There are many reasons why assets are registered in the names of two or more parties. Title to a personal residence is typically registered in both spouse’s names as joint tenants so the property automatically transfers to the surviving joint tenant on the passing of the other owner. Title to property may be registered as tenants in common with several parties with differing ownership percentages for estate planning purposes. Registered Education Savings Plans are normally registered in both parent’s names, although contributions to the fund may be made by grandparents. Although I advise against this, vehicles are sometimes registered entirely in another person’s name for insurance purposes.
While the above ownership structures may meet your current objectives, they could have a significant negative impact if one of the owners subsequently finds themselves bankrupt.
Upon an assignment or petition into bankruptcy, the bankrupt’s assets vest in the trustee to realize for the general benefit of their creditors. Thus, if the bankrupt is registered as a joint tenant on the matrimonial home, the trustee will be obligated to realize the bankrupt’s 50% interest in any equity (subject to provincial exemptions) in the property. This may seem fair unless the non-bankrupt spouse contributed a larger portion of the down-payment and/or has been fully making the mortgage payments. The bankruptcy trustee will initially look at the registered ownership in determining the value to be realized. Legally, the non-bankrupt spouse may have remedies available, but they will be dealing with the trustee who takes direction from the bankrupt’s creditors.
The trustee will look to collapse 50% of the realizable value of an RESP that is registered jointly regardless of contributions that may have been made by other parties.
A vehicle that is registered in the name of the bankrupt will be considered an asset even if the bankrupt claims the vehicle was purchased by their son and only put in their name to save on car insurance. The son may have remedies available to prove the ownership was held in trust, but the trustee’s initial position will be this is an asset that must be realized.
Although no one foresees a future bankruptcy when purchasing assets, it is advisable to consider the above and consult with your advisors when registering ownership of assets.
By Kathy Lenart – Insolvency Partner, Licensed Insolvency Trustee
CPA, CA, CIRP
Member and Secretary of the Ontario Association of Insolvency
and Restructuring Professionals (OAIRP)
Canadian Association of Insolvency and Restructuring Professionals (CAIRP)
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