For divorcing spouses in Ontario, the Family Law Act equalizes the value of each party’s net family property. Importantly, the value of the matrimonial home is always included. However, equalization is usually calculated as of the date of separation, and the financial consequences of a divorce may not be immediately finalized. And if real estate prices increase, homes can increase in value after the separation date. Will both spouses have a right to benefit from the increase in the value of a house?

The Ontario Court of Appeal considered this question and addressed how the increased value should be apportioned if only one spouse was on the title.

Non-Titled Spouse Has No Automatic Right to Share of Increased Value

Madi v. King dealt with an appeal concerning the post-valuation date increase in the value of the parties’ matrimonial home. After the parties’ marriage, the title to the matrimonial home was placed in the appellant’s name alone. At separation, they agreed the house had a value of $672,500. However, the house sold the next year for $860,000. The parties disagreed on whether the respondent was entitled to share any of the value increases. At trial, the judge decided the $187,500 post-separation increase in value should be divided equally between the parties due. The trial judge determined that the appellant held the house in trust for both parties based on the doctrine of proprietary estoppel. The respondent claimed she had been promised that the parties were buying a house together and that she would be an equal owner. She argued she was promised an equal share in the home instead of a written Mahr and relied on that promise.

On appeal, the appellant argued that the trial judge erred in finding the home was subject to a trust based on the “reasonable expectations” of the respondent. The Court of Appeal agreed with the appellant that the trial judge erred and that proprietary estoppel was not applicable in this case. Section 5(7) of the Family Law Act (FLA) explains that property division through equalization after a separation is meant to address the financial unfairness that can arise during a marriage breakdown. The matrimonial home is given a special status, “which is always included in the net family property of the titled spouse,” meaning the value is divided through equalization. “However, the scheme does not give a non-titled spouse the right to share in property arising after the date of separation.”

The Spouse’s Reasonable Expectations Are Not Relevant

The Court acknowledged that a non-titled spouse could still try to share in the post-separation increase in value by seeking an unequal division of net family property or by making an equitable trust claim. However, in McNamee v. McNamee, the Court of Appeal concluded that any unjust enrichment that arises from a marriage and subsequent divorce would usually be addressed through equalization. Additionally, while section 5(6) of the FLA permits an unequal division of net family property if equalizing the net family properties would be unconscionable, the threshold of unconscionability is high. In Ward v. Ward, the court noted the legislation is not intended to “alleviate every situation that may be viewed as in some ways unfair or inequitable.” On that basis, the court indicated that the equalization scheme promotes predictability. If courts deviated from the FLA whenever there was an unfair result, litigation would be encouraged.

This same logic is also applied to constructive trust claims. The court indicated that claims must “be understood concerning a non-titled spouse’s FLA entitlements upon marriage breakdown”. In this case only the doctrine of proprietary estoppel was argued to support the constructive trust claim. However, the trial judge found no unjust enrichment but still concluded that the appellant held the matrimonial home in trust on the respondent’s “reasonable expectations.” The Court of Appeal found that this was an error, as a party’s reasonable expectations are relevant to the test for unjust enrichment, but not for proprietary estoppel.

The test for proprietary estoppel is set out by the Supreme Court of Canada in Cowper‑Smith v. Morgan. The court stated that “an equity arises when:

(1) a representation or assurance is made to the claimant, on the basis of which the claimant expects that he will enjoy some right or benefit over the property;

(2) the claimant relies on that expectation by doing or refraining from doing something, and his reliance is reasonable in all the circumstances; and

(3) the claimant suffers detriment as a result of his reasonable reliance, such that it would be unfair or unjust for the party responsible for the representation or assurance to go back on her word.”

The claimant needs to establish that all three elements are present. In Cowper‑Smith, the court found that the first stage requires an unambiguous promise to have been made. But in this case, the appellant was clear that no assurance was given to the respondent that she would share any post-separation increase in the value of the matrimonial home. There was also no indication that the parties considered the possibility of a post-separation change in value. Additionally, the court was cautious about equating any expectation that the parties were buying a house “together” to a “clear and unambiguous promise” that the respondent would be dealt with as if she were on the title and would share in the increase in value of the home post-separation. For married spouses who are entitled to equalization, the matrimonial home is included in the net family property of the titled spouse, so the other spouse would be entitled to half of the value of the home until the date of separation. As the court noted, “the promise relied on to meet the test for proprietary estoppel must go beyond what is already contemplated by the FLA’s equalization scheme.” It was not clear that such a representation was made.

Claimant Must Have Suffered a Detriment

Regarding the second element of the test, the respondent claimed that she relied on the promise of shared ownership in the home by giving up a Mahr agreement, which she argued would have provided her with financial security on a marriage breakdown. But that argument could not succeed. The respondent stated that she did not want the obligations associated with the mortgage and did not make contributions to the mortgage or pay expenses associated with the home. She did not refrain from doing anything because of the belief that she owned half of the house. Nothing supported the argument that she relied on the promise of home ownership to give up the Mahr.

In contrast, the respondent testified that a Mahr was discussed during their marriage but that no agreement was reached. The trial judge concluded that no marriage contract was signed and that there was no agreement to pay a Mahr “or to provide a home in lieu.” The respondent did not give up a written Mahr in exchange for equal home ownership.

The third part of the test requires the claimant to suffer detriment. On this point, the Court of Appeal determined there was no evidence that the respondent suffered any detriment by relying on the assurance or expectation that she was an equal owner. In one case where proprietary estoppel applied to the increase in the value of the matrimonial home post-valuation date, the wife mistakenly thought she was on the title. Still, she was on the mortgage and contributed to the home purchase. However, that was not the situation where the respondent made no financial contribution to the home. Instead, the court accepted that the respondent received a benefit as the appellant permitted her to continue living in the house without paying rent or contributing to the mortgage for several months after separating.

Overall, the respondent had no claim to the post-separation increase in the home’s value. The trust claim failed as there was no unjust enrichment, and the test for proprietary estoppel was not met. It was not clear that the appellant told her she would be an equal owner in the home, and nothing indicated that she relied on such a representation to her detriment. Instead, the respondent would be entitled to half of the value of the matrimonial home as of the date of their separation through the equalization process.

Claims Need to Be Understood Alongside Rights to Equalization

If a non-titled spouse did not contribute to the mortgage or expenses of running the home, it may be difficult for the spouse to show that they suffered a detriment and should share in the increase in the house’s value. Instead, courts may find the party received a benefit if they were able to remain in the house rent-free after separation.

Toronto Family Lawyers Assisting Clients With Separation and Property Division

Are you facing a separation or divorce in Ontario? Property division, including the matrimonial home, can have significant financial implications. As real estate values continue to rise, it’s crucial to understand how increases in your home’s value may impact your property settlement. Our experienced family lawyers can help you navigate the complexities of Ontario’s Family Law Act and ensure your rights are protected. Contact us online or by calling 416 481 5604 today.