Don’t lose the cottage to a divorce!
Matrimonial homes get special treatment under Ontario property division rules. Any residence could be a matrimonial home if at least one spouse has an ownership interest in it and if it is currently occupied as a family home or was occupied as a family home at the time you separated.
Under this definition, a vacation home or cottage could be a matrimonial home. In some cases, you could have multiple matrimonial homes.
Special rules apply to some properties, for example, if the matrimonial home is a working farm or the site of a business.
A divorce lawyer with experience in asset division can explain whether your cottage might be a matrimonial home under the law.
In some cases, a cottage that had been in one person’s family for decades, has been deemed by the courts to be a matrimonial home and the other spouse ends up being entitled to half the value of the property.
Even if one spouse owns the cottage and the other has no ownership interest, the other spouse has an interest in the possession of the home. Therefore the owning spouse cannot mortgage or sell the cottage without the other spouse’s permission.
If you bought the cottage together, the value at the date of separation is the number you each use to calculate your Net Family Property not the increase in value. If one party owned the cottage that was used as the matrimonial home, it’s the value at the time of separation that is factored into that spouse’s Net Family Property, which could greatly increase it and result in a higher equalization payment.
The other spouse is entitled to half the value of the home at the time of separation, not half the equity or increase in value.
Ontario law dictates that spouses must equally divide the “profits” of their marriage. The difference between a spouse’s net worth at the beginning of the marriage and their net worth on the separation date is the net family property. The person whose net worth increased the most owes an equalization payment to the other spouse. The equalization payment is one-half of the difference between their NFP and the other person’s NFP. When the equalization payment is made, each spouse will leave the marriage having increased their wealth by equal amounts.
Calculating your net family property goes like this: If Spouse A came into the marriage with a net worth of $50,000 and their net worth at the date of separation is $150,000, Spouse A’s NFP is $100,000.
If Spouse B’s net worth was $10,000 upon marriage and $100,000 when they separated, Spouse B’s NFP is $90,000. Spouse A’s net worth increased $10,000 more during the marriage than Spouse B’s did, so Spouse A must split the difference with Spouse B. Spouse A will make an equalization payment to Spouse B of $5,000.
A cottage owned before marriage can be protected in different ways, including by using a pre-nuptual or post-nuptual agreement.
If you want to protect the cottage, make sure you reach out to a lawyer.
Paul Riley is Managing Director at The Riley Divorce & Family Law Firm. The firm has offices in Toronto, Ottawa and Kawartha Lakes and focuses on getting you out of bad relationships, while protecting what’s most important to you.