Written on behalf of Shariff & Associates

Often parents provide financial support to their adult children. This can go towards the purchase of a home in which the parent maintains an ownership interest. In the event of a divorce, if the adult child is in matrimonial proceedings, the parent’s financial support can come under scrutiny and may impact the couple’s equalization calculations. Sometimes, a former spouse may pursue claims against the parent and seek to include them as a party to the litigation.

Third Parties Can be Added to Court Proceedings

Ontario courts have found that interests in property must be determined before they can be equalized. This means parties must think about the possible claims they have and ensure they have included individuals as a party in any proceedings.

The case of D’Angelo v. Barrett involved a claim against a non-party. The application judge found that the respondent’s wife’s mother lent about $70,000 to enable the respondent to purchase a home, and the mother was listed as a 50% owner. This home was later sold, and the proceeds were used to purchase a new matrimonial home on which the wife’s mother was listed as a 50% owner. At trial, the appellant husband brought a constructive trust claim. However, the judge found there was no jurisdiction to make a ruling about the wife’s mother’s interest in the matrimonial home as the husband had not made a claim against her, and she was not a party to the proceedings. On appeal, the husband argued the application judge was wrong in not determining his trust claim against the wife’s mother. He argued that the wife’s mother’s registration on the title was irrelevant in calculating the wife’s share of the matrimonial home. The suggestion was that the $70,000 was a loan from the mother and that the respondent should be listed as having full ownership of the home.

As the Court of Appeal put it, the husband argued that a Court could find that “the respondent owns the matrimonial home for the limited purpose of equalization without affecting her mother’s title.” On this basis, it would not matter that the wife’s mother was not a party to the action. However, the Court of Appeal disagreed. As the wife’s mother was not a party to the litigation, the Court could not make any order regarding her 50% interest in the home. In Korman v. Korman, the Court explained that “property entitlements must be determined before they can be equalized.” Here, the wife’s mother contributed funds for the purchase of the house and was listed as a joint owner. Since the husband did not challenge her interest in the home, there was no error in finding that the respondent only owned 50% of the home for equalization purposes.

Court Removes a Parent From Divorce Proceedings

While an individual can be named as a party to matrimonial proceedings, are they compelled to participate, or can they be removed from the proceedings? This was at issue in Kapila v. Chhina; the respondent wife added her father-in-law as a party to the proceedings and made several claims, including that he held property in trust for the applicant husband and that he had improperly diverted funds from the husband. Before the husband’s father emigrated to Canada, he had transferred money to his son and daughter-in-law for safekeeping. Some of the funds paid off the couple’s joint line of credit registered against their home and other amounts were invested through the wife’s brother. The wife had control over these investments, although she sought extensive financial information from her father-in-law. At issue was whether the wife’s father-in-law should be added as a party when he did not wish to be involved in the proceedings. The husband also argued that the claims could be settled without adding his father as a party and suggested the wife was pursuing tactics to avoid revealing what had happened to the husband’s father’s money.

The judge noted that Rule 7 of the Family Law Rules states that a person against whom a claim is made is a party to the case. However, the Family Law Rules do not provide for removing added parties. Since it was not expressly provided for, the judge looked to the Rules of Civil Procedure. Rule 21.01(1)(b) states that a party can ask a judge to strike out a pleading on the ground it does not disclose a reasonable cause of action. A reasonable cause of action is one that has a chance of success.

Here, there were numerous problems with the wife’s claims. She did not make a claim of unjust enrichment against her father-in-law, nor did she dispute any of the husband’s property that would be included for equalization because it was jointly held by his father. Consequently, this was not a situation like D’Angelo v. Barrett, where a spouse’s parent’s property interest had to be determined. There was simply no evidence that the father-in-law held assets in trust for his son or that the couple ever transferred money to the father-in-law. Justice McGee explained that financial claims between parties arising from the end of a marriage cannot be made against a parent of a spouse. Allowing that would transfer an obligation to a non-spouse. Ultimately, there was no claim the wife could make against her father-in-law that required him to participate in the proceedings. If the court needed to make any findings about the funds the father-in-law transferred, he may be involved as a witness, but that did not require him to be added as a party.

Claim Brought Against In-Laws to Gain More Advantageous Equalization

In Morris v. Nicolaidis, the Ontario Superior Court of Justice was faced with the interesting question of whether a person could bring a trust claim on behalf of a former spouse to increase that spouse’s net family property and would impact the final equalization payment. In this case, the husband did not claim that he was economically deprived, but instead, he argued that his former father-in-law held a 50% interest in a condominium in trust for his daughter, his former spouse, so that the father-in-law’s half interest would be included in the daughter’s net family property. The father-in-law sought to dismiss the claim against him.

In 2006, the father-in-law provided the funds for the purchase of a condominium unit, and the title was registered in both his adult daughter’s name. The daughter moved into the unit, and several years later she began dating the husband and they began to live in the condo. Following the breakdown of their relationship, the daughter included the value of her 50% interest in the condo in her financial statement and the related debt of half of the mortgage, as the condo was the parties’ matrimonial home. This meant that the husband shared in the equity in the unit, even though the daughter brought the property into the marriage. However, the husband asked the Court to find that his former father-in-law’s half interest should be added to the daughter’s net family property. He proposed that either the half interest was gifted to the daughter or that it was held in trust for the wife.

The Court found that there was no evidence of a gift that would transfer the sole title of the condo to the daughter, as the husband’s father-in-law maintained his ownership interest in the unit.

A Person Cannot Bring Trust Claim on Behalf of Their Former Spouse

In Morris v. Nicolaidis, Justice McGee found that the claim for a trust must fail because there was no basis to find that the father-in-law was holding his 50% interest in trust for his daughter. Neither the husband nor the daughter advanced any of the money for the purchase of the condo, so it could not be argued that the father was unjustifiably enriched. While at times the daughter, and then during their relationship both the husband and daughter, paid the mortgage and condo expenses, they also had exclusive use of the unit. There was also no evidence to find that the pair increased the condo’s market value.

The larger question at the heart of the case was whether a person could advance a trust claim on behalf of a former spouse to increase that spouse’s net family property. In Carroll v. Toronto-Dominion Bank, the Ontario Court of Appeal explained that to have standing to bring a private interest claim, “a person must have a direct personal legal interest in the issue” and they must be “specifically affected by the issue.” For Justice McGee, an equalization claim did not create a personal legal interest that conferred standing. Ultimately, a “claim that a third person holds property in trust for a non-titled spouse … can only arise from the personal, direct deprivation of the non-titled spouse.” A person cannot pursue the claim on behalf of the non-titled spouse.

It is common for a spouse and the spouse’s parent to be listed as joint owners of a property. As property interests need to be ascertained before equalization is finalized, in some cases, a parent may be added as a party to family law proceedings. However, financial claims between spouses cannot be made against a parent of a spouse.

Contact the Family Lawyers at Shariff & Associates in Stouffville for Advice on Equalization Payments and Property Division Claims

The experienced separation and divorce lawyers at Shariff & Associates regularly advise clients on the processes following the breakdown of a relationship, which includes valuing assets and debts to calculate whether an equalization payment will be owed. Our lawyers assess your circumstances in order to provide honest advice and a realistic assessment of your options moving forward. We advocate on behalf of our clients to obtain the best possible outcome. To speak with a member of our team regarding your property claim questions, reach out to us online or call us at 905-591-4545.