Back

The Definition of Encumber in s. 21 of the Family Law Act

February 16, 2022

Ontario

,

Canada

Issue

Can a spouse rent the matrimonial home to a third party without the other spouse's consent if the matrimonial home is in the lessor spouse's name alone?

Conclusion

No cases were located in which a spouse who solely owned the matrimonial home rented the property without the consent of the other spouse. However, s. 21 of the Family Law Act and cases in which this provision has been interpreted in other contexts may offer some guidance.

No spouse shall dispose of or encumber an interest in a matrimonial home unless,

(a) the other spouse joins in the instrument or consents to the transaction;

(b) the other spouse has released all rights under this Part by a separation agreement;

(c) a court order has authorized the transaction or has released the property from the application of this Part; or

(d) the property is not designated by both spouses as a matrimonial home and a designation of another property as a matrimonial home, made by both spouses, is registered and not cancelled. (Family Law Act)

The term "encumber" in s. 21 of the Family Law Act must be given its ordinary meaning as a burden on property, a claim, lien or liability attached to property. It is not the indirect results of commercial transactions which s. 21(1) seeks to engage but rather direct transactions relating to the matrimonial home, such as the sale or mortgaging by a spouse of his or her interest in the matrimonial home, without the consent of the other spouse. (Bank of Montreal v. Bray)

"Encumbrance" is defined as any right to, or interest in, land which may subsist in another to diminution of its value, but consistent with the passing of the fee by conveyance. ... A claim, lien, charge, or liability attached to and binding real property; e.g. a mortgage; judgment lien; mechanics' lien; lease; security interest; easement or right of way; accrued and unpaid taxes. (Walduda v. Bell)

Provided the sole owner of the former matrimonial home is no longer a spouse at the date of the transaction, s. 21 of the Family Law Act does not require the consent of the owner's former spouse to the transaction. “Spouse” is defined in the Family Law Act and means two persons who are married to each other. (Hamad v. Al-Rewashdy)

Where the first spouse does not have a property interest in that matrimonial home, consent is required so that the right of possession in the matrimonial home under Section 19 of the Family Law Act is not jeopardized without his or her involvement. (Murray v Bortolon)

Law

Section 21 of the Family Law Act, RSO 1990, c F.3 provides:

Alienation of matrimonial home

21 (1) No spouse shall dispose of or encumber an interest in a matrimonial home unless,

(a) the other spouse joins in the instrument or consents to the transaction;

(b) the other spouse has released all rights under this Part by a separation agreement;

(c) a court order has authorized the transaction or has released the property from the application of this Part; or

(d) the property is not designated by both spouses as a matrimonial home and a designation of another property as a matrimonial home, made by both spouses, is registered and not cancelled. R.S.O. 1990, c. F.3, s. 21 (1).

In Bank of Montreal v. Bray, 1997 CanLII 545 (ON CA), the husband became indebted to the bank while the matrimonial home was still held in joint tenancy with his wife. The husband then fraudulently conveyed his joint tenancy interest in the matrimonial home to his wife alone. The husband died before the bank could get its writ of execution against him. The bank claimed the husband's fraudulent conveyance of the matrimonial home severed the joint tenancy prior to the husband's death and the bank could therefore pursue its judgement against the husband's 50% interest in the matrimonial home. At trial, the guarantee given by the husband to the bank without the consent of his wife, was found to violate s. 21(1) of the Family Law Act, RSO 1990, c F.3. Rosenberg J.A., for the majority of the Court of Appeal, overturned this finding:

35 Finally, in my view, the motions judge erred in holding that the term "encumber" in s. 21 of the Family Law Act applied to either the guarantee or the acknowledgment. If the motions judge is correct then taken to its logical conclusion no spouse could enter into any unsecured financial transaction without violating s. 21 of the Family Law Act unless he or she had the consent of the other spouse. Even as simple a transaction as purchasing goods on credit could eventually lead to summary judgment against the spouse and ultimately execution against his or her interest in the matrimonial home. The Supreme Court of Canada in Maroukis v. Maroukis, [1984] 2 S.C.R. 137 (S.C.C.) has held that the term "encumber" in s. 42 of the predecessor legislation does not apply to an execution taken by creditors of one of the parties to the marriage. It would be an odd result if the term could nevertheless be applied to an even more remote transaction such as the obtaining of a commercial loan or, as in this case, the giving of a personal guarantee by one spouse for the debts of his or her company.

