Aug 16th, 2023
Jun 8th, 2017
In Quebec, spouses married before July 1, 1970 without a marriage contract were subject to the legal regime of community of property, pursuant to the rules set forth in the Civil Code of Lower Canada. Although the provisions in question are now abrogated, spouses married under this regime continue to be governed by its rules.
Contrary to modern matrimonial regimes, said regime affected property rights, and gave rise to a deemed undivided co-ownership between husband and wife. It did not merely create rights to claim amounts of money.
Indeed, with each passing year, fewer couples remain under this regime, and consequently, the rules governing it may slowly fade from our collective memory. Even today, however, many estates open where such marriages are involved.
In such a case, it is important to remind ourselves of the very particular rules of the regime of legal community, and to not miss out on the tax planning opportunities that it offers.
During the marriage, no matter who holds title to the assets of the community, both spouses are considered to be undivided co-owners of said assets. Meanwhile, the husband has exclusive rights to administer and manage these assets and their fruits and revenues as he sees fit. It is a special case of indivision, in which the goods are affected to a specific purpose during the marriage — the interests of the family unit.
The wife’s enjoyment of her rights to the assets is very limited. In 1962, in the decision of Sura v. Minister of National Revenue,  S.C.R. 65, the Supreme Court described the nature of the wife’s rights in the community of assets during the marriage as follows:
“s’il est vrai, comme je le crois, que la femme est copropriétaire des biens communs, il est également vrai qu’elle n’a pas l’exercice de la plénitude des droits que confère normalement la propriété. […] Son droit est informe, démembré, inférieur même à celui de quelqu’un qui a la nue propriété d’un bien et dont un autre a l’usufruit. Il est stagnant, presque stérile, parce qu’improductif durant la vie du conjoint. Ce n’est qu’à la dissolution de la communauté que la femme sera investie de la plénitude de son droit de propriété, […] dont sa condition maritale l’avait temporairement dépouillée.”
The death of either one of the spouses dissolves the legal community. Upon the dissolution, the assets of the community cease to be affected to the interests of the marriage. The surviving spouse and the heirs of the deceased then remain in post-communal indivision with respect to these assets.
Thus, when dissolution occurs, there is no transmission, and the wife does not receive anything from the patrimony of the husband. The post-communal indivision subsists until there is either a partition of the community, or a renunciation to the community by the wife.
The surviving wife, or the heirs of the deceased wife, as the case may be, have the right to exercise an option regarding the community: accept it, or, subject to conditions of form and publicity, renounce to it. Specific deadlines must be followed in order to do so. The husband or his heirs, for their part, do not benefit from such an option.
Upon acceptance of the wife, her status as co-owner of the assets of the community becomes irrevocable. If she renounces to the community, on the other hand, she retroactively loses all her rights in the assets of the community, and her husband will be deemed to have always been the sole owner of the assets.
After the acceptance, partition of the community should normally occur. A complex set of rules are applicable to determine how this partition can or should be effected.
In contrast with the partition of the family patrimony or the liquidation of the partnership of acquests, the partition of the community does not create a right of claim against the other spouse for an amount based on the value of the assets at the time of dissolution. Rather, it serves to confirm the real rights of the spouses as undivided co-owners of the common assets, and to carry out the spouses’ right to partition these assets between themselves. As a result, tax planning opportunities are available to spouses married under this regime that would not otherwise be available to couples married under another regime in Quebec.
In all cases, however, in determining whether or not the wife or her heirs should accept the partition of the regime, and in deciding how to carry on such partition, careful planning should be undertaken, in light of the significant possibilities of tax deferrals allowed by tax legislation in such cases.
If properly executed, the estate could avoid paying the capital gain tax otherwise resulting from death on a significant portion of the common property of the spouses, by taking advantage of spousal rollover provisions that would otherwise be unavailable.
If you are inheriting from or liquidating an estate where the deceased got married prior to 1970, our tax, estates and civil law professionals can help you make the right decisions regarding the dissolution and partition of the matrimonial regime.