Constructive Trust Claims In Family Law

The Basis for Constructive Trust Claims

A constructive trust is a legal mechanism where the court can find or “construct” a trust in favour of a spouse who is not the legal owner of an asset. The leading case on the issue is Rawluk v. Rawluk, 1990 SCC. The Rawluk’s were married for 29 years and held a farm registered to the husband. The wife played a significant role in running and successfully profiting from the marital property. Despite the said property not being placed in her name, the Supreme Court of Canada found that the work provided by the wife entitled her to a share in the family property despite not being the legal owner.

When does Constructive Trust Apply?

A constructive trust may apply to any case where the non-owner spouse has contributed to the business or property owned on title by the other spouse. It is particularly an application where the non-owner spouse has provided services without compensation or severally at undervalue to the property or business.

Examples of “Contributions”

Some of the contributions noted above, as found by law, are:

  • Payment for a new pool on property owned by your spouse;
  • Major renovations to the house owned by your spouse;
  • Providing childcare services, which allowed your spouse to go to work and grow their business;
  • Putting all of your earnings into a mutual bank account, which allowed your partner to go to work and grow their business and
  • Providing accounting services to your spouse’s business with no compensation.

Unjust Enrichment – Quantifying Monetary Awards

An unjust enrichment refers to a legal tort (or “wrong”) where one party’s property or finances increase from another party’s time or monetary investment, with no compensation to the latter. In the context of family law litigation, the court will often determine the periods of unjust enrichment and award damages accordingly.

In Vanessa v. Seguin, 2010, SCC, the common law couple separated after a 12-year common law relationship. The Supreme Court found that the husband was unjustly enriched by the wife’s decision to stay home and provide childcare services. However, the period of unjust enrichment ended when the children were older and went to school. Accordingly, the unjust enrichment only occurred during those early years, and the division was limited to the increase in the property value during that time.  

Elements of an Unjust Enrichment Claim

The legal test to establish an unjust enrichment claim is as follows:

An unjust enrichment is a necessary first step to determine the existence of a constructive trust. The Kerr v. Baranow (2011) SCC case elaborated this calculation for a constructive trust. If an unjust enrichment has been found to exist, the concept of a “joint family venture” becomes relevant. In considering whether a joint family venture exists, the court must consider:

  • Was there a mutual effort for both parties to work towards a common goal;
  • How extensively were the party’s finances integrated;
  • Did the parties intend to have their lives economically intertwined;
  • To what extent did the parties give priority to the family in their decision-making; and
  • Did the parties expect only one party to benefit from the joint arrangement?

Onus and Remedies

The party making the claim always bears the onus, or responsibility, of establishing whether or not there has been an unjust enrichment and/or a joint family venture. If this onus is satisfied, the court must decide on the appropriate remedy. These usually take one of two forms:

A constructive trust essentially gives the non-owner spouse an interest in the property. In contrast, a monetary award compensates the non-owner party financially. Constructive trust is usually reserved when a monetary award is deemed insufficient.

Protection against Litigation

Constructive trust claims are among the most legally complex in family law litigation. In such claims, both parties generally retain lawyers, accountants, business appraisers, and other professionals to prove their respective cases and determine if any amounts are owed. As can be imagined, this results in tremendous legal fees on both sides.

Possible Solution

One of the best ways to forestall such issues is to prepare a domestic agreement prior to entering a common-law relationship. If one party owns property when they begin to cohabit with a romantic partner, a cohabitation agreement, drafted pursuant to the Family Law Act, can specifically outline and pre-determine the division of assets should that relationship end. This concept is similar to a “prenup,” but with the rise of common-law relationships, the common-law cohabitation agreement is becoming increasingly frequent.

Note

This blog post does not constitute legal advice and was written solely to provide information. If you would like to consult with a lawyer about the issues raised in this post, please contact Empel Law Professional Corporation at 416-500-1937.

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