36 There is no doubt that, as pointed out by the motions judge, the matrimonial home occupies a special place in family property relations. That is not, however, sufficient reason to give the term "encumber" such an unusual meaning that would seriously interfere with normal commercial transactions. It should also be borne in mind that s. 64 of the Act provides that "[f]or all purposes of the law of Ontario, a married person has a legal personality that is independent, separate and distinct from that of his or her spouse." It would seem inconsistent with this fundamental principle that by virtue of s. 21 a man or woman would nevertheless require the consent of his or her spouse before entering into any kind of commercial transaction that could result in the creation of an unsecured debt.

37 In my view, the term "encumber" in s. 21 must be given its ordinary meaning as a burden on property, a claim, lien or liability attached to property. I agree with the interpretation placed upon the term by Borins J. in First City Trust Co. v. McDonough (1993), 15 O.R. (3d) 586 (Ont. Gen. Div.) and I would simply adopt the following portion of his reasons2 at pp. 595-96:

I do not, therefore, interpret s. 21(1) of the Family Law Act as requiring that a spouse must consent to or join in every commercial transaction entered into by the other spouse to enable the party to such transaction to sell the interest of the other spouse in the matrimonial home, where the commercial transaction results in a judgment against the other spouse. It is not the indirect results of commercial transactions which s. 21(1) seeks to engage but rather direct transactions relating to the matrimonial home, such as the sale or mortgaging by a spouse of his or her interest in the matrimonial home, without the consent of the other spouse. To take any other view would place unreasonable burdens and demands on those participating in any commercial transaction, be it a credit purchase or the extension of credit by way of a loan. I find support for this conclusion in the language of s. 23(d), which enables the court to make an order setting aside "a transaction disposing of or encumbering an interest in the matrimonial home contrary to subsection 21(1) and the revesting of the interest or any part of it" [emphasis added] in the spouse who disposed of or encumbered it. If a loan was considered to be a disposition or an encumbrance, there would be no property to revest, as the borrower does not convey or secure any interest in the property by the act of borrowing the money. Different considerations may apply where the loan is secured.

In summary, on the application of the ordinary meaning of "dispose" and "encumber" in s. 21(1) of the Family Law Act, the unsecured loan from the judgment creditor to Mr. McDonough did not constitute a transaction which resulted in a disposition or encumbrance of his interest in his matrimonial home which required the consent of Mrs. McDonough or her participation as a party to the transaction. On the authority of the Maroukis case the writ of seizure and sale obtained by the judgment creditor against Mr. McDonough's interest in his matrimonial home did not create an encumbrance on the matrimonial home within the meaning of s. 21(1) of the Act. [Emphasis added.]

38 Accordingly, neither the giving of the guarantee nor the subsequent acknowledgment encumbered an interest in the Bray matrimonial home within the meaning of s. 21 of the Family Law Act and thus Mrs. Bray's consent was not required. To paraphrase question two of the special case, Mr. Bray's giving of the Guarantee or subsequent acknowledgement did not violate s. 21(1)(a) of the Family Law Act although Mrs. Bray did not give her consent to either of them.

In Walduda v. Bell, 2004 CanLII 4037 (ON SC), the wife borrowed money from her sister after the parties' separation to pay legal fees, knowing she would be unable to repay the loan. She then consented to a judgment in favour of her sister. The sister attempted to file writs of execution against the matrimonial home. Crane J. discussed the meaning of "encumber" in s. 21(1) of the Family Law Act, RSO 1990, c F.3 and found that the transactions between the wife and her sister were designed to encumber the matrimonial home contrary to the Act:

a) — Is the Execution of a Third Party an "Encumbrance"?

14 The matrimonial home occupies a special place in the statutory regime for family property, as it is both the shelter and focal point of family life, and (likely) the most significant asset owned by either spouse during marriage. Part II of the Family Law Act gives each spouse an equal right to possession of the matrimonial home, irrespective of ownership. Unilateral dealings with the matrimonial home that threaten to interfere with spousal possessory rights are subject to judicial scrutiny. Section 21 provides:

21.(1) No spouse shall dispose of or encumber an interest in a matrimonial home unless,

(a) the other spouse joins in the instrument or consents to the transaction;

(b) the other spouse has released all rights under this Part by a separation agreement;

(c) a court order has authorized the transaction or has released the property from the application of this Part; or

(d) the property is not designated by both spouses as a matrimonial home and a designation of another property as a matrimonial home, made by both spouses, is registered and not cancelled.

(2) If a spouse disposes of or encumbers an interest in a matrimonial home in contravention of subsection (1), the transaction may be set aside on an application under section 23, unless the person holding the interest or encumbrance at the time of the application acquired it for value, in good faith and without notice, at the time of acquiring it or making an agreement to acquire it, that the property was a matrimonial home.

. . . . .

(5) This section does not apply to the acquisition of an interest in property by operation of law or to the acquisition of a lien under section 48 of the Legal Aid Services Act, 1998.

