La loi vos droits

Married and Civil Union Spouses - The consequences of a breakup

Compensatory Allowance

Over the years, you have worked very hard for next to nothing to help your spouse’s business succeed. It is thanks to your help that the business is flourishing. Or maybe you used your savings to renovate the house your spouse owned before you were married. Can you get back your investment or be compensated fairly for your contribution if the relationship ends?

In this Infosheet, Éducaloi explains compensatory allowance and the criteria that must be satisfied before you can be compensated.

What is a compensatory allowance?

Compensatory allowance is an equity measure that aims to compensate a spouse who is impoverished because she contributed to the enrichment of her spouse’s patrimony. It covers several situations, including where the spouse participated in a family enterprise owned by the other spouse. However, compensatory allowance is not a tool for dividing the assets between spouses.

Please note that this measure is only available to spouses who are married or in a civil union.

When can I request compensatory allowance?

You must ask for it when you file for divorce, separation from bed and board, annulment of your marriage, or dissolution or annulment of a civil union. You can also ask for it within one year following the death of your spouse.

There is an exception in the law for a spouse who participated in the other spouse’s enterprise. You can apply for compensatory allowance during the marriage or civil union if the enterprise is sold, dissolved, or liquidated.

What do I have to prove to the court to justify receiving a compensatory allowance?

You must prove the following:

• you made some contribution, regardless of its nature;
  
• how your spouse’s patrimony was enriched;
  
• the connection between your contribution and the enrichment;
  
• the proportion in which you contributed to the enrichment;
  
• your impoverishment due to this contribution; and
  
• your contribution was not justified.

In order for you to be entitled to compensation, your spouse’s patrimony must still be enriched on the date of the separation or breakdown of the marriage or civil union. It might happen that your spouse’s enterprise is worthless at the time of the breakdown, for example in the case of a bankruptcy. You would generally not be compensated if this were the case.

How will the court determine the value of my contribution?

You are not expected to have kept a complete file over the years in anticipation of your separation, so you do not need to prove exactly how much you contributed to your spouse’s patrimony.

It is up to the court to determine the value of your contribution. However, you have the burden of proving that your claim is well founded. You must be prepared to present all the facts in detail and, where necessary, to support your testimony with documentation (such as the financial statements of your spouse’s business or your tax returns).

The court will make its decision based in part on the information you and your witnesses provide. Other factors will also be considered, such as the impact of partitioning the family patrimony or dissolving the matrimonial regime.

What types of enrichment are covered?

A spouse’s patrimony can be enriched by property, or where an expense or a loss is avoided due to the other spouse’s contribution. Therefore, enrichment can take various forms: a sum of money, an asset’s increased value, the acquisition of new assets, obtaining a diploma, etc.

Keep in mind that it is not enough to simply have been very generous toward your spouse during the marriage. You will only receive a compensatory allowance if your spouse’s patrimony was actually enriched as a result.

How do I establish a causal connection between my contribution and the enrichment of my spouse?

In some cases, it is relatively easy to establish a direct connection. For example, your contribution may have consisted of investing a sum of money in a rental building owned by your spouse.

It can be more difficult to prove when other kinds of contributions are involved. How does one establish a connection between the services you provided to your spouse’s enterprise and its value? In such a case, the court will look at the extent to which you can show a correlation between the two.

Can I be refused a compensatory allowance if I contributed to my spouse’s patrimony simply because I loved him?

As explained above, in order to receive a compensatory allowance, you must show that your contribution was “not justified”.

A spouse who makes a contribution generally does so out of affection, but also hopes to benefit the family, including herself. This is not generally considered to be a justification. Rather, the concept of justification refers to situations where the spouse contributed as a result of a contract, an agreement, or some sort of exchange with her spouse.

Here is an example: Luciano leaves a well-paying job, thereby impoverishing himself, to look after his three children. In exchange, his wife Xinan, the children's mother, makes the payments for a building he owns. Xinan’s financial contribution is justified because Luciano abandoned his career, so she will not be entitled to compensatory allowance.

In what type of cases will a compensatory allowance be granted?

The court must adopt a flexible, global, and generous approach when determining whether to grant a compensatory allowance. Allowances have been awarded in numerous cases. Here are some examples:

• The wife quit her job to work in the business that her husband had started. She received no salary. The wife stayed at home after the birth of the couple’s first child to look after the baby. Two other children were later born. The wife looked after the children, enabling the husband to devote himself entirely to his business, allowing it to prosper and increase in value.
  
  
• One of the spouses owned a rental building. The other spouse carried out major renovations, thereby increasing the building’s value.
  
  
• The spouse was a career diplomat. His job required him to travel, move often, and organize or attend numerous receptions. His spouse helped him carry out his duties, accompanied him to official functions, and often replaced him in certain diplomatic activities.
  
  
• The spouse worked as a secretary and was responsible for all household expenses while the husband studied at university to become an engineer. After graduation, the husband found a job in his field at a salary well above average.
  
  
• Both spouses worked and earned about the same income. However, one of them supported the family on his income while the other one invested in commercial property in her name alone.
  
  
• The husband worked outside the home and took care of the children by himself while the wife spent her free time on leisure activities.
  
  
• A wife took care of her mother-in-law, who was older and ill, for more than seven years. Not only did this reassure her husband, but he also didn’t have to pay for caregivers or place his mother in a care-giving institution.

What impact will partitioning the family patrimony have on an application for compensatory allowance?

The spouse’s share in the family patrimony must first be established before deciding how much compensatory allowance she is entitled to (see the Infosheet entitled Family patrimony for more information). The court will take this value into account when examining an application for compensatory allowance.

Where a spouse contributed to property constituting part of the family patrimony, her share in the asset’s value is normally considered adequate compensation. If the spouse feels that the partition would nonetheless be unfairly imbalanced, she can ask for an unequal partition of the family patrimony (instead of seeking compensatory allowance).

However, if the spouse contributed to an asset excluded from the family patrimony (for example, a commercial building owned by the other spouse), compensatory allowance is a better recourse.

Here is an example: A wife invests $20,000 in a building that generates revenue but is owned by her husband. The husband reinvests the income earned from the building in the family residence and RRSPs, while the wife accumulates savings in a bank account. The partition of the family patrimony, which includes the residence and the RRSPs, will benefit the wife because she did not contribute to them. In light of this, she would probably not be compensated for her investment in the building.

How is the compensatory allowance paid?

The compensatory allowance is generally a sum of money, payable in one or several instalments. However, the court can also decide to award a property right, a right of use or occupation, the transfer of an RRSP, or the repayment of a loan.

In addition, interest on the amount is generally calculated as of the date of judgment.

Is the compensatory allowance taxable?

It all depends on how the compensatory allowance is paid. You should therefore consult a tax specialist, such as an accountant or a tax lawyer.

Can my spouse or myself claim a compensatory allowance if we are not married or living in a civil union?

No. Compensatory allowance, like the family patrimony, is an effect of marriage and civil union.

However, it largely resembles the remedy of unjust enrichment available to de facto spouses (for more information, consult the Infosheet entitled De facto spouses).