Joint Tenancy Thwarts Bankruptcy
By Brian Madigan LL.B.
Having property registered in joint tenancy actually worked quite favourably.
A doctor acquired a matrimonial home and placed the title in his name together with his wife as joint tenants. The doctor then obtained a loan to finance his medical practice from the Bank. His wife was not asked to co-sign the loan.
When the doctor passed away, there were insufficient funds in his estate to pay the Bank in full. The doctor’s wife had already acquired full title to the matrimonial home by “right of survivorship” which goes with joint tenancy.
As luck would have it, Parliament had made some recent amendments to the Bankruptcy and Insolvency Act (BIA).
Section 96 of the new BIA allows a creditor to make application to Court to set aside a transfer of property:
1) to a non-arms length party,
2) at less than fair value,
3) made within one year of the bankruptcy.
The previous applicable provision under the old Bankruptcy and Insolvency Act would have required proof of intent to deprive one creditor at the expense of another. Proof of intent is no longer required.
So, what did the Bank do? Write off the balance of the loan as a bad debt?
No, it sued the widow!
It placed the estate in bankruptcy and claimed that one half the value of the matrimonial home should transfer back to the estate to satisfy the amount outstanding on the loan.
This matter came on for hearing in the Superior Court of Ontario. It required the Court to analyze just exactly what happens in joint tenancy, and just precisely how does that “survivorship provision” really work.
Many legal decisions have often said that the deceased’s interest in the property is transferred upon their death to the surviving joint tenant. And, for the most part, such an analysis is more than sufficient.
However, in this particular case, because of the new wording contained in the Bankruptcy and Insolvency Act, the real method of acquisition of the deceased’s interest by the survivor is at issue.
The Court concluded:
1) the deceased joint tenant’s interest is extinguished upon death,
2) by operation of law, the survivor acquires the whole,
3) there is no “transfer” within the meaning of the BIA,
4) if there is no transfer, there is nothing which can be set aside.
You might like to think the joint tenancy is “the answer”, however, it is actually fraught with difficulties. In this case it worked out, and the widow kept the house, but not always.
Be sure to obtain legal advice from a lawyer or solicitor practicing real estate law or estate law before making a determination with respect to title.
And, if interested have a look at the decision of Judge R. Mesbur in the Cameron Estate ats. Bank of Nova Scotia (31 October 2011, Ontario Superior Court).
Brian Madigan LL.B., Broker is an author and commentator on real estate matters, www.OntarioRealEstateSource.com