Are you giving away hundreds of thousands of dollars in exemptions under the Matrimonial Property Act?
This past month I gave a presentation to lawyers regarding Family Law and Divorce in Alberta. The seminar was on behalf of the Legal Education Society of Alberta. The presentation was pretty wide-ranging, but if there was one point I wanted to drill into the non-family lawyers it was not to be casual about putting title into joint names for people buying property.
Under the Matrimonial Property Act of Alberta, a spouse is entitled to certain “exemptions”. These exemptions are property they do not have to share with the other spouse in the event of a divorce. Those exemptions include assets owned at the date of marriage, assets acquired by way of gift or inheritance or funds received by way of an insurance settlement or law suit not relating to loss of property (injury claim).
If you have assets that fall within this “exemption” category, the value at the date it comes into your marriage is not shareable, and you would essentially take that “off the top” of any matrimonial property settlement.
The tricky part:
According to a case called Harrower v. Harrower, if you put those assets into joint names, there is a presumption that you intend to give half of it to your spouse. The court held from that act alone, you would lose 1/2 of your exemption.
With more second marriages and people marrying later in life, it is common for one spouse to already own significant assets before their marriage. As such, they would have a significant exemption if the marriage didn’t work out. Similarly, it is very common for a spouse to receive an inheritance or gift that finds it’s way towards the purchase of a home or pay down of an existing mortgage.
In such a case, a person should be very careful about how they deal with their assets. Too many spouses lose their exemption because a new home was purchased in joint names because the bank suggested it for financing or the lawyer suggested it for estate planning purposes. Real estate lawyers seldom advise the parties as to the potential exemption loss resulting from this simple act.
What to do?
Are you married or getting married? Are you contemplating putting property into joint names, or making a significant payment towards a joint mortgage? If so, be aware of the possible loss of exemption resulting from the presumption of gift. If you aren’t willing to lose that exemption, do not put the asset into joint names or towards a joint debt. Alternatively, have a lawyer draft a simple agreement acknowledging that you do not intend to lose your exemption. Make it clear that the presumption of gift is not to take place in your transaction.
The odds, unfortunately, are better than 40% that your marriage will not work out. You wouldn’t jump out of a plane without a parachute, would you? Don’t jump into significant financial arrangements without taking reasonable steps to protect your interests. It could make a big difference in the event of a marriage breakdown or divorce.