Why the Family Cottage can Mean Big Money

By Valerie L. Brown of Brown Law Firm Professional Corporation

It’s that time of year again when families are loading up the car and heading north to the cottage. For most, this will be an enjoyable escape from the daily grind of their lives. But, in the midst of a divorce, the cottage can become a battleground.

There is no presumption that simply because parties are married, that property is owned by both of them, or that they have the same rights to that property. Indeed, marriage does not change ownership.

What the property regime in Ontario does, is to allow married spouses to share equally in the value of assets acquired during the marriage, or increases in value of assets brought into the marriage. Generally, the value of the property brought into the marriage will be credited to the owner spouse, or the value excluded in its entirety if inherited during the marriage. The exception to this is when that property is a matrimonial home (or in the case of a monetary inheritance, if that money can be traced into a matrimonial home).

If the family cottage is purchased by one or both spouses during the marriage, it’s full value will be shared by the spouses through the division of net family properties regardless of whether it’s a matrimonial home.

The problem arises when cottages are passed down from previous generations either by way of inheritance or gift. The intention is to keep the cottage in the family for everyone to enjoy. One spouse owns the cottage which in most cases will have appreciated significantly in value during the marriage, or they receive that value during the marriage gratuitously. As a result, they will leave the marriage in a superior position, financially.

However, if the cottage is considered to be a matrimonial home, the owner spouse must include the full value of the cottage in the division of property, allowing both parties to share fully in the value.

Take the example of a husband and wife who jointly own their primary residence with a value of $500,000 subject to a mortgage of $250,000. Further, the wife inherits a cottage during the marriage with a value of $300,000. Upon separation, each party will be entitled to their interest in the primary residence. Unless the cottage is considered to be a matrimonial home, the husband will leave the marriage with $125,000, and the wife will leave the marriage with $425,000. If the cottage is considered to be a matrimonial home, the husband and wife will each leave the marriage with $275,000. Clearly, the different results depending on whether the cottage is the matrimonial home are significant.

Any married person who inherits real property or money is well advised to speak with a lawyer about how they might protect that inheritance through a Domestic Contract.

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