UNJUST ENRICHMENTS AND CONSTRUCTIVE TRUSTS

Introduction – Basis for a Constructive Trust claim

Family Law property division is not straight forward. Despite equalization rules that govern property division for married couples as are set out in the Family Law Act, there are still valid reasons for a married party to claim an ownership interest in real property in which legal title is held by the other partner; for instance, where the value of property has increased post separation. Further, the equalization scheme set out in the Family Law Act does not govern non-married couples or common law couples. Non-married parties are required to assert a constructive trust interest in order to claim an ownership interest in property legally held by their partner.

According to the Family Law Act in Ontario, a husband and wife are entitled to claim half of the increase in the other’s property accumulated during the marriage (between the date of marriage and date of separation/ valuation date). This is true whether the property is owned solely or jointly. Where the property is not held jointly, there is no compensation in the legislation to account for any increase in value of that property between the date of separation and trial (i.e. the non-owner spouse presumptively loses out on the increase). But in not all cases is the owner spouse entitled to this windfall. In some cases, despite ownership as registered on title, the courts can award an ownership interest to the non-owner spouse by way of “constructive trust”.

What is Constructive Trust

A constructive trust is an equitable remedy in which the court “constructs a trust” in favour of the non-owner spouse.

Example:

Rawluk v. Rawluk, is a 1990 Supreme Court of Canada decision. The Rawluks were married and had lived and worked together for 29 years. They had a farm and a farm equipment sales and service business. The wife had assumed a large role in the operation of the farm and business. On the date of separation, the couple had a number of properties, which were mostly registered in the name of the husband. During the time between their separation and trial,123~ the value of the properties had risen dramatically.

The trial judge, the Court of Appeal and the majority of judges in the Supreme Court of Canada held that the property in question was impressed with a constructive trust, which entitled the wife to participate as an owner in the increase in the property after separation.

These constructive trust principles are applicable in cases where a non-owner spouse has made contributions to a family business or to property owned on title by the other spouse.

It is particularly applicable where a spouse has provided services, without compensation or at undervalue to a property (financial, labour, etc.) or in a business (akin to an employee).

Examples of Contributions

You may have made contributions to the property. Some examples include:

• you paid for a new roof on a house owned by your partner
• you built a deck on a house owned by your partner
• you managed all the bookkeeping for your partner’s business
• you cared for the children and home which allowed your partner to spend time and money growing their business
• you paid all the household bills and your partner put all their money into savings

Unjust Enrichment, Quantifying Monetary Awards and Set-Offs

In Vanasse v. Seguin, the couple separated after a 12-year common law relationship. The trial judge found that Mr. Seguin had been unjustly enriched at Ms. Vanasse’s expense during the period in which their children were born, but found no unjust enrichment for the rest of the time that they cohabited. The trial judge awarded half of the value of the wealth accumulated during the period of unjust enrichment. The Court of Appeal set aside that award on the basis that the award should be calculated by determining the value of the services that each party had contributed, and setting them off against each other. Accordingly, the key issue on appeal to the Supreme Court of Canada was how to quantify a monetary award for unjust enrichment.

Elements To Prove Your Claim

The court’s finding of constructive trust requires the claimant to prove three elements:

• An enrichment (to the owner spouse);
• A corresponding deprivation (to the non-owner spouse); and,
• No juristic reason for the enrichment (an exception for which the courts do not feel the enrichment should be returned, such as where the enrichment was a gift).

Prior to determining whether a constructive trust remedy exists, one must first establish that a case of unjust enrichment has been made.

Unjust enrichment occurs when Party A confers a benefit upon Party B without Party A receiving the proper restitution required by law.

The Supreme Court of Canada set out the law on unjust enrichment arising from a common law relationship in Kerr v. Baranow:

The court: (i) determines if there has been an unjust enrichment, by determining whether the defendant has been enriched and the claimant has suffered a corresponding deprivation; if so then (ii) there must be no reason in law or justice for the defendant to keep the benefits conferred by the claimant.

If an unjust enrichment has been established, the concept of a “joint family venture” becomes relevant when considering a remedy. In considering whether a joint family venture exists, the court must consider:

• Mutual effort: did the parties pool their efforts and work towards a common goal?
• Economic integration: how extensively were the parties’ finances integrated?
• Actual intent: did the parties intend to have their lives economically intertwined?
• Priority of the family: to what extent did the parties give priority to the family in their decision making?
• Reasonable or legitimate expectations: Did the parties expect that one party would benefit from the joint arrangement? Did any agreement exist to this effect?

Onus

The claimant bears the onus of establishing whether there has been unjust enrichment and a joint family venture.

Remedies

Once the claimant has proved each of the three elements of unjust enrichment, then the remedy may be either a constructive trust or a monetary award. A constructive trust remedy gives the claimant an interest in the other spouse’s property.

For a judge to order a constructive trust remedy, the claimant spouse must show that:

• There is a causal connection between their contributions and the acquisition (purchase), preservation, maintenance or improvement of the property in question, and
• That a monetary award would not besufficient.

If the claimant cannot demonstrate that a constructive trust is appropriate, then a monetary order is usually awarded instead. The Supreme Court of Canada has stated that in family situations, when determining the amount of a monetary award for an unjust enrichment claim:

• The Court is not restricted to applying a fee-for-services approach, and
• Where the unjust enrichment is best characterized as one party retaining a disproportionate share of assets resulting from a joint family venture, it should be calculated on the basis of the share of those assets proportionate to the claimant’s contribution.

In other words, the Court recognizes that in family situations each spouse may have made extensive but different contributions to the welfare of the other. There is not, however, a presumption that unmarried couples operate as a joint family venture. Such a finding must be based on the specific facts and circumstances of the relationship. Once a claimant can show that the other spouse has been unjustly enriched by the claimant’s contributions, the court must then decide in what proportions to divide the wealth. Consequently, depending on the specific facts in each situation, calculating the value of the claimant’s contributions may not be restricted to considering the claimant to be a person hired on a fee-for-service basis (such as a nanny, cook or gardener) but rather, as a co-venturer or a partner in a joint family venture.

A claim may be made for a constructive trust, giving one partner the right to live in the family home or the right to divide property, if:

• the couple share decision-making responsibility and primary residence of a child, and lived together in a relationship of some permanence, or
• one partner contributed financially to the home by paying part of the mortgage, property taxes, repairs or upkeep, etc.

Generally speaking, the longer the relationship between unmarried cohabitees or common-law partners the more likely there is a remedy.

Steps to Take

One keyway that common law spouses can protect their financial interests is to have a cohabitation agreement in place setting out their expectations with respect to property division from the outset of their cohabitation.

Without such a cohabitation agreement, common law couples who go through a separation may very well face lengthy and very expensive court proceedings to determine whether a “joint family venture” exists, and if so, what the appropriate remedy may be.

Contact Nussbaum Law today and talk to one of our qualified lawyers to discuss your options.