Earlier this week I blogged about the recent Senthillmohan v. Senthillmohan, 2023 ONCA 280, decision which dealt with whether a creditor can seize more than 50% of real property that is held on a joint-tenancy when the debt is only owed by one of the joint-tenants. Although Senthillmohan appears to confirm the creditor cannot seize more than 50% of the property when the debt is only held by one joint-tenant, what happens if the joint-tenant who owes the debt dies before the creditor seizes their interest? Can the creditor still seize the 50% of the property that would have been owned by the debtor during their lifetime, or does the fact the property would have passed by right of survivorship to the surviving joint-tenant on death mean the creditor can no longer seize any interest in the property?
In Re Cameron Estate, 2011 ONSC 6471, the court was required to consider just such a scenario when, after the death of a joint-tenant, it was discovered there were insufficient assets in their estate to satisfy all debts. A creditor to whom the deceased joint-tenant owed money attempted to argue the property that passed to the surviving joint-tenant on death could be clawed back into the estate to satisfy the debt, arguing: (1) the transfer constituted a “transfer under value” within the meaning of s.96 of the Bankruptcy and Insolvency Act; and (2) the deceased joint-tenant’s estate held an interest in the property by way of constructive trust.
The court ultimately rejects both arguments, confirming the property which had passed by right of survivorship was not available to satisfy the deceased joint-tenant’s debts. In rejecting the creditor’s claims against the property the court provides the following summary of what occurs when a joint-tenant dies:
“When one joint tenant dies, its interest in the property is extinguished, and the rights of the remaining joint tenant or tenants are correspondingly enlarged. The enlarged interest immediately vests in the remaining join tenant or tenants.”
As summarized by the court in Re Cameron Estate, when a joint-tenant dies their interest is not “transferred” to the surviving joint-tenant by right of survivorship, but rather the deceased joint-tenant’s interest is extinguished and title to the property vests solely in the surviving joint-tenant. As there is no “transfer” to the surviving joint-tenant there can be no transfer undervalue, such that there can be no “transfer under value” within the confines of the Bankruptcy and Insolvency Act. The surviving joint-tenant now has a 100% interest in the property free and clear of the potential unsecured debts of the deceased joint-tenant.
Thank you for reading.