You CAN have your cake and eat it too!

“The husband cannot have it both ways,” ruled Lord Denning, one of the most colourful English judges of last century. “He is on the horns of a dilemma.” The husband had put the family home in his wife’s name for the illegal — but not uncommon — purpose of keeping it safe from possible creditors. Fortunately, no creditors ever came calling. Unfortunately, the couple divorced. And when the time came to decide who would get the house, the husband claimed he had never really transferred ownership: it was just a superficial maneuver, a ruse to shelter the asset. By rights, he said, the house never stopped being his: the wife’s ownership was on paper merely, and she was just holding it for him in trust. No, said Denning: “As against his wife, he wants to say that it belongs to him. As against his creditors, that it belongs to her. That simply will not do.” He let the wife keep the house.

_290996_denning_rolls150However sensible this might seem, family law has changed since Denning (pictured left) made that ruling back in 1970, in a British case called Tinker v. Tinker. We are now in a world where a different result can occur. You can have it both ways. In Ontario, and many other jurisdictions, you can put your house in your spouse’s name in order to (illegally) evade possible creditors, then have it bounce right back to you in the event of divorce.

This brave new world began in 1986 when Ontario’s family law legislation was amended to say that the age-old “presumption of a resulting trust” would now start operating between spouses. So instead of the old rule, which said that gratuitous asset transfers between spouses were presumed to be permanent gifts, now if you transfer an asset to your spouse “gratuitously” (i.e., freely, with no obligation to do so, and for nothing in return) then they are presumed to be holding it in trust for you.

This presumption operates regardless of whether the transfer was done for an illegal, nefarious, dirty, or otherwise disreputable purpose. The reasoning goes something like this: in the old days, before the resulting trust presumption operated as between spouses, you’d have to tell the court what you did, and why it was a sham: “Your Honour, I transferred the house to my spouse, but I didn’t mean for it to be real. I only did it to keep the house away from possible creditors. So let’s just forget about it.” Hearing this, the court would be revolted, not only by your illegal sham transfer, but by something much worse in the eyes of legal theory: your attempt to “suck and blow” at the same time. So the court would echo Lord Denning: “You can’t have it both ways!” And your spouse would keep the house.

Nowadays, you don’t have to delve into any of that unpleasant stuff. No, all you need to do is show that the transfer of the asset was “gratuitous,” then shut your mouth and let the resulting trust presumption work its magic. The fact that you are a debt-evader, and worse, that you are trying to have it both ways, doesn’t need to come up. Yes, your shameful story will likely emerge in court anyway — but it’s no longer legally necessary to rely on this skullduggery in order to argue that the asset is being held in trust.

The resulting trust presumption is of course rebuttable. Depending on the circumstances, your spouse might be able to show that the transfer was in fact not gratuitous; or perhaps there was a clear intention for it to be a permanent gift. Moreover, there is a “reluctance” on the part of courts to look the other way and allow people to evade creditors, and to have it both ways. In the end, a court’s decision will follow the particular facts, case-by-case.

A recent decision from the Ontario Court of Appeal is an interesting example. In that case, the evidence confirmed that when the husband put the family home in the wife’s name to avoid possible creditors, it was indeed done gratuitously, therefore he could take advantage of the resulting trust presumption. And the wife was not able to rebut it — on the contrary, her testimony strengthened it: “It was her view,” noted the appeal court, “that no matter how the family held assets, their value should be shared equally. She made no exception for the matrimonial home. As far as she was concerned, the marriage was one of financial equality. Had there been creditors, the equity in the matrimonial home would have been insulated against a potential lawsuit for the benefit of the family.”

The fight was about a post-separation increase in the value of the home (nearly a quarter million dollar increase) that the wife wanted to keep all for herself, since on paper she was the sole registered owner. The court rejected her claim, invoking the resulting trust presumption, and sweeping the creditor-evasion issue under the rug. Interestingly, though, they didn’t bounce the whole house back to the husband: they only gave him half. It might therefore be said that he made it halfway to having it both ways. What would Lord Denning say?

Bill Rogers is a Toronto-based lawyer, journalist, and family law mediator.

2016-01-04T17:33:56+00:00January 4th, 2016|Blog, Uncategorized|
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