No pre-nup? The Division of Property in Common Law Separations, Kerr v. Baranow

A common law relationship is when two people live together in a marriage-like relationship. The two people can be of the same sex or the opposite sex. For Ontario family law purposes, you must cohabitate for 3 years, or have a child and a relationship of some permanence. Despite the decreased rate of marriage and the corresponding increase in common-law unions, legislatures have declined to extend marital property sharing to common law couples.  Upon a marriage ending, there is an automatic right to equalize family property acquired during the marriage; if you are in a common law relationship, you have no such right in Ontario. In most common law provinces, two main legal mechanisms are available to address the property consequences when a breakdown occurs in the domestic relationship between unmarried persons: the resulting trust and the action in unjust enrichment.

Resulting trusts relevant to domestic situations arise from gratuitous transfers in two types of scenarios: the gratuitous transfer of property from one partner to the other without consideration, and the joint contribution by two partners to the acquisition of property, title to which is in the name of only one of them. The underlying legal principle is that a property interest may result from contributions to the acquisition of a property, which were not reflected in title. Added to this principle is the common intention resulting trust, the idea that a resulting trust may arise based on the common intention of the parties that the non-owner partner was intended to have an interest. Last month, in Kerr v. Baranow, 2011 SCC 10 the Supreme Court of Canada (SCC) held that the role of the common intention resulting trust in claims by domestic partners was doctrinally unsound, highly artificial and evolved from a misreading of imprecise language. While traditional resulting trust principles may well have a role to play in the resolution of property disputes between unmarried domestic partners, the Court decided that the “time has come to acknowledge that there is no continuing role for the common intention resulting trust.” The Court then recognized  the law of unjust enrichment and remedial constructive trusts as a “much less artificial, more comprehensive and more principled basis to address claims for the distribution of assets on the breakdown of domestic relationships.” (at para. 28)

There are three requirements for an unjust enrichment claim: (1) enrichment (which can include the provision of domestic services); (2) a corresponding deprivation; and (3) the absence of a juristic reason for the enrichment. With respect to the third requirement, the plaintiff must show that no juristic reason from an established category exists to deny recovery. Established categories include: contract; disposition of law; donative intent; and other valid common law, equitable or other statutory obligations. If there is no juristic reason from an established category, then the plaintiff has made out a prima facie case under the juristic reason component of the analysis. This case is rebuttable where the defendant can show that there is another reason to deny recovery (de facto burden of proof on defendant). Regard should be given to autonomy of the parties, the legitimate expectations of the parties and public policy considerations.

If these requirements are met, the concern for the nature of the remedy (restitution) arises. While a monetary award will be sufficient to remedy the unjust enrichment in most cases, two issues arise in determining appropriate compensation. The first difficulty arises where there has been a mutual conferral of benefits. The second difficulty arises in determining whether the value of monetary damages should reflect a quantum meruit or “value received” basis – the value of the services received – or a “value survived” basis – the value amount by which the couple’s wealth has increased during the relationship.  The remedy of constructive trust arises, where monetary damages are inadequate and where there is a link between the contribution that founds the action and the property in which the constructive trust is claimed.

In its decision, the SCC clarified three areas in the law of unjust enrichment. First, the Court held that when the choice has been made to award a monetary remedy, the quantification of that remedy is to be upon a “value survived” basis. Restricting the monetary remedy to a “value received” calculation is inappropriate as it not only fails to reflect the reality of the lives of many domestic partners, but it presents a remedial dichotomy – that is, whether to impose a constructive trust or to order a monetary remedy calculated on a quantum meruit basis – which is inconsistent with the inherent flexibility of unjust enrichment and the Court’s approach to equitable remedies and  ignores the historical basis of quantum meruit claims. The second area that the Court clarified was with respect to the mutual conferral of benefits. In the context of an unjust enrichment claim, the mutual exchange of benefits should mainly be considered at the defence and remedy stages of the analysis. However, mutual benefit conferral may also be considered at the juristic reason step, but only for the limited purpose of determining whether the enrichment was just.  The last clarification concerns the role the parties’ reasonable expectations play in the unjust enrichment analysis. As with mutual benefit conferral, the parties’ reasonable expectatons have a lmited role to play in the first  step of the juristic reason analysis – that is, the stage where claimants must show that there is no juristic reason falling within any of the established categories. However, the parties’ reasonable or legitimate expectations have a larger role to play at the second step of the juristic reason analysis – that is, where the defendant bears the burden of establishing that there is a juristic reason for retaining the benefit that does not fall within the existing categories.

The two appeals in Kerr dealt with common law relationships of more than 10 years. Given the similarities in domestic relationships between married couples and common law couples, it is not surprising then that many people mistakenly believe that the rights upon separation between a married couple and a common law couple are the same. This is not the case. Not only is the division of property dependant on the judge-made legal concept of unjust enrichment, but spousal rights, succession rights on intestacy and treatment of the matrimonial home are different. A big question to ask with respect to the different treatment between married couples and common law couples is why these differences even exist? On what sound basis should the rights of married persons be put above the rights of common law couples? While the Kerr decision does not answer these policy questions, it is an important judgment in the realm of family law and does much to promote the rights of persons that find themselves ending a common law relationship. The decision clarifies important areas in the law of unjust enrichment, which formerly caused much confusion. Hopefully, the practical effects of this decision will allow common law couples to enforce their rights during the separation process in a tme efficient and inexpensive manner.