By: Catherine Tian and Jeff Li
Joint tenancy is a common form of co-ownership for family holdings and estate planning. The main benefit of a joint tenancy is the right of survivorship: when one joint tenant dies, his or her interest in the property passes automatically to the surviving joint tenant(s). In contrast, there is no right of survivorship in tenants-in-common, another common form of co-ownership. While the right of survivorship in joint tenancy has its advantages and benefits, it may give rise to problems as well. This often happens when spouses separate, or when estate division is disputed. In these situations one may wish to sever the joint tenancy.
A joint tenancy may be severed by operation of law. If a matrimonial home (within the meaning of the Family Law Act, or “FLA”) is owned by a spouse with one or more third parties in joint tenancy, the joint tenancy is deemed to have been severed immediately before that spouse’s death (FLA, s. 26(1)).
In most situations, severing a joint tenancy is not that simple, and litigation often arises. The leading case in Ontario on severing a joint tenancy is Hansen Estate v. Hansen, a Court of Appeal decision in 2012. It reinforced the English laws arising from the famous 1864 decision of Williams vs. Hensman, which sets out three methods by which a joint tenancy could be severed. Chief Justice Winkler in Hansen reduced it down to these three rules:
Rule 1: unilaterally acting on one’s own share, such as selling or encumbering it;
Rule 2: a mutual agreement between the co-owners to sever the joint tenancy; and,
Rule 3: any course of dealing sufficient to intimate that the interests of all were mutually treated as constituting a tenancy in common.
Rule 1: Unilaterally Severing the Joint Tenancy
An individual who owns a property as a joint tenant with another individual may unilaterally sever the joint tenancy by transferring their share of the property to someone else or by transferring their share to themselves. In Ontario, this can be completed by registering a new transfer on title. The registration of the new transfer in this regard will automatically sever the joint tenancy wherein the property owners would then hold title as tenants in common instead of as joint tenants.
This rule applies to all properties, including the matrimonial home. Pursuant to the Family Law Act, an owner of the matrimonial home cannot dispose of or encumber a matrimonial home without his/her spouse’s consent. However, in Horne v Horne Estate (1987), the Ontario Court of Appeal held that a conveyance by one joint tenant to himself or herself for the purpose of severing the joint tenancy does not “dispose of” an “interest” in a matrimonial home (within the meaning of section 21 of the FLA). The court found that, although the right of survivorship is thereby eliminated, each spouse nonetheless continues to hold his or her proprietary right to an undivided one-half interest in the property. Thus spouses who wish to leave their share of a matrimonial home to someone other than their spouse (e.g. a child from a previous marriage), can do so by registering a transfer to themselves severing the joint tenancy.
Rule 2: Written Agreement
If the co-owners of a property reach a writtenagreement to sever the joint tenancy, then this will constitute sufficient grounds to prove severance. This may be the most efficient way to sever the joint tenancy. However, to make the severance known to the public (or third parties), the parties should ensure that the title registration be changed as well.
Rule 3: Course of Dealing
Finally, there may be a severance of joint tenancy by any course of dealing sufficient to intimate that the interests of all were mutually treated as constituting a tenancy in common. Rule 3 operates so as to prevent a party from asserting a right of survivorship where doing so would not do justice between the parties.
The application of Rule 3 is the focus in Hansen Estate v. Hansen. The case involved a married couple — the wife Barbara Lorraine Hansen, and the deceased husband, Willy Hansen — who held title to their matrimonial home as joint tenants. They were in the process of separating and dividing their matrimonial assets when Mr. Hansen died. At the time of his death, legal title to the home remained a joint tenancy. After Mr. Hansen died, Mrs. Hansen claimed exclusive ownership of the home through the right of survivorship. However, two of the husband’s daughters from a prior marriage, who were the trustees of Mr. Hansen’s estate, viewed that the joint tenancy was severed before their father died and that he therefore held the home with his wife as tenants in common. As such, upon their father’s death, his one-half interest in the matrimonial home devolved to his estate. Under the terms of his will, drawn shortly before his death, the husband left his entire estate to his four daughters.
The Court of Appeal held that in the months immediately prior to Mr. Hansen’s death, he and the respondent engaged in a course of conduct that involved separating their lives and dividing their assets. Thus the wife’s assertion of a right of survivorship was entirely inconsistent with the couple’s mutual intention to divide the property interests and hold interests in common rather than jointly. Furthermore, in the context of negotiations between spouses who are in the midst of a marriage breakdown, the court found that even failed or uncompleted negotiations could lead to a severance because “the negotiation of shares and separate interests represents an attitude that shows that the notional unity of ownership under a joint tenancy has been abandoned”.
It is noteworthy that in Hansen, it was not enough for Mr. Hansen to pass on his share of the property to his daughters through his Will. In Ontario, a joint tenancy cannot be severed by testamentary disposition alone. However, a provision in a Will can be a pertinent piece of evidence that could be used to help discern whether there was common intention to treat joint tenancy as severed.
Among the three Rules, Rule 3 is the least certain and may easily give rise to litigation. Thus, in situations where one spouse desires to leave their property to someone other than their spouse, it would be wise to consider using Rule 1 or Rule 2.
Risk of not severing joint tenancy
When a couple separates, their properties will normally be equally divided between them. With the untimely death of a party, any of his/her interest in a joint tenancy may be bestowed to the surviving party by way of survivorship. Often times this is not what a separated spouse wants.
For this reason, one should seriously consider severing the joint tenancy upon separation. Separated spouses should also make their intention known that they will divide their joint assets and matrimonial property. While a simple commencement of a court action has been determined to be a dealing which negates the joint tenancy in certain situations, it would be prudent to take active steps to sever the joint tenancy if one no longer wishes for the automatic right of survivorship to take place, and they are willing to abandon their own potential benefit of same. This can be done by simply transferring one’s interest in the property onto himself/herself.