15 Transactions that contravene subsection 21(1) can be set aside on application under section 23:

23. The court may, on the application of a spouse or person having an interest in property, by order,

. . . . .

(d) direct the setting aside of a transaction disposing of or encumbering an interest in the matrimonial home contrary to subsection 21 (1) and the revesting of the interest or any part of it on the conditions that the court considers appropriate; ...

16 Section 21 prohibits a spouse from disposing of or encumbering his or her interest in the matrimonial home unless the other spouse "joins in the instrument or consents to the transaction." The "instrument" referred to in subsection 21(1)(a) is the document by which the spouse disposes of or encumbers his or her interest in the matrimonial home. The "transaction" referred to in the same subsection is the actual disposition or encumbrance done with the intention to deprive Mr. Bell of possession and sole ownership of the matrimonial home and thereby altering the balance as between them in their custody battle.

17 In Black's Law Dictionary, 6th ed. (1990), "encumbrance" is defined as:

any right to, or interest in, land which may subsist in another to diminution of its value, but consistent with the passing of the fee by conveyance. ... A claim, lien, charge, or liability attached to and binding real property; e.g. a mortgage; judgment lien; mechanics' lien; lease; security interest; easement or right of way; accrued and unpaid taxes.

18 Similarly, "disposition" is defined as "[t]he parting with, alienation of, or giving up property." A Writ of Execution for Seizure and Sale, once delivered to the sheriff, binds the real and personal property of the execution debtor. As a "liability attached to and binding real property," a writ of execution undoubtedly encumbers the property to which it attaches. Is the Writ of Execution, however, an "instrument", or its registration with the sheriff a "transaction" for the purposes of subsection 21(1)(a)?

19 Mrs. Bell entered into several "transactions" to purportedly borrow money from her sister, Mrs. Walduda. The terms of these unsecured loans were set out in several demand promissory notes. These notes, however, as the "instruments" referred to in subsection 21(1)(a), did not directly dispose of or encumber Mrs. Bell's interest in the matrimonial home. Only when Mrs. Walduda filed a Statement of Claim to recover the unpaid monies, obtained Judgment on consent, obtained a Writ of Seizure and Sale in respect of Mrs. Bell's property, and registered the Writ with the sheriff, was there an encumbrance in the form of an execution against Mrs. Bell's interest in the matrimonial home.

20 Accordingly, Mrs. Bell's act of obtaining money from her sister through a series of unsecured transactions did not directly result in an encumbrance against Mrs. Bell's interest in the matrimonial home. It is settled law that, giving the words "disposition" and "encumbrance" on their plain meaning, "cannot be extended to include an execution taken by creditors of one of the parties to the marriage": Maroukis v. Maroukis, [1984] 2 S.C.R. 137 (S.C.C.), at 144, (1984), 41 R.F.L. (2d) 113 (S.C.C.) . See also First City Trust Co. v. McDonough (1993), 15 O.R. (3d) 586, 50 R.F.L. (3d) 197 (Ont. Gen. Div.); Ferguson v. Ferguson (1994), 116 D.L.R. (4th) 707 (Ont. U.F.C.); and Bank of Montreal v. Bray (1997), 36 O.R. (3d) 99 (Ont. C.A.).

[...]

27 I find as fact, that there were no "bona fide" loans, that the monies paid were gratuitous payments to support a very close relationship. I accept the characterization by Mr. Bell of his former wife and her sister as "two bodies, one head".

28 The facts in First City Trust Co. and Bank of Montreal v. Bray are distinguishable from this application. The transactions under consideration in those cases - a demand promissory note, and an unsecured guarantee of indebtedness - were bona fide commercial transactions that arose in circumstances where, at best, it could be said that the transaction gave rise to the possibility of summary judgment on the debt and subsequent execution against the matrimonial home. In neither case did the husband actively attempt to encumber the matrimonial home.

29 To enforce the legislative purpose in s.21 without interfering with ordinary commercial transactions, it is therefore necessary to distinguish between transactions that deal directly in an interest in the matrimonial home, and those that may only indirectly give rise to an encumbrance. This, on my reading, is the basis for the judgment of the Ontario Court of Appeal in Bank of Montreal v. Bray, supra, and likewise frames the reasoning in Ferguson v. Ferguson, First City Trust Co. v. McDonough and Maroukis v. Maroukis, supra.

30 The reason for drawing this distinction disappears, however, when, as in this case, the borrower knows not only that she is unable to repay the debt, but that she knows on consenting to judgment on an action to recover the debt that the lender will obtain a Writ of Execution upon the Judgment, thereby encumbering the borrower's interest in her matrimonial home. Such a transaction cannot be described as commercial, or arms length. Nor is its ultimate effect "indirect."

