or lose the “Exclusion” (if they inherited it during the marriage).  With a strong real estate market, you can easily see the dilemma as this could make a difference of hundreds of thousands of dollars in an equalization calculation and subsequent division of the marital property.

How to Protect the Family Cotage

A well drafted cohabitation agreement or marriage contract would be the first recommendation I would make to my clients to protect their family cottage.  Under section 53 (1) of the Family Law Act, “Two persons who are cohabiting or intend to cohabit and who are not married to each other may enter into an agreement in which they agree on their respective rights and obligations during cohabitation, or on ceasing to cohabit or on death, including, (a) ownership in or division of property.”  If the parties later marry each other, section 53 (2) says that, “the agreement shall be deemed to be a marriage contract.”  A cohabitation agreement is a domestic contract by virtue of section 51. It is vital this is done correctly with the right formalities set out in section 55 (1) of the Family Law Act.

I would also recommend being very specific in the agreement regarding the property you are trying to protect.  Specifically reference the family cottage and any other property that you wish to protect.  Do a property search and make sure that you properly describe your client’s interest in the property. The more detail you include in the cohabitation agreement, the more clearly the intentions of the parties will be. It is also very important that both parties to the agreement receive independent legal advice prior to signing.  All of these things would make it increasingly difficult for the non-titled spouse to make a successful claim for an interest in the cottage.

Section 20 (4) of the Family Law Act

Sometimes one or both parties will not want to enter into a cohabitation agreement.  If this is posing a problem, then the parties may be able to protect the family cottage through a matrimonial home designation.  When the parties are married and own a home that they ordinarily reside in, they can “designate” their family home as a matrimonial home.  Section 20 (1) and (3) of the FLA says that, “one or both spouses may designate property owned by one or both of them as a matrimonial home” and register the designation “in the proper land registry office.”  Most importantly, if this designation is made by BOTH spouses, it dramatically affects their other property.  The effect of this designation on their property (ONLY if made by BOTH spouses) is that, “any other property that is a matrimonial home under section 18 but is not designated by both spouses” as a matrimonial home, “ceases to be a matrimonial home.”

This can provide some protection to a parties family cottage where both spouses designate their own family home as a matrimonial home because any other property, (including the cottage) which would otherwise qualify as a matrimonial home is deemed to no longer qualify until there is a cancellation of the designation.

As always, in all subjects of law, there is no easy or definitive answer to how to protect the family cottage.  However, as outlined in this article, if the intentions of the parties are clear, there are some steps that if taken, can provide some protection for this special type of property.

Sonya Jain is an associate at HGR Graham Partners and has been practicing Family Law for nearly 17 years. Contact Sonya Jain to discuss how you can protect your family cottage.

 

 

Phone:  705.737.1811 ext. 182

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