We have dealt with child support, custody and access and transferring the RESPs.
We have not settled equalization and the division of the matrimonial home.
Below is a summary of the joint assets:
My spouse and I are on the title as joint tenants to the matrimonial home. We had an appraisal done six months ago. It was valued at $1 million. We owe a mortgage in the amount of $450,000. There is also a CRA lien on the title for $50,000 for income taxes owing by my spouse. I have been living in the house since we separated 12 months ago.
We have RESPs for each of our two children, each in the amount of $15,000, net of government grants, totalling $30,000. Both children are in high school.
Question 1. The Trustee has written to me claiming a 50% interest in the property, net of the CRA lien, as well as a 50% interest in the RESPs. What are my rights?
As a joint tenant you have a right to your share of the equity in the matrimonial home. You have no guaranteed right to stay in the home. You will have to work out an arrangement with the Trustee to purchase your husband’s interest in the home.
Question 2. Can I be forced to leave my home given that my children are living with me and attending school in the neighbourhood?
If you do not work out a settlement to buy your spouse’s interest in the property, the Trustee can go to Court for an order forcing the sale of the home. You could argue that leaving the home would cause you and your family undo hardship based on the following factors:
Your children are settled in the school and neighbourhood community. Their friends are all in the neighbourhood and they do extracurricular activities, so the disruption imposed on them would outweigh the inconvenience to the Trustee if the Trustee must wait to sell the property.
You cannot afford to buy or rent an alternate residence in the neighbourhood/community.
This is a challenging argument on which to succeed, however it is available in certain circumstances, such as a child who has special needs that cannot easily be accommodated in a different school or you will have to move a great distance away from family and friends to find a new living situation. If you are confronted with a motion for sale, you should consult a lawyer to see if this defence is available. However, it is important to note that this is a temporary solution. Once your children have finished school, the Trustee will likely be free to move forward with the sale.
Question 3. How much do I have to pay the Trustee?
The negotiation starts with the following mathematical exercise:
Start with the appraised value
Subtract the mortgage
Deduct legal costs – $2500 + HST
Divide by two
The presumption with respect to joint ownership is that you and your spouse are each entitled to 50% of the remaining equity. This presumption, however, can be adjusted if you have contributed unequally to the property or there are encumbrances attributable to you or your spouse only.
Therefore, your husband’s equity will be reduced by $50,000 for the CRA lien because it is supported by a debt owing solely by your spouse. You can also claim compensation for the principal amount of the mortgage you paid over the 12 months. The Trustee would owe you one half of the principal pay down because you and the Trustee benefited equally from your payments towards the mortgage principal. If you have made improvements to the property that increased the value of the property, such as replacing the roof, major renovations such as a kitchen or bathroom renovation or finishing a previously unfinished basement, you will likely be entitled to a credit for this work as well.
Question 4. Do I get credit for other costs such as mortgage interest, insurance, taxes and utilities?
The short answer is no because you are enjoying the benefit of the property to the exclusion of the Trustee. The Trustee is legally entitled to an amount for occupation rent. In any negotiation, the Trustee’s claim for occupation rent generally offsets any claim you would have for these expenses which are generally referred to as “carrying costs”.
Question 5. How would I pay for my spouse’s equity in the house?
You have a few options to fund this purchase:
You can consult with your current mortgagee to see if you can increase your mortgage to buy out your spouse’s equity.
You can see a mortgage broker about discharging your existing mortgage and increasing the amount borrowed to buy out your spouse.
You can see a mortgage broker about obtaining a second mortgage to fund the buy out.
Question 6.What do I do if I do not qualify for a mortgage increase?
There are some options that may assist you:
As previously mentioned, you can raise a hardship argument that will buy you more time in the house and more time to raise the funds necessary to buy out the Trustee.
You may have claims in your spouse’s bankruptcy (either for support or equalization) that can be, in some circumstances, offset against the amount you would owe to the Trustee.
Question 7.My husband has transferred his share of the RESPs to me as set out in our separation agreement. Will the Trustee make any claim against them?
The Trustee will review the transfer and the separation agreement to ensure that the transfer was not improper and unfair to your husband’s creditors.
If the separation agreement was incorporated into a court order, the transfer will likely remain unchallenged.
If there is no court order, the Trustee will consider the following factors in order to decide whether to challenge the separation agreement:
How much time has passed between the making of the separation agreement and the bankruptcy assignment? The more time that has passed, the less likely it will be challenged. Separation agreements made on the eve of bankruptcy are particularly suspicious and susceptible to challenge.
What were the debts facing your spouse when he entered into the separation agreement and did your spouse know he was insolvent, or was he contemplating bankruptcy when he entered into the agreement?
What was the cause of the bankruptcy? Did the debt leading to the bankruptcy exist at the time of the separation agreement or did it occur subsequently?
Are you and your spouse abiding by all the terms of the agreement? I.e. Is support being paid on time and in the amount contemplated by the agreement and have the other terms been performed?
If the Trustee suspects the agreement and the resulting transfer of property was made to defeat your spouse’s creditors, the Trustee has a duty to the creditors to challenge the transfers. If this happens, you and/or your spouse will have to defend the separation agreement. If you cannot successfully defend the transfer, you will have to pay for your husband’s contributions, if you want to maintain the RESPs. If you cannot, the RESPs will be collapsed and you will have a property claim for the value of your contributions to them.
It is recommended for you to have the assistance of a lawyer, familiar with these issues, to assist you in your negotiations with the Trustee.
Connect with the Author
Linda Stern is a Senior Manager and Licensed Insolvency Trustee at Crowe Soberman Inc. She has over twenty-five years of experience working in Montreal, Ottawa and Toronto, primarily in consumer insolvency matters consulting with individuals overwhelmed with debt and helping them find solutions that work best for their financial and personal situations.