31 I find that Mrs. Walduda was not an arms length creditor, nor was there any commercial intent behind the loan arrangement with her sister. She actively participated at all stages in the matrimonial litigation between her sister and Mr. Bell. Mrs. Walduda actually retained and paid for successive lawyers on her sister's behalf, attended at client-counsel meetings, swore affidavits in support of her sister's claims, and made audio recordings in an attempt to obtain disclosures from the children that would prove the allegations of sexual abuse that had been made against Mr. Bell. The same allegations that were subsequently rejected as fabrications by Philp J.,after trial.

32 It was the shared intent of Mrs. Bell and Mrs. Walduda to encumber Mrs. Bell's interest in 19 Loneoak Crescent, thereby "tying up" the matrimonial home against Mr. Bell's occupancy.

[...]

43 I find that Mrs. Bell engaged in a course of conduct so as to encumber the matrimonial home contrary to s.21 of the Family Law Act.

In Hamad v. Al-Rewashdy, 2020 ONSC 2093 (CanLII), the parties had previously been married but a divorce had been granted. The wife listed for sale the former matrimonial home, of which she was the sole owner. The husband sought to register a CPL against the property on the basis that the wife was attempting to dispose of the matrimonial home without his consent contrary to s. 21 of the Family Law Act, RSO 1990, c F.3. MacKinnon J. found that s. 21 of the Act did not apply to former spouses:

[4] As it applies to this case, section 18(1) of the Family Law Act defines matrimonial home as a property that was ordinarily occupied by spouses at the time of their separation as their family residence. “Spouse” is also defined in the FLA and means two persons who are married to each other: see section1(1).

[5] The spousal rights the moving party relies on to prevent the sale of the home are found in section 21; they are clearly spousal rights and do not extend to a former spouse.

[6] Provided the sole owner of the former matrimonial home is not a spouse at the date of the transaction section 21 does not require the consent of h the owners former spouse to the transaction.

[7] The law is also well established that a claim for an equalization of net family property does not call into question an interest in land and accordingly does not entitle the claimant to a CPL.

In Murray v Bortolon, 2016 ONSC 5164 (CanLII), Emery J. examined the effect of s. 21(1) of the Family Law Act, RSO 1990, c F.3 when the matrimonial home is solely owned by one spouse in the context of an application by the husband for an interest in the matrimonial home by virtue of constructive trust:

58 I do not give any weight to Robert's argument that as a spouse having a right of possession to 28 Pavin Crescent as the matrimonial home, he somehow acquired a property interest in that property.

59 Under Section 19, both spouses have an equal right to possession of the matrimonial home under Section 19(1) of the Family Law Act. The right to possession does not convey a property interest in the matrimonial home. Section 19(2) expressly provides that, where only one of the spouses has an interest in a matrimonial home, the other spouse's right of possession is personal as against the first spouse. The right to possession is not an interest in property or a claim against title to the property itself, nor does Section 19 contain any language that provides for the creation or transmission of a right or interest in the property. The legislation further provides under Section 19(2)(b) that the right to possession terminates when the spouses cease to be spouses, unless a separation agreement or court order provides otherwise.

60 Similarly, Section 21(1) of the Family Law Act provides that no spouse shall dispose of or encumber an interest in a matrimonial home unless the other spouse joins in the instrument or consents to the transaction. This provision clearly recognises that the consent of the other spouse is required for the disposal or encumbrance of an interest in the matrimonial home. However, this statutory safeguard does not create or transmit an ownership interest in a matrimonial home owned by one spouse that the other spouse could not otherwise assert. In my view, the Act implies that where the first spouse does not have a property interest in that matrimonial home, consent is required so that the right of possession in the matrimonial home under Section 19 of the Family Law Act is not jeopardized without his or her involvement.

61 It is an undisputed fact that Nathalie had acquired, and had paid down the mortgage registered against 28 Pavin Crescent herself before the date of marriage. There was no gratuitous transfer of property or an interest in property from Robert to Nathalie, or a joint contribution by the two spouses to acquire the property, title of which was held in the name of only one of them. There was no evidence of a "common intention" for Nathalie to hold title to 28 Pavin Crescent in trust for both Robert and herself to form a resulting trust. Even if there was, Justice Cromwell stated in Kerr v. Baranow, [2011] 1 S.C.R. 269 (S.C.C.), at paragraph 29, that the concept of a resulting trust arising solely from the common intention of the parties no longer has a useful role to play in resolving property and financial disputes in domestic cases.

Alexsei publishing date:
105