CRA, ex-wife get paid before man's creditor after matrimonial home is sold
Many separated couples assume they are equal owners of their home, no matter whether both are on the title, but who actually owns the house matters if there is a separation, especially if one of the spouses has unpaid debt.
Under Canada’s constitution, property and civil rights are under provincial jurisdiction, meaning that joint tenants’ rights differ by province. A recent Ontario Court of Appeal ruling in Senthillmohan vs. Senthillmohan is a good reminder to third-party creditors about how tricky it can be to enforce a judgment against a jointly-held property.
After the Senthillmohans separated, the wife obtained a court order to sell the jointly-owned home. The net proceeds were to remain in trust after its sale. Meanwhile, one of the husband’s creditors, a numbered company, sued the husband over a debt.
The husband did not defend the lawsuit against him, and the company obtained a default judgment in September 2021 and put a lien against the home. This was not the husband’s only debt. He also owed a large tax bill to the Canada Revenue Agency.
A month after the default judgment was granted, the parties entered into an agreement of purchase and sale for the house. The ex-spouses then consented to a family court order to sever the joint tenancy. A few months later, the wife asked that her one-half share of the net proceeds be paid out to her.
The net proceeds of the sale were about $1.2 million. As the CRA has priority over other unsecured creditors when taxes are owed by a taxpayer, there was not enough to pay both the husband’s CRA bill and the $1.7-million debt owed to the numbered company.
Unsurprisingly, the company objected to the wife getting her one-half share of the net proceeds, since if the net proceeds
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