It is common for self-employed individuals to place their assets in their spouse’s name to protect them from creditors. What happens, however, in the event of a separation? Do they belong solely to the spouse who received the assets since the assets are solely in their name? Who retains the assets?
The Ontario Court of Appeal’s recent decision of Korman v Korman, 2015 ONCA 578 , raises important implications for family law, notably in the areas of ownership disputes where the title is held exclusively by one spouse, as well as imputing monetary gifts onto spouses as income for support purposes. While this decision provides valuable insight on the issue of whether financial contributions from relatives constitute income-eligible for support, the focus of this article is on the case’s first issue, notably the issue of what ownership interests, if any, does a spouse maintain in property placed entirely in the other spouse’s name.
In Korman, the Parties married in 1988 and separated in 2009. In 2002, they purchased a home together for approximately $560,000.00. The Parties placed title to the home solely in the wife’s name in order to protect it from the creditors of the husband, an investment banker.
The Trial Decision
At trial, there was little dispute that half of the value of the home from the date of purchase until the date of separation belonged to the husband, at which time was worth approximately $725,00.00, pursuant to his legal entitlements. However, the issue arose as to whether the husband was entitled to half of the home’s post-separation value at the time of trial, by which time was close to $1,000,000.00, in light of his decision to place title entirely in the wife’s name.
The trial court held in favour of the wife and accepted her argument that she alone was entitled to the post-separation increase in the home’s value since she was the sole registered owner. The husband’s argument, that he nevertheless maintained an interest in the home despite the title, was primarily rejected on a “you-can’t-have-your-cake-and-eat-it-too” basis.
The Appellate Decision
The Court of Appeal reversed the trial court’s decision and held that the husband was indeed entitled to half of the post-separation value of the home. To reach this holding, the appellate court relied upon Section 14 of the Family Law Act, RSO 1990, c F3, which provides that the “presumption of a resulting trust” applies to questions of title between spouses involving gratuitous transfers of property. In law, a resulting trust may arise where the property is transferred for free or for very little money, and, therefore, the individual in receipt of the property is effectively holding the property for the benefit of the individual who actually owns it. Accordingly, in certain circumstances involving such transfers, the property is deemed to remain with or “result” back to the owner of the property even if the property’s title is placed in another’s name.
Put another way, Section 14 provides that, as a starting point, simply because a spouse transfers title to the other spouse’s name seemingly as a gift, this, in and of itself, does not forfeit the transferring spouse of their rights to the property at issue as a result of the presumption of a resulting trust. If this presumption applies, it leads to a finding that the transferring spouse maintains ownership in the property at issue regardless of the legal title. Furthermore, if the presumption is invoked, as it was by the husband in Korman, the spouse resisting its imposition, as it was by the wife in Korman, bears the onus of demonstrating why it should not apply.
The Court of Appeal found that the wife failed to meet her burden of rebutting the presumption of a resulting trust. The wife’s argument, in effect, was that the husband transferred the home solely to her in order to gift it to her. The wife’s evidence, however, did not support this argument, but rather, her evidence established that title was placed in her name alone in order to safeguard the home from creditors. Accordingly, the court found that the presumption of a resulting trust had not been rebutted, and, therefore, the husband maintained a beneficial ownership interest in the home after the separation.
Overall, this case is important for family law for illustrating the interplay between legal and equitable title in the context of the division of marital property. It further serves as an important reminder that the equalization calculation can only take place after both the legal and the beneficial ownership interests of the spouses’ properties have been determined. Finally, spouses seeking to hold title to the property on an unequal basis, whether to shield it from creditors or to gift it to one spouse entirely, should specify their reasons for doing so at the time of the property’s purchase and/or transfer. If they do not, they may face a serious and expensive ownership lawsuit in the event of a separation.