Many married couples buy a matrimonial home together, and put title in their joint names, in what’s known in law as a “joint tenancy”.
Under this form of ownership, the two spouses collectively own the whole property together – essentially as if they were both only a single ownership entity. They have equal rights and equal obligations respecting the whole property. The joint tenancy can be severed by agreement, or by court order; it is also severed automatically if one joint tenant dies, in which case the other one “absorbs” the ownership rights over the whole property.
In an interesting recent case that featured separated spouses, the tricky question was whether a creditor of only one joint tenant – in this case the husband – could recover its money from the share of the property’s value held by the other joint tenant, namely the wife. In other words, the case examined the important fundamental question of whether the husband’s creditor could go after the wife’s money even where the joint tenancy had been severed.
The couple had separated in 2020. In January of 2021, the court directed them to sell their jointly-owned matrimonial home. They did so in October 2021, for a price of about $1.9 million with a future closing date.
Important to the plot was that, during the marriage, the husband had racked up significant debts with a creditor. In September 2021 – which was post-separation but before the home sold – that creditor obtained a default judgment against the husband in a civil action. It also filed a writ against the matrimonial home at that time.
Two months later, the wife asked the court for an order severing the joint tenancy, which meant she and the husband would become tenants-in-common (i.e. each with a half-interest in the entire property and its value). The court granted the request; however the order did not mention an effective date for the severance, or whether it was retroactive.
After the closing on the home’s sale, court held onto the proceeds and put them in trust, pending resolution of the former couple’s Family Law issues. But the wife needed her 50% of the net proceeds urgently, so she asked the court to release those funds to her. The total was about $600,000, after certain prior debts were paid off.
The problem was the creditor, who asserted it was entitled to some of the wife’s money. In a rather technical argument, it claimed that its right to recoup its money from the husband had priority over not only his share of the sale proceeds, but over the wife’s share as well. It pointed to the default judgment and writ it filed in September 2021, when the joint tenancy over the home had not yet been severed by the November court order. The creditor accordingly claimed it could extract the husband’s debt from the entire “pot” of the net proceeds – including the $600,000 earmarked for the wife.
The creditor’s argument had been dismissed by a motion judge; its later appeal was also unsuccessful.
According to the Court of Appeal, the creditor’s position “fundamentally misunderstands” the basic law about creditor’s remedies against joint tenants – especially where only one of them (in this case the husband) owed money to a creditor.
By law, it was true that each joint tenant holds an undivided interest in the whole property. However this does not mean the entire property (or its value) is up for grabs when the debt is not jointly-held. In this case, the spouses were already separated when the husband incurred his indebtedness.
Moreover, under the Ontario Execution Act, the husband’s creditor can only execute against the “interest of [the husband] in lands held in joint tenancy”. The Court explained that this is only the husband’s exigible interest in the matrimonial home, and that “a creditor cannot seize the interest of a non-debtor joint tenant.”
The Court accordingly ruled that the wife’s $600,000 share of the net sale proceeds was safe from the creditor’s grasp, and released the funds to her.
Full text of the decision: Senthillmohan v. Senthillmohan, 2023 ONCA 280 (CanLII)