How do you di­vide house pro­ceeds if only one spouse has been liv­ing there?

Con­duct is among many fac­tors the court will con­sider, Lau­rie H. Pawl­itza writes.

Montreal Gazette - - FINANCIAL POST -

It is not un­usual for one spouse to move out dur­ing a sep­a­ra­tion, leav­ing the other spouse in the home. The one stay­ing in the home might even live there for sev­eral years until the prop­erty issues are set­tled.

But how are the pro­ceeds di­vided if the house went up in value over the years or if the oc­cu­py­ing spouse paid down the mort­gage? Is it fair the non­res­i­dent part­ner has to pay rent, while the spouse in the house en­joys free ac­com­mo­da­tion and ties up the other’s eq­uity?

These are just some of the com­mon issues that courts must deal with when sort­ing out a separated cou­ple’s prop­erty issues. A cou­ple can ask a court to or­der the sale of a jointly held prop­erty, but that still leaves the ques­tion of how to di­vide the pro­ceeds if only one spouse has been liv­ing on the prop­erty.

On­tario’s Fam­ily Law Act al­lows the court to or­der ex­clu­sive possession (the right of one spouse to live in a mat­ri­mo­nial home and re­quire the other spouse to live else­where). It can also or­der which pay­ments both the res­i­dent and non-res­i­dent spouse must make. Of­ten, how­ever, separated part­ners are not in court and sim­ply deal with these ex­penses on an ad hoc ba­sis. A dis­pute may then arise when the house is sold.

In the 2017 case of O’Brien v. O’Brien, Jus­tice Mered­ith Don­aghue had to de­cide whether the hus­band, who stayed in the jointly held mat­ri­mo­nial home, owed oc­cu­pa­tion rent to the wife who had moved out.

Don­aghue re­viewed the case law and con­firmed oc­cu­pa­tion rent is a dis­cre­tionary rem­edy, and that the non-oc­cu­py­ing spouse (in this case, the wife) had the onus of prov­ing whether the res­i­dent hus­band should pay oc­cu­pa­tion rent.

The non-res­i­dent part­ner is also re­quired to pro­vide ev­i­dence of the prop­erty’s rental value dur­ing the pe­riod for which he or she is seek­ing such rent.

When con­sid­er­ing whether oc­cu­pa­tion rent should be or­dered, Don­aghue re­lied on a 2001 case from the On­tario Court of Ap­peal, which set out a num­ber of fac­tors to con­sider, in­clud­ing when the claim was first made, how long the oc­cu­py­ing spouse had been in the home, the fact that the non-res­i­dent spouse was un­able to use the eq­uity in the home while it was oc­cu­pied and the rea­son­able cred­its for pay­ments made that each spouse was en­ti­tled to re­ceive.

In ad­di­tion, the Court of Ap­peal stated that oc­cu­pa­tion rent had to be con­sid­ered in the con­text of the other com­pet­ing claims in the lit­i­ga­tion.

In weigh­ing these fac­tors, prompt no­tice of the in­ten­tion to seek oc­cu­pa­tion rent is im­por­tant. If the oc­cu­pa­tion lasted for a lengthy pe­riod, this, too, in­creases the like­li­hood oc­cu­pa­tion rent will be granted, pro­vided the claim was raised early.

A non-res­i­dent spouse is not al­lowed to sit back and bank a claim, only to bring up it up at the last mo­ment to try to get a greater share of the house pro­ceeds.

In de­cid­ing what cred­its each spouse should get for pay­ments made, it is as­sumed that each spouse, as a joint owner of the prop­erty, has an obli­ga­tion to pay one-half of the home’s mort­gage, taxes and prop­erty in­sur­ance, as well as any ma­jor re­pairs. These are ex­penses tra­di­tion­ally borne by the land­lord in arms’ length third-party rental ar­range­ments.

Con­versely, the res­i­dent spouse, like any ten­ant, is usu­ally re­spon­si­ble for pay­ing util­i­ties, in­ter­net, cable, phone and dayto-day ex­penses for the home. The prop­erty’s ex­penses are usu­ally al­lo­cated and then deb­ited and cred­ited on this ba­sis when as­sess­ing each party’s pay­ments.

There are other non-mone­tary issues to con­sider as well. Although con­duct is usu­ally thought to be ir­rel­e­vant in de­cid­ing a fam­ily law case, the be­hav­iour of both spouses is a fac­tor here, in­clud­ing whether a spouse was obliged to leave the home be­cause of do­mes­tic vi­o­lence, if chil­dren lived with the oc­cu­py­ing spouse in the home and, if so, whether the non-res­i­dent spouse paid child sup­port.

The court also con­sid­ers whether the non-res­i­dent spouse asked the other spouse to sell the home or brought a mo­tion in court for the sale, and if not, why not.

In O’Brien, the wife sought oc­cu­pa­tion rent from the hus­band. She moved out af­ter the sep­a­ra­tion, be­cause she did not like the home. The par­ties’ daugh­ter lived about half time with each par­ent. The res­i­dent hus­band had a much lower in­come than the wife, yet did not claim child sup­port from the wife until more than six years had passed af­ter sep­a­ra­tion.

The hus­band paid the home’s mort­gage, taxes and in­sur­ance for the home, and also put his own labour and money into ren­o­va­tions. It was not until it was clear the house would be sold and it had ap­pre­ci­ated in value that the hus­band claimed for the im­prove­ments he had made to the home. In re­sponse, shortly be­fore trial, the wife re­sponded with her claim for oc­cu­pa­tion rent.

Don­aghue took all these fac­tors into ac­count, and de­cided the hus­band did not owe oc­cu­pa­tion rent to the wife, even though he had lived in the home for nearly seven years be­fore trial.

The les­son from O’Brien is clear: con­duct mat­ters. Fi­nan­cial Post

Lau­rie H. Pawl­itza is a se­nior part­ner in the fam­ily law group at Torkin Manes LLP in Toronto.

GETTY IMAGES/ISTOCKPHOTO

On­tario’s Fam­ily Law Act can or­der which prop­erty pay­ments both the res­i­dent and non-res­i­dent spouse must make.

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