If the down payment for spouses differs when purchasing a property, here is a story demonstrating the importance of planning how the net proceeds from the sale will be shared upon resale of the property.
When common-law partners purchase a residence and their financial contribution differs, it is common for them to neglect to plan how the net sale proceeds will be divided upon the resale of the property.
For example, a couple who have been living together for 4 years buy a plot of land to build a residence. No co-ownership agreement is signed. The man, in addition to his $60,000 investment in the land purchase, contributes $80,000 towards the construction. He later pays over $170,000 for the interest, taxes, and repayment of the loan capital. By mutual agreement, the woman quits her job to care for the two children at home. After living there for 5 years, she leaves the residence with the children.
The man then files a request for partition with the Court*. He asks the court to set the sale price at $305,000 and to reimburse him $298,000 from the sale proceeds. On her side, the woman requests an equal division of the proceeds.
Considering the absence of a written agreement between the parties, the court, relying on previous case law, concludes:
- that the $60,000 investment and the $80,000 used for construction by the man constitutes a gift (donation);
- "that taking care of the children's education and the maintenance of the residence can, depending on the circumstances, be a form of contribution to the financial obligations related to a jointly owned property."
The Court, reminding that "one cannot change the rules of the game retroactively because a breakup has occurred," orders that half of the net sale proceeds be paid to the woman.
When two common-law partners jointly purchase a residence, it is advisable to sign a co-ownership agreement, otherwise their love relationship could become an infernal trio with the intrusion of a third party: a court!
*C.A. 200-09-008249-143
