Senthillmohan v. Senthillmohan – Debt Enforcement by a Third-Party and Joint Tenancy

By Ridhima Pathak and Ashley Hizo

The recent case of Senthillmohan v. Senthillmohan, 2023 ONCA 280^[1] involved a separated husband and wife disputing over the division of their net family property and the sale of their matrimonial home. The wife had commenced an application seeking unequal division of the parties’ net family property.

Under s.18(1) of the Family Law Act, a matrimonial home is defined as property in which a person has an interest and that is or, if the spouses have separated, was at the time of separation ordinarily occupied by the person and his or her spouse as their family residence.^[2] Said differently, a matrimonial home is the house that a married couple lives in at the time of separation.

In this case, both parties were registered equally as Joint Tenants of the matrimonial home, a common and often recommended way in which spouses take title. This is typically done for the purposes of future estate planning, whereby if either of the spouses were to die, rights of survivorship would kick in, and the property would automatically remain in the living spouses name. This also ensures that no estate administration tax be payable.

The parties went on to enter into an Agreement of Purchase and Sale to sell the matrimonial home, and for those sale proceeds to remain in trust pending the resolution of the family law dispute.

It can be noted that the Family Law Act requires separating spouses to equalize their net family property, which among other assets includes the value of the matrimonial home.^[3] It is typical that upon the sale of a matrimonial home that net proceeds be held in trust pending the final resolution of an equalization payment. Holding sale proceeds in trust ensures that any other amount payable by or to the parties including support obligations or any negotiated credit for household contents to be included in the calculation and ultimate pay-out of a final equalization payment. 

Meanwhile, there is a third-party creditor that had a writ registered against the husband on title to the property. In Ontario, any transfer of title to property must only occur if title is free and clear of any writs or encumbrances. For the purposes of this sale, the third-party credit had agreed to lift the writ to allow for the sale to proceed.

Once the sale transaction closed, the wife filed an urgent motion to sever the joint tenancy in the matrimonial home. Severing a joint tenancy and taking title as tenants in common is done in order to protect one’s interest in the matrimonial home. Once a joint tenancy is severed, a change in legal tenure occurs, and a new transfer is registered with the Land Registry Office. A joint tenancy may be converted to a tenancy in common unilaterally. By actioning this, the wife and husband now hold title as tenants in common of the property with a percentage share of the proceeds at 50% each.

Where legal tenure of joint tenancy benefits parties by rights of survivorship, a tenancy in common benefits parties by creating an assignment of ownership. As a tenant in common, the wife is therefore entitled to 50% of the sale proceeds, an independent interest to be unaffected by the husband or the husband’s creditors.

On this basis, the wife proceeded to file an urgent motion to have her share of the sale proceeds to be released to her, and was successful in doing so. As expected, the creditor was not pleased and argued at the Court of Appeal that they had the right to be paid out from the total sale proceeds. The court ruled that this was not the case and that a creditor cannot seize the interest of a non-debtor joint tenant.^[4] A creditor is only permitted to seek payment from the party that owes the debt to them and not from the other party who is simply only on title.

This ruling serves as an example for the complexities associated with joint tenancy ownership for both individuals on title and for any creditors seeking debt enforcement.

For any questions, please contact our trusted residential real estate lawyer, Ridhima Pathak at ridhima@sorbaralaw.com.