Ontario Court of Appeal clarifies the issue of debt enforcement on jointly held properties within a family law context

In the case of Senthillmohan v. Senthillmohan, the separated husband and wife obtained a court order directing the sale of their jointly held matrimonial home and, as is usual, further requiring net sale proceeds to be held trust pending a resolution of the wife’s equalization claim. Amidst the lower court proceedings, a third-party creditor obtained a default judgment against the husband in a separate civil action.  A writ (which enables a creditor to seize land and sell it in order to recover debts owed) was filed against the home in September 2021.  Ultimately the home sold for $1.9 million with the third-party creditor lifting the writ to facilitate the sale. After discharging the mortgage and other costs related to the sale of the property, $925,000.00 was left.

In November 2021, before the sale closed, the wife brought an emergency motion and obtained an order severing the joint tenancy on the home. Subsequently, in February 2022, the wife brought a motion seeking the release of her 50% share of the sale proceeds.

The third-party creditor attended the proceedings and argued that the husband and wife should be viewed as one owner since they were joint tenants when the default judgment was obtained and the writ filed, meaning they were seeking to have access to the wife’s share of the sale proceeds in addition to the husband.

The motion judge ultimately granted the wife’s request for an immediate distribution of her 50% share of the proceeds. The third-party creditor appealed the motion judge’s decision, arguing that the motion judge failed to consider that the writ attached to the full proceeds of a voluntary sale of jointly owned property.

Decision:

The appeal was dismissed. In arriving at its decision, the Court of Appeal stated that the third-party creditor fundamentally misunderstood the law of creditors’ remedies against jointly held property where only one of the owners guaranteed the debt. The creditor’s argument was based on the idea that joint tenants hold an undivided interest in the entire property.

In particular, the court cited the following:

• Section 9(1) of the Execution Act which establishes that a seizure and execution are restricted to only the debtor’s severable interest in land held in joint tenancy; and
• Section 10(6) of the Execution Act specifies that a writ “binds the lands against which it was issued” meaning, where property is jointly held and one tenant dies, the remaining joint tenant acquires the entire interest in the property through the right of survivorship. Where a writ is filed against jointly held land before the debtor joint tenant dies, it does not bind the surviving non-debtor’s complete interest in the property acquired through their right of survivorship.

The wife ultimately received $602,356.19 from the net proceeds of the matrimonial home.

This decision provides much clarity for separating couples thinking about possible legal remedies where one co-owner of a jointly held property is burdened with significant debts.

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