Dealing with Family Property – Do not Delay!

For many spouses, in addition to the emotional turmoil that results from a martial breakdown, dealing with matters of family property and debt often adds another measure of tension to an already stressful situation. However, avoiding the division of property altogether is surely not a recommended approach.

The case of Johnston v. Johnston Estate 2015 BCSC 1479, although somewhat exceptional, clearly illustrates the financial consequences that can emerge if spouses fail to resolve their property disputes in a timely manner.

In this case, the Johnston’s lived in a house until their separation in 1971. At the time of their separation their Vancouver home was worth approximately $40,000.

Although the Johnston’s initially discussed a separation agreement, the evidence was that neither party, who at various periods had legal counsel, was proactive in reorganizing their financial affairs following their separation. Mr. Johnston did not insist for a buy out of his interest in the family home (both he and his wife were registered on title as tenants in common) on the belief that Ms. Johnston in turn would demand spousal support from him. Neither party sought a divorce and for 44 years they continued to be legally married.

Because the Johnston’s continued to be married, the two-year limitation period that ordinarily commences following the date of divorce for married couples (or, for unmarried couples from date of their separation) did not begin to run. Following the passing of his former spouse (although technically still his wife), Mr. Johnston brought an application to have the home sold and ½ of the proceeds of the sale to go to him with the remaining to his wife’s estate.

As one might expect, the value of their Vancouver home soared from $40,000 in 1971 to $1.2 million in 2015 at the time of Mr. Johnston’s court application. Ms. Johnston’s estate disputed Mr. Johnston’s entitlement to the home on the basis that they had a verbal agreement and that Mr. Johnston would not claim an interest in the home. However, the parties had not formally executed a separation agreement and Mr. Johnston still remained on title despite not living in the residence for 44 years and having not paid the mortgage or property taxes which Ms. Johnston had done.

The principal issue before the court was to determine Mr. Johnston’s rights to the home under the Partition of Property Act and his intention to have it sold. The court ruled that Mr. Johnston indeed had the legal right to put the home up for sale, and that he was entitled to receive half the proceeds of any sale of the home at current fair market value.

This accords with section 87 of the Family Law Act which provides that unless by agreement or a court order provides otherwise, the value of family property must be based on:

(a)        its fair market value (i.e. the price property would fetch, if offered on the open market to parties acting at arm’s length); and

(b)        the value of family property and family debt must be determined as of the date an agreement is made, or the date of it being brought before the court.

Much to the chagrin of Ms. Johnston’s estate, the value of her estate was reduced considerably, and her beneficiaries received far less then what they would have received had Ms. Johnston properly negotiated (by way of a separation agreement or by court order) a buy out of Mr. Johnston’s interest in the family home.

This case serves as both a cautionary tale, and a stark reminder that when spouses do not make concerted efforts to settle family affairs upon breakdown of a relationship, a party may bear significant financial consequences as a result.

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