By Rebecca Winninger, Senior Associate Lawyer, Lam Family Law*

When only one spouse is on title to the matrimonial home, Ontario’s system of equalizing net family property does not allow the non-titled spouse to share in any increase in value of the home after separation. To get around this, litigants have advanced equitable claims such as unjust enrichment and proprietary estoppel, hoping that the court will award a constructive trust remedy which will give them a property interest in the home (and access to its current value).

Previous ONCA Cases on Unjust Enrichment

The Court of Appeal for Ontario (“ONCA”) discouraged unjust enrichment claims by married parties in McNamee v. McNamee, 2011 ONCA 533 (CanLII) and Martin v. Sansome, 2014 ONCA 14 (CanLII). The ONCA held that the equalization provisions of the Family Law Act (“FLA”) are intended to address unjust enrichment that would otherwise arise on marriage breakdown. In the vast majority of cases, the equalization provisions (including a potential unequal division) will fully address any unjust enrichment that arises from the marriage. Further, even if unjust enrichment is established, it is only where a monetary award is insufficient that the court may make a proprietary award by impressing the property with a constructive trust. The post-separation increase in value of an asset is a monetary benefit, which cannot be used as a rationale for finding that a monetary award is insufficient.

Recent ONCA Case on Proprietary Estoppel: Madi v. King (2023)

The ONCA recently had the opportunity to consider a proprietary estoppel claim by a married spouse in Madi v. King, 2023 ONCA 443 (CanLII). The matrimonial home was in the husband’s name alone and had increased in value by $187,500 post-separation: para 7.

The wife argued “that she was always promised and always told that they were buying a house together and that she would be an equal owner”, which she considered “to be a form of security in the event the marriage broke down.” The trial judge accepted that the parties planned to buy the house together, but declined to find that the wife was purposely misled about not being on title. It was not disputed that the wife wanted to be “on title”, but not on the mortgage. She did not want to contribute to the mortgage or be responsible for it. The real estate lawyer explained to her that she could not be on title without being on the mortgage as well, as the bank would not permit it. Title was placed in the husband’s name alone, and the wife signed a spousal consent for the mortgage: paras 8-10.

The husband was not unjustly enriched, as he or his family had contributed all the funds used to purchase the property, and he paid the mortgage and household expenses during the marriage and post-separation: para 11.

However, the trial judge accepted the wife’s evidence that she thought the parties owned the house “together” and was surprised to find out that she was not on title. It followed that the net proceeds of sale should be divided equally based on the wife’s “reasonable expectations.” The trial judge included a footnote referring to the doctrine of proprietary estoppel in support of his conclusion on this issue: paras 12-13 & 22.

The ONCA clarifies proprietary estoppel in light of equalization under the FLA

Similar to how the ONCA has treated unjust enrichment claims, the ONCA held that courts must also approach proprietary estoppel claims by married spouses in the context of the equalization regime under the FLA. For a promise to give rise to a claim in proprietary estoppel, it must “go beyond what is already contemplated by the FLA’s equalization scheme”: para 28.

Constructive trust claims in divorce proceedings “must be approached in a contextual fashion that gives weight to Ontario’s chosen legislative scheme.” A shared understanding that two spouses are buying a home together must be understood with reference to the non-titled spouse’s FLA entitlements on marriage breakdown. Such an understanding may not “constitute an unambiguous promise that the non-titled spouse would continue to be entitled to their share of the increase in value of the property after separation”: para 20.

The ONCA outlines the test for proprietary estoppel

The ONCA held that the trial judge misapplied the test for proprietary estoppel. The reasonable expectations of a party are not relevant to the test for proprietary estoppel: para 23.

Instead, the claimant must establish all three of the following elements of the test for proprietary estoppel:

  1. a representation or assurance is made to the claimant, on the basis of which the claimant expects that he will enjoy some right or benefit over the property;
  2. the claimant relies on that expectation by doing or refraining from doing something, and his reliance is reasonable in all the circumstances; and
  3. the claimant suffers detriment as a result of his reasonable reliance, such that it would be unfair or unjust for the party responsible for the representation or assurance to go back on her word: paras 25-26, citing Cowper‑Smith v. Morgan, 2017 SCC 61 (CanLII), at para 15.

“The first stage of the test requires a clear and unambiguous promise”: para 27, citing Cowper‑Smith v. Morgan, ibid, at para 26.

The ONCA applies the test to the facts

A shared understanding about buying a house together does not necessarily equate to a clear and unambiguous promise that the non-titled spouse would be treated as a titled owner, and share in any post-separation increase in value. A married spouse would expect to be entitled to half of the value of the home up until the date of separation. A promise relied on to meet the test for proprietary estoppel would have to “go beyond what is already contemplated by the FLA’s equalization scheme”: para 28 [underlining added].

The remaining elements of the test for proprietary estoppel were not satisfied on the facts. The wife argued that she relied on the promise of shared ownership in giving up a written Mahr agreement under Islamic law, but the evidence did not support this assertion. Nor did she contribute to the mortgage or any of the home expenses: paras 29-33.

There was also no evidence of any detriment suffered by the wife as a result of relying on the expectation that she was an equal owner: para 34.

The ONCA concluded that the wife’s trust claim must fail because the husband was not unjustly enriched, and the test for proprietary estoppel was not met. The court added that “[t]here is no unfairness flowing from this result. The respondent’s equalization entitlements under the FLA already account for the value of the matrimonial home, to which she made no monetary contribution, up to the date of the parties’ separation”: paras 36-37.

Even if the wife had contributed financially to the home, the ONCA’s analysis suggests that her proprietary estoppel claim would still fail unless the husband had made a specific promise to her that she would share in the post-separation value of the home. This limits the relevance of the doctrine in cases involving married spouses, just as the ONCA previously limited the application of unjust enrichment in the same circumstances.

 

*with thanks to Vanessa Lam for her suggestions and edits.