The Companion Advisor: General Interest
The Cottage - Keeping It In Your Family

A Family Law Perspective
By Wendy Southall, Lawer

The family cottage holds memories for many families. Parents often wish to leave the family cottage to their children, hoping that it will continue to be enjoyed by generations to come. But what happens to the cottage if one of the children separates from his or her spouse? Benefiting an ex-son or daughter-in-law is not usually what the parents have in mind. It is prudent to give the possibility of the separation or divorce of a child some consideration when planning for the disposition of the family cottage.

When married spouses divorce or separate, the value of most of the property either of them acquired during the marriage must be "equalized" between them. The original values of gifts or inheritances received by one spouse during the marriage are protected from equalization in certain circumstances. This protection extended to gifts or inheritances does not, however, include any gift or inheritance which is a "Matrimonial Home." Whether the family cottage is or is not a matrimonial home to a specific couple will depend upon whether the couple regularly uses it at the time of separation.

Consider three brothers, Tom, Dick and Harry who each have inherited one-third of the family cottage in Muskoka from their parents. Their obligations to their respective spouses in the event of marital separation differ significantly because of the definition of matrimonial home.

For Tom and his wife who use it every weekend, rain or shine, it is definitely a matrimonial home. For Dick and his wife who live in Kapuskasing and never use it, it is definitely not a matrimonial home. For Harry and his wife, who are both allergic to mosquitos and use it twice a year in the winter, it may or may not be - leave it to the judge to decide.

Tom, for whom the cottage is a matrimonial home, must equalize the value of his one-third share of the cottage on separation. This does not mean that his wife owns half of his share of the cottage, but it does mean that Tom must raise funds equaling one-half of his share of the cottage, valued as of the date of separation, to pay to his wife.

If the couple has other property, for example a home in the city, then this amount may come out of proceeds of sale of that property. If there is no other way of raising the necessary funds, Tom could find himself having to sell his interest to pay his former wife. A further complication for Tom is that on separation his wife will have rights of possession to the cottage, by reason of it being a matrimonial home. Until a settlement is reached or a court orders otherwise, Tom's wife could be cramping his style (and he hers) at the cottage whenever she wished.

Dick, for whom the cottage is not a matrimonial home, does not have to equalize the value of his share of the cottage with his wife if they separate. If Dick received his interest in the cottage before he was married, he would still have to share with his wife any increase in its value over the course of the marriage to the date of separation.

If Dick received his interest in the cottage after he was married (and assuming his parents had properly drafted wills), the entire value of his interest in the cottage would be free from any claim by his wife. This distinction may not make sense, but that's the law.

Harry is not sure whether the cottage is or is not a matrimonial home. However, Harry now admits that he and his "wife" were never married, but have been living together for five years. Contrary to the popular belief, living together is not "the same as" being married for the purposes of property equalization. If Harry and his common-law partner separated, she would have no rights to the cottage (or to the equalization of any other property). But watch out. This may be changed at any time.

For the parents of this trio, some planning might have alleviated difficulties for their sons later on. The ideal form of protection for a married child, or one about to get married, is a marriage contract or cohabitation agreement between the child and his or her spouse. This contract could be very narrow in scope, if that was what was desired, excluding only the cottage from equalization or other claims. In many cases, the child and his or her spouse may not wish to enter into a marriage contract and may resent well-meaning parents for suggesting it. A less objectionable but less effective alternative is to insist that the child and his or her spouse designate another home which they own (their home in the city for example) as the matrimonial home, which would have the effect of excluding the cottage from that definition, even if the couple used it regularly. This would simply involve registering a notice to this effect on title, signed by both spouses. Independent legal advice would be advisable in this instance.

The shortcoming of this approach of registering a notice is that if the couple sold their city home and purchased another, they would again have to designate the new home as the matrimonial home, or the protection for the cottage would be lost.

There are a few other approaches. The cottage could be willed to grandchildren, with life interests to the children. Although a life interest is property and does have a value, the value would in most cases be very low and the same issues would arise with the grandchildren's spouses. The cottage could be given to the children, but with a mortgage back to the parents for most of the value of the cottage. The value of the cottage for family law purposes would be reduced to almost nothing, subject to any large increase in its value after the date of the gift. The parents could then provide in their wills for the mortgage debt to be forgiven or that a legacy equal to the mortgage be paid instead. If either of the latter two options were considered there would be a number of other issues of family law, tax law and estate planning which would have to be considered as well.

What action, if any, the cottage owner may want to take now will depend on his or her individual circumstances.


The information in this article is general and should not be relied upon as a substitute for professional advice in specific situations.

Wendy Southall is a lawyer with the Mississauga, Ontario, law firm of Pallett Valo, Phone 905-273-3300 or 1-800-323-3781 Fax 905-273-6920 ©Copyright 1999

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