Using Prenuptial Agreements to Protect Real Estate Assets in Ontario

Why Real Estate Assets Need Special Attention in Prenuptial Agreements

High Value and Long-Term Appreciation of Real Estate

Ontario’s real estate market has consistently shown strong growth, particularly in urban centres. A home purchased years before the marriage could appreciate significantly over time, potentially resulting in substantial equity. Without a prenuptial agreement, this increased value may be shared equally between spouses under Ontario’s property equalization rules—even if only one person contributed financially.

By outlining specific terms in a prenuptial agreement, individuals can ensure that property acquired before marriage remains theirs, including any increase in its value. This helps prevent unintended financial consequences and provides clarity from the outset.

Emotional Attachment to Family Cottages or Inherited Property

Beyond financial worth, real estate often holds sentimental value. A family cottage passed down through generations or a childhood home might be priceless in emotional terms. These properties may also involve shared ownership with other family members, making it even more important to keep them outside the marital asset pool.

Prenuptial agreements can stipulate that such properties—and their associated appreciation—remain excluded from the equalization process. This ensures that family legacies are preserved and not subject to division in the event of separation or divorce.

Ontario’s Treatment of the Matrimonial Home Complicates Asset Protection

Under Ontario’s Family Law Act, the matrimonial home receives unique treatment. Regardless of who owns it or when it was acquired, both spouses typically have an equal right to possess and share its value upon separation. Even if the home was solely owned by one party before marriage, its value may be included in the equalization of net family property, and the owner cannot deduct its pre-marriage value.

Protecting Premarital Real Estate in a Prenup

How to Identify and Document Property Owned Before Marriage

A foundational step in protecting real estate is clearly identifying all property owned before the marriage. This includes:

• Primary residences, secondary homes, and investment properties
• Cottages or vacation homes
• Any property acquired through inheritance or gifts (which may be excluded under certain conditions)

The prenuptial agreement should include:

• A detailed list of all premarital real estate holdings
• Supporting documentation, such as property titles, mortgage statements, appraisals, and purchase agreements
• Photographic evidence or a formal property inventory where relevant

This not only provides clarity but also serves as proof in the event of a dispute.

Strategies for Excluding Appreciation or Rental Income from Equalization

While property brought into the marriage may be excluded from equalization, any increase in value or income generated (e.g., rental income) during the marriage may be considered part of net family property—unless the prenup specifies otherwise.

A strong prenuptial agreement can:

• Specify that any appreciation in the property’s value remains the sole asset of the original owner
• Clearly state that rental income or profits from the property are not subject to sharing
• Stipulate that no contributions from the other spouse (financial or labour) create a right to ownership or a constructive trust claim

These clauses must be fair, based on full financial disclosure, and preferably reviewed by both parties’ legal counsel to be enforceable.

Role of Separate Bank Accounts and Title Ownership

Keeping property-related finances separate throughout the marriage strengthens the enforceability of prenuptial terms. For example:

• Use separate bank accounts for property-related income and expenses
• Avoid co-mingling rental income or proceeds with joint marital funds
• Maintain the original title ownership (in individual name only) for premarital properties

Inherited or Gifted Property: Special Considerations

How Prenups Can Protect Real Estate Received Through Inheritance

Under Ontario law, property acquired during the marriage through inheritance or as a gift from a third party is typically excluded from the net family property calculation—unless it becomes the matrimonial home. This exception is critical: if inherited property is used as the couple’s primary residence, its value becomes fully shareable.

A prenuptial agreement can:

• Reaffirm that any real estate acquired through inheritance will remain the exclusive property of the recipient
• Clarify that appreciation or income from inherited property will also be excluded from equalization
• Prevent the other spouse from later claiming a constructive trust or unjust enrichment if they contributed to its upkeep or renovation

These clauses are especially important when the inheritance is expected during the marriage and not yet received at the time of signing.

Preventing Co-Mingling That May Trigger Equalization

One of the most common ways inherited or gifted property loses its exempt status is through co-mingling. For example:

• Using joint funds to pay for renovations, mortgage payments, or taxes
• Adding the other spouse’s name to the property title
• Moving into the inherited property and using it as the matrimonial home

To avoid this:

• Keep inherited properties solely in the name of the receiving spouse
• Use separate accounts for all property-related income and expenses
• Avoid joint decision-making or labour contributions without a clear agreement in place

A well-drafted prenuptial agreement can help reinforce the original intent and protect the exempt status of the property.

Clarifying Intentions in Both Prenup and Will

Estate planning and prenuptial agreements should work hand-in-hand, especially when real estate is involved. While a prenup governs rights on separation or divorce, a will dictates what happens upon death. In blended families or when there are children from previous relationships, failing to align these documents can result in legal challenges.

Key strategies include:

• Clearly stating in the prenuptial agreement that inherited real estate is not to be shared upon relationship breakdown
• Specifying who inherits the property upon death in your will or trust
• Coordinating with an estate lawyer to ensure consistent language across all legal documents

Addressing Shared Real Estate Purchased Before or During Marriage

Setting Ownership Proportions in the Prenup

One of the most important protections a prenup can offer is clarity on ownership shares. Whether you’re buying a home together before the wedding or investing in a property later in the marriage, it’s wise to:

• Clearly state who owns what percentage of the property
• Define whether those proportions are fixed or subject to change over time (e.g., if one partner makes a larger contribution later)
• Address whether future increases in value will be split according to ownership share or equally

For example, if one partner pays 70% of the down payment, the agreement can state that they will retain 70% of the equity upon sale or separation—provided this is supported by proper records and legal drafting.

Handling Mortgage Contributions, Renovations, and Maintenance Costs

Joint property ownership often involves unequal contributions to expenses. A prenuptial agreement can:

• Outline how mortgage payments will be shared
• Clarify whether one spouse’s contributions to renovations or upgrades entitle them to a greater share of the property’s value
• Specify who is responsible for maintenance and repair costs

This section of the prenup should also address what happens if one party pays the entire mortgage or if the other contributes labour or sweat equity (e.g., doing the renovations themselves). Without clear terms, this could give rise to claims for unjust enrichment or constructive trust.

What Happens to Jointly Owned Real Estate Upon Separation

In the event of separation or divorce, joint ownership of real estate can lead to conflict—especially if the parties disagree on whether to sell, buy each other out, or continue co-owning the property. A prenuptial agreement can proactively set out:

• Buyout rights, including valuation methods and timelines
• Whether the property must be sold and proceeds divided, or whether one party has the right of first refusal
• How disputes about sale or pricing will be resolved (e.g., through mediation or arbitration)

The agreement should also consider what happens to rental properties or jointly owned cottages—especially if one partner wants to keep the property and the other wants to sell.