Family law introduction
An important decision was rendered by the Court of Appeal for Ontario on April 26, 2023. It is in a recent case concerning the sale of a matrimonial home through family law proceedings. In this case, the court considered the division of net family property between Subhathini Senthillmohan (wife) and her separated husband Sockalingam Senthillmohan (husband) the claims of the wife and a creditor of the husband.
This ruling carries significant weight for couples, irrespective of whether they are happily married or going through a divorce. The ramifications of this verdict extend to couples who jointly own a property as tenants in common, regardless of their marital status or if family law matters are in play.
In this Brandon’s Blog, I explore the recent Ontario Court of Appeal ruling on a wife’s claim over her husband’s creditor in the sale of the matrimonial home. I discuss the implications of the ruling for couples going through a divorce and how it can protect a spouse’s interest in the home.
As you will see below, even If you’re not going through family law issues in Ontario, this Brandon’s Blog shows how the Court of Appeal for Ontario ruling provides important information on your rights and obligations under the law.
This Brandon’s Blog is not a substitute for legal counsel experienced in family law, as we are not lawyers. However, if you are in a similar situation as the joint tenants described below, or even if you are not involved in family court proceedings or a contentious family law matter, it is possible that you may encounter similar legal issues concerning joint ownership of property where your joint property owner is an insolvent debtor. It is essential to communicate your situation to your legal representative and obtain sound advice and legal representation to ensure you are fully aware of your legal rights.
Family law: Background of the case
The case is Senthillmohan v. Senthillmohan, 2023 ONCA 280. The parties were married still but separated, and in January 2020, the wife brought an application seeking an unequal division of the net family property. Alternatively, she sought an equalization of net family property and the sale of their matrimonial home. Even though they were going through family law proceedings for divorce, the wife remained living in the home, which was jointly owned by both of them as joint tenants.
The default judgment held by the third-party creditor, 2401242 Ontario Inc., was the result of a civil suit. However, they later agreed to lift the order to aid in the smooth sale of the matrimonial home. Meanwhile, the wife sought an urgent family law court order to dissolve their joint ownership of the property, and a ruling that they now held title to the matrimonial home as tenants in common.
The creditor’s default judgment came from a civil lawsuit. The creditor filed a writ of seizure and sale in September 2021. The husband and wife entered into an Agreement of Purchase and Sale to sell the home in October 2021, and the home ultimately sold for $1.9M. The creditor agreed to lift the judgment to facilitate the sale of the matrimonial home.
The net sale proceeds, after the discharge of secured encumbrances, were approximately $925,000. In the interim, the wife took immediate legal action by seeking a court order to terminate the couple’s joint ownership of the property and to establish their title to the matrimonial home as tenants in common. The order was obtained with the consent of the husband. The order was silent on the effective date of the severance and does not address the claim of the third-party creditor or its default judgment against the husband.
Family law: The lower court decision
The lower court made an order for the sale of the matrimonial home, with the funds being held in trust until a mutual agreement is entered into or a court order is made regarding equalization. In making its order, the lower court changed the ownership from joint tenants to tenants in common.
She claimed that her very interest in the matrimonial home took precedence over that of the creditor. After considering every one of the arguments provided by both sides, the Ontario Superior Court of Justice inevitably ruled in favour of the wife. The court stated that the wife’s ownership interest was in priority to that of the creditor.
In February 2022, the wife filed a motion seeking the release of her 50% share of the net sale proceeds. The judgment creditor contended that the husband and wife were joint tenants at the time of the default judgment and writ filing, hence it had priority over the wife’s interest in the sale proceeds.
Nevertheless, the motion judge dismissed this argument and determined that the joint tenancy had been severed by the time the third-party creditor acquired the default judgment against the husband.
The third-party creditor was dissatisfied with the ruling and proceeded to appeal the decision to the Ontario Court of Appeal with the intention of having it reversed.
Family law: The OCA ruling
The creditor lodged an appeal before the Court of Appeal for Ontario, asserting that the Ontario Superior Court of Justice judge had erred in ruling that the joint tenancy of the marital home had been retroactively divided and that the wife possessed entitlement over the creditor’s writ. Additionally, the creditor contended that the judge had neglected to take into account the writ affixed to the total net proceeds of a voluntary sale of the jointly-owned property.
