Ontario Court of Appeal allows wife’s claim over husband’s creditor in sale of matrimonial home

The Ontario Court of Appeal has confirmed that the wife is entitled to a one-half share in the sale proceeds of the matrimonial home, despite a third-party creditor’s outstanding claim against the husband.

In Senthillmohan v. Senthillmohan, 2023 ONCA 280, Subhathini and Sockalingnam Senthillmohan were married but are now separated. The wife commenced an application seeking an unequal division of the parties’ net family property or an equalization of net family property and the sale of their matrimonial home. The parties owned the matrimonial home as joint tenants. The court granted an order directing the sale of the matrimonial home and that the net proceeds be held in trust pending further agreement between the parties or court order.

A third-party creditor had obtained a default judgment against the husband in a civil action. The creditor filed a writ but agreed to temporarily lift the writ to facilitate the sale of the matrimonial home. The house ultimately sold for $1.9 million.

The wife brought an urgent motion in the family action to sever the joint tenancy in the matrimonial home, which the judge granted. Consequently, each former spouse held the title to the matrimonial home as tenants in common.

The wife brought a motion asking for the release of her 50 percent share of the net sale proceeds, which the third-party creditor opposed, arguing that the former spouses were joint tenants when the creditor obtained the default judgment and when it filed the write. As a result, the creditor asserted that it had priority over the wife’s interests in the sale proceeds.

The motion judge rejected the creditor’s argument, finding that the joint tenancy had been severed when the creditor obtained the default judgment against the husband.

The creditor appealed to the Ontario Court of Appeal, arguing that the motion judge committed an error in concluding that the joint tenancy of the matrimonial home was retroactively severed and that the wife had priority entitlement over the creditor’s writ. The creditor also argued that the judge failed to consider the writ attached to the full proceeds of a voluntary sale of the jointly owned home.

The appeal court ultimately dismissed the creditor’s appeal, finding that a creditor cannot seize the interest of a non-debtor joint tenant. The court said that the creditor fundamentally misunderstood the law of creditors’ remedies against jointly-held property where only one of the owners guaranteed the debt.

The creditor argued that because joint tenants are essentially one owner until the joint tenancy is severed, a creditor has the right to claim against the full interest. The court explained that the process of seizure and execution on debts in Ontario only contemplates the execution against the debtor’s exigible interest in the land held in joint tenancy. The court also said that if the parties jointly hold property and one joint tenant dies, the remaining tenant acquires the entire interest in the property through their right of survivorship. Further, the court explained that if a creditor files a writ against jointly held land before the debtor joint tenant’s death, it does not continue to bind the surviving non-debtor’s complete interest in the property acquired through their right of survivorship.

Accordingly, the court concluded that the wife is entitled to her half-share of the net proceeds from the sale of the matrimonial home.