When a couple decides to buy a home together, one consideration they will be faced with is how they should be reflected on title. The same dilemma can apply when one spouse owns an existing property and is considering whether to put the other spouse in title when he or she moves in. Couples often decide to name themselves on title as joint tenants so it is important to understand what joint tenancy means. Joint tenancy gives each person on title an undivided interest in the entire property. This means that each person is a 100% lifetime owner of the entire property. It also means that one owner cannot sell his or her share without the consent of the other. As a point of reference, the alternative to joint tenancy is tenancy-in-common. Tenancy-in-common differs from joint tenancy in that each person owns a specific “undivided share” of the property; for example, two people could decide to own something 50/50 or in the case of three people, 40/40/20 or whatever the portions may be. These shares can be disposed of without the consent of the other tenant-in-common.
Joint tenancy affects family law clients in a number of different ways. First, joint tenancy gives the owners a right of survivorship in the property. If spouses are joint tenants and one spouse dies, the surviving spouse automatically acquires the entire property. In that case, no part of the property would pass to the deceased spouse’s estate given that the survivor continues to be a 100% owner. This is the case whether or not the couple was married. Second, whether the spouses paid for the property in equal shares or in lopsided shares, or if one spouse paid for all of it and the other paid nothing, joint tenancy gives both spouses the presumption of an equal portion of any proceeds of sale. This is a particularly important consideration for non-married spouses who decide to be named jointly on title but may not be aware of the potential consequences of doing so.
Transfer of property into joint tenancy will have specific effect on married couples because of the application of the Matrimonial Property Act. The MPA allows for certain categories of property to be excluded from division upon a divorce. In general, the categories of exempt property are:
1) property that was gifted from a third party;
2) property acquired by inheritance;
3) pre-marital assets;
4) an award or settlement for damages in tort; and
5) proceeds from an insurance policy other than property insurance.
If exempt property (including property acquired from exempt funds) is transferred into joint names, the spouse who originally held the property in his or her name is presumed to waive his or her exemption in the asset to the other spouse. Accordingly, half of the value of the otherwise exempt asset would be divided between the spouses upon a divorce. This provision applies only to married couples.
Non-married couples are not subject to the MPA – for better or worse, the exemption rules do not apply automatically to them. The presumption of equal sharing of assets upon a separation does not apply. While adding a spouse as a joint tenant may be an indication that the spouse has a right to a share in the value of the property, non-married partners still need to take steps to make a claim to the value of the property and prove that they contributed to the acquisition, preservation or improvement of the property. The evidence must speak to the tests of unjust enrichment and the Joint Family Venture test recently articulated by the Supreme Court of Canada.
For the original owner of the property, keeping the property in his or her sole name may be evidence that there was no intention on sharing the value of property. However, whether the new spouse is on title as a joint tenant or not is only one indication of whether that spouse has a claim to the property.
Decisions affecting property should be made with careful consideration given to the potential benefits and pitfalls of joint tenancy. Much of the confusion can be avoided with a Pre-nuptial Agreement. Consult with a lawyer for advice on joint tenancy when moving in with a new spouse, purchasing a property with other family members such as parents, or when planning your estate.
Article written by Cindy Lee.