Creditor Proofing Your Residence: Transferring a Home to Your Spouse May Not Be a Bulletproof Way to Judgment Proof

By Puneet Shroff

In the realm of business, it's not uncommon for individuals to make strategic financial moves in an attempt to protect their assets. One such example includes transferring the family home into the name of their spouse to protect it from creditors. However, a recent case from the Ontario Court of Appeal, Ontario Securities Commission v. Camerlengo Holdings Inc., has provided fresh insights on what can be considered as fraudulent conveyances under Ontario's Fraudulent Conveyances Act (“FCA”).

The Camerlengo case involved a debtor who transferred ownership of his jointly held family home to his wife’s sole title, a move often made by married persons starting a business. This was done back in 1996 in an attempt to shield the property from potential business debts. By 2011, his business was facing financial difficulty and he borrowed $200,000 which remained unpaid in the following years. Despite the transfer of property occurring back in 1996, the Ontario Securities Commission challenged this action, arguing that the transfer was a fraudulent conveyance designed to defeat creditors under section 2 of the FCA.

Section 2 of the FCA reads:

Every conveyance of real property or personal property and every bond, suit, judgment and execution heretofore or hereafter made with intent to defeat, hinder, delay or defraud creditors or others of their just and lawful actions, suits, debts, accounts, damages, penalties or forfeitures are void as against such persons and their assigns.

This means that any transfer of real estate or personal belongings, as well as any legal documents such as bonds, lawsuits, judgments, or execution orders, that have been or will be created with the purpose of evading, obstructing, delaying, or defrauding creditors or other individuals from their rightful and lawful claims, are considered null and void when it comes to these individuals.

The Decision

The Ontario Court of Appeal (ONCA), in a landmark ruling, overturned the motion judge's decision, ruling that the law against fraudulent conveyances can indeed apply to such situations involving spousal transfers. It was noted that a transaction made with the intention of avoiding future debts can be considered fraudulent; it's not necessary for debts to exist at the time of the transfer for it to be deemed fraudulent. What's more, the court emphasized that the Ontario's FCA is not just about protecting current creditors, but also possible future creditors.

The court also listed certain "badges of fraud," which are essentially factors to determine if there has been an intention to defraud creditors. These badges of fraud include that:

• The debtor’s financial state is precarious;
• The transfer is between familial or closely related parties;
• The transfer includes a substantial portion of the debtor’s assets;
• The transfer has the effect of defeating, hindering, delaying, or defrauding creditors;
• The transfer is made in haste;
• The amount of money paid for the transfer does not match the value of the property;
• The transfer occurred close in time to the notice of debts or claims against the debtor;
• Absence of a business purpose or justification for the transaction;
• The debtor retained possessory, beneficial or an ownership interest in the property.

In this case, the Court found there was intention to defraud the creditors as the debtor transferred the property to his wife for no value or consideration after 16 years of joint ownership. The transfer was made only 4 months after the debtor incorporated his business in 1996, and it was done to protect him from personal liability. Further, the debtor continued to use the property as his own and even mortgaged it multiple times for the benefit of his business.

Conclusion

This case highlights that transferring a home to your spouse may not necessarily shield it from potential future judgments or creditors. Furthermore, it emphasizes the importance of careful planning and seeking legal advice when making financial decisions related to asset protection. The law is constantly evolving, and interpretations can change over time. It is, therefore, crucial to stay updated and make informed decisions. Contact our experienced lawyers at Sorbara Law for help navigating the complexities of asset protection planning.