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Divorce and the division of assets are anything but simple. While Ontario law requires that assets be distributed equitably, there are cases in which one spouse is the legal title holder of a piece of property that ends up benefiting them unfairly as a result. In these cases, courts turn to an equitable remedy in the law called a constructive trust which is designed to remedy a situation in which someone was wronged.
What Is Constructive Trust?
A constructive trust is an equitable remedy in which a court “constructs a trust” to remedy the unjust enrichment of one party over another. In the family law context, it is typically created to make up for inequity in the division of assets at the end of a marriage or common-law relationship where one spouse was unjustly enriched as the owner of a property that the other spouse contributed to either financially or through their own labor.
Ontario law requires the equitable distribution of assets upon the dissolution of a marriage. However, there are instances where the spouse who owns a parcel of property will be unjustly enriched, for example because the value of the property increased significantly after the date of the parties’ separation. Further, there is no equalization of property rule for non-married couples or common-law couples. In these cases, the spouse or partner who was not the legal title holder of the property may be compensated using a constructive trust.
There are many ways in which the non-title holder spouse may have contributed to the value of an asset resulting in the unjust enrichment of their spouse. For example:
- One partner paid for a capital improvement on a house owned by the other
- One partner did unpaid labor in the business owned by the other
- One partner spent their time raising children and caring for the home while the other built and operated their business
- One partner used their income to support the household while the other saved their entire income.
In these instances, the labor or financial contributions of one spouse benefited the value of the property owned by the other. If the title-holder spouse were allowed to keep the entire benefit, they would be unjustly enriched to the detriment of their spouse.
Basis for a Constructive Trust Claim
Under the Family Law Act, spouses may claim half of the increase in any property owned by the other spouse during their marriage up to the valuation date. In cases where spouses don’t have joint title to an asset, a constructive trust may sometimes be used to make up for the difference of any value increase occurring between the date of separation and the date of trial. If not for the constructive trust, the owner spouse would sometimes unfairly receive a windfall. The courts may use a constructive trust to assign an ownership interest to the non-owner spouse in cases where a monetary award would be unfair or insufficient, but in the vast majority of cases, this will be unnecessary.
Constructive Trust as a Remedy for Unjust Enrichment
When seeking to prove the need for constructive trust because of unjust enrichment, the spouse seeking the constructive trust must show unjust enrichment occurred by:
- Enrichment to the owner spouse
- A resulting deprivation to the non-owner spouse; and
- No reason in law or justice for the enriched spouse to keep the benefit (because, for instance, it was a gift).
If unjust enrichment can be shown, it is useful to determine whether there was a joint family venture through mutual effort, economic integration, actual intent to intertwine their lives economically and the extent to which the parties prioritized their family in their decision-making as well as the reasonable expectations of the parties.
The longer the relationship or cohabitation, the higher the likelihood that the court will find a need to create a remedy in favor of the non-owner spouse. If unjust enrichment can be shown, the court will decide if the non-owner party can be made whole through a simple monetary award or a constructive trust is necessary to give the non-owner an interest in the owner party’s property. In order for a judge to award a constructive trust, it must be demonstrated that a monetary award would be insufficient and that there is a causal connection between the claimant’s contributions and the acquisition, maintenance or improvement of the property in question.
Unjust enrichment, both as a concept and as an action, enables a more precise and rational formulation of methods for reversing wrongful retentions of property.
Schedule a Free Consultation With a Family Law Lawyer at Gelman & Associates
To prevent unpleasant litigation and to protect your financial interests, common-law couples may set out a cohabitation agreement that sets out agreed upon terms for the division of property in the event of a separation. The talented family law lawyers at Gelman & Associates bring years of experience to the table and can assist you in the most complicated of family law and asset division matters. Visit the firm’s blog for more information about cohabitation agreements and the division of asset. Our lawyers are here to answer your questions and provide qualified and compassionate legal advice to those experiencing family conflict in Ontario.
Contact our exceptional family law lawyers at Gelman & Associates to learn how we can help protect your rights and assets during a separation, divorce, or any other family law matter.
FAQs on Unjust Enrichments and Constructive Trusts
Unjust enrichment is the principle that one party has received a benefit from the other party without paying that party the proper restitution required under the law.
You must prove enrichment by one party to the deprivation of another without any reason in justice or equity.
You may show that the enrichment to the benefited spouse was done as a gift.