Property Division in Common law Relationships

Divorce

The Supreme Court of Canada has just released an important decision dealing with how assets and property should be divided when common law spouses separate.

The case of Kerr v. Baranow involved a woman and man who were both in their late sixties when they decided to separate after living together in a common law relationship for more than 25 years.   At that point they shared a home that was in the man’s name, and each contributed to their shared lifestyle.

But – as with partnerships of every type – the respective contributions of each of them were hard to untangle:  the woman had brought a home into the relationship, but it was saved from foreclosure by the mortgage payments made by the man.  The couple also built another home on land that the man brought into the relationship; the man paid the mortgage on it but the woman contributed household expenses. Also, the woman had suffered a debilitating stroke, and the man provided his housekeeping and personal assistance services afterward.

Nonetheless, by the time their common law relationship ended the man had accumulated significantly more assets than the woman, so she sued, claiming that he had been unjustly enriched in the relationship.  At trial, the judge awarded the woman $315,000, representing one-third of the almost $1 million Vancouver home that was in the man’s name.  The Court of Appeal had ordered a new trial.

Clarifying Property-Division Principles for Common Law Couples

When the matter was appealed further, the Supreme Court of Canada faced a unique opportunity to revisit and clarify Canadian law relating to division of property for common law partners.

This is because in Ontario, for example, separating common law partners have no statutory equivalent to the Family Law Act to govern the division of any property they may have shared.  Instead, such couples must usually refer themselves to the courts, which will apply one of two judge-made principles, namely unjust enrichment and/or resulting trusts, both of which strive to inject fairness into that property-division exercise.

In “unjust enrichment” claims, one partner asserts that – through the contribution of his or her labour or money – the other partner was enriched through the first partner’s expense.  The concept recognizes that it would be unfair for the first partner to suffer a deprivation without a “juristic reason” (such as a legal contract) to rationalize or justify it.  It seeks to redress the unfairness of allowing the recipient partner to enjoy the benefit without having to pay or otherwise reimburse the other.

A “resulting trust” on the other hand is a legal concept designed to address a situation where either:

  • one partner transfers property to the other without getting any money or other valuable item in exchange, or
  • the two parties both contribute to acquiring property, but title to the property is only in one partner’s name.

The key to both these resulting trust scenarios is that the parties had a “common intention” that the non-owning partner was nonetheless entitled to a legal interest.

Only Unjust Enrichment to Govern Property Division

After evaluating these traditional approaches, the Supreme Court of Canada in Kerr v. Baranow conclusively decided that resulting trusts no longer had a place in property disputes between common law partners.  Instead, only the concept of unjust enrichment should be used to settle such disputes.

Unjust enrichment simply requires the claimant (i.e. non-owning) partner to establish:

  • The owning partner is enriched,
  • That enrichment comes to the detriment of the non-owning partner, and
  • There is no juristic reason for the enrichment.

The Court also set out an analytical framework for determining unjust enrichment claims, including a test for whether there is a “joint family venture” that calls for a fair division. The relevant considerations for this “joint family venture” test include:

  • Whether the partners made mutual efforts,
  • The extent to which their financial affairs were integrated,
  • Their actual intention to share / not share in the joint family venture, and
  • The priority each partner gave to the family in their decision-making.

Quantifying a Monetary Unjust Enrichment Award

The Supreme Court also took the opportunity to clarify how courts should approach monetary awards in unjust enrichment claims.

Previously, whenever an unjust enrichment scenario was established a court’s remedies included making a monetary award to the party making the claim.  In Ontario, the dollar-value had historically been assessed by evaluating the one partner’s contribution on the basis of the value of the services provided to the recipient partner – known as “quantum meruit”.

In Kerr v. Baranow, the Supreme Court concluded that monetary awards for unjust enrichment are not limited to this fee-for-services approach; rather a court must consider how the giving partner’s efforts contributed to (or made possible ) the recipient partner’s increased wealth.

This means that, for example, if one common law partner provided domestic services throughout the relationship that allowed the other common law partner the freedom to focus on business and amass great wealth or assets in the family joint venture, the first partner’s monetary award would not be limited to the value of the domestic services rendered.  Rather, it would be calculated as a percentage or share of the increase in the other partner’s wealth.

To be entitled to this kind of monetary remedy, the partner making the claim must show that:

  • on the facts there was a “joint family venture”, and
  • there was a link between his or her contributions to it, and the accumulation of assets or wealth.

The Court also re-affirmed another important point:  the law of unjust enrichment does not go so far to impose a presumption of equal sharing between common law partners, nor does it establish one partner is entitled to the other partner’s property merely because they lived together. The division of assets will always be determined on a case-by-case basis.

For the full text, see Kerr v. Baranow, 2011 SCC 10

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