The creditor contended that joint tenants are, for all intents and purposes, a single owner until the joint tenancy is dissolved, thereby affording a creditor the entitlement to make a claim against the entire interest. However, the Court of Appeal for Ontario duly rejected the creditor’s appeal, concluding that a creditor is unable to lay hold of the interest of a joint tenant who is not indebted.
The court went on to say that the creditor was fundamentally mistaken with respect to the law governing creditors’ remedies vis-à-vis jointly-held assets, where only one of the owners had liability for the debt.
The court explained the process of seizure and sale in Ontario. They stated that the execution registered on title can only be against the debtor’s exigible interest in the land held in joint tenancy. Additionally, the court held that in the case of joint property ownership, in the event of one joint tenant’s death, the remaining tenant inherits the entire interest in the property due to their right of survivorship.
The court’s ruling is a beacon of hope for partners or couples who hold property together jointly. It reinforces the idea that no creditor can take away the rights of a non-debtor joint tenant who acquires a property through the right of survivorship.
The Court of Appeal in Ontario nodded in agreement with the motion judge’s decision and ultimately dismissed the appeal. In their ruling, the court explicitly stated that the motion judge applied the proper legal principles of joint tenancy, including its severance and the priority of interests.
Despite the order being silent on the effective date of severance, the court ultimately found that the motion judge was correct in his decision to sever the joint tenancy in the matrimonial home. Interestingly, the creditor did not seek clarification of the order, leaving room for speculation as to why. Furthermore, the court emphasized that the Ontario Superior Court of Justice judge had taken into consideration the unique facts and circumstances surrounding the case and determined that there was indeed enough evidence to support the severance of the joint tenancy.
The court firmly rejected the argument put forward by the third-party creditor, which claimed that the motion judge did not have the necessary jurisdiction to hear the case. Furthermore, the court determined that the motion judge had effectively and properly exercised his discretion in denying the creditor’s request for an adjournment.
The lawyer representing the wife made cost submissions and achieved a favourable outcome in securing costs. The Ontario Court of Appeal recognized the wife’s entitlement to compensation and granted an award of $20,000, which includes HST and other expenses incurred during the legal proceedings.
Family law: Implications of the ruling
The court’s ruling has far-reaching consequences, not only for couples undergoing divorce proceedings in Ontario but also for any joint owners of the property where one of them has outstanding debts or judgments while the other does not. Essentially, the non-debtor partner’s right to the property takes precedence over any claims by creditors in most situations. This decision offers much-needed protection for joint owners who may be at risk of losing their property due to their partner’s debts.
It’s worth noting that this ruling applies exclusively to the sale of the matrimonial home and has no impact on a creditor’s ability to seize other assets or property owned solely by the debtor who owes the money. It’s important to bear in mind that this ruling does not affect the rights of mortgagees in any way. As stated previously, the mortgages were paid off, and the legal dispute concerned only the net sale proceeds.
This court ruling is applicable not only to married couples going through divorce proceedings but also to joint owners of real property where one of the owners has unpaid personal income tax or owes money for director liability, such as unpaid corporate HST or unremitted employee source deductions, to the Canada Revenue Agency (CRA). If the debtor does not make satisfactory arrangements with the CRA for repayment, the tax authority can obtain a judgment against that person from a federal court without serving notice to them.
Following that, the CRA can register the judgment against the joint owner’s interest in the real estate, a process known as registering a Memorial. This registration can affect only the joint owner who owes the debt and not the other joint owner who is not indebted to the CRA. It is not related to family law and is applicable even if there are no divorce proceedings underway.
This court ruling not only benefits family law proceedings but also reinforces our position in insolvency proceedings that the non-bankrupt, non-insolvent joint owner’s stake in the property is not impacted by the other joint owner’s insolvency or bankruptcy case. In the event of personal bankruptcy, the licensed insolvency trustee who is overseeing the bankruptcy would take control of the bankrupt joint owner’s interest in the property. While there may only be one buyer for that interest, the other joint owner would be the logical purchaser. However, these are economic concerns rather than legal issues.
Family law conclusion
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