For years the standard advice of many business lawyers to clients about to incorporate has been to ensure they don’t own real property in their names. For many, this has meant transferring their interest in the home to their spouse.
Recently, an alarm has gone off as the Ontario Courts have permitted an argument to be made (it hasn’t succeeded yet) that following that advice may result in it having no effect as the intention was to protect the property from creditors of the individual.
To be clear, this only becomes an issue if the individual has done something which attracts personal liability, such as failing to pay taxes, breach of trust, and other specific actions.
This is of concern, however, because to date, the transactions have only been set aside when there was a claim that reasonably was known against the individual, not a situation of no claim, but simply prudent planning.
We have yet to see how this all plays out. If it results in the transfer of the family home to the spouse being set aside, there are going to be a lot of lawyers changing advice that has been given out for a very long time.
In the interim, if you’re considering purchasing your first home and you own a business, reach out to a lawyer to discuss your personal situation and how the decision of the Court, if it sets aside the transfer, could impact you.
Inga B. Andriessen, Principal Lawyer