The Four Basic Steps to Matrimonial Property Division


(c) Patriot Law, 2016

When couples decide to separate and divorce, there are many issues to be dealt with.  One of these issues is how to deal with the property and debts of the relationship.

In Alberta, the legislation that deals with this for married persons is the Matrimonial Property Act.  The basic scheme involves determining the value of all property and debts, and then dividing it between the spouses.  Most property acquired during the marriage is divided equally,  (There are some exceptions, to be dealt with in another post.)

There is a simple process that we use to plan for the equal distribution of matrimonial property.  It has four basic steps:

  1. Inventory.  You start by making a list of all of the property and debts involved.  The assets include real property (your home), vehicles, bank accounts and investments, RRSPs, pensions and the like.  A business (whether a sole proprietorship, a partnership or a shares in business corporation) is also an asset.  The debts include mortgages, line of credit, vehicle loans and so on.  This first step is important, but not usually difficult.
  2. Valuation.  The next step is to take each item in the inventory and assign a value to it.  This step is important because when all of the values of the assets and debts are sorted out, we can then know the “net” value of the property (assets minus the debts) to be equally divided.  Some values will be known (for example, a savings account balance or the balance owing on a mortgage).  Some values may have to be determined, such as the value of a home or of a business owned by one of the spouses.  When the spouses cannot agree on the value to be assigned to a particular item, valuation by a disinterested third party with some relevant expertise is the best option.  Of course, there will be some expense involved in getting a valuation.
  3. Allocation.  The next step in the process of matrimonial property division is to decide what to do with each asset and debt.  There are two parts to this step.  First, you need to decide whether an asset that physically exists (such as a the home or a vehicle) will be distributed as it is (“in kind”) or whether it will be sold and converted into cash.  Second, you need to decide who gets which assets and debts by allocating them to one spouse or the other.  This includes assets that have been sold.  There may be a good reason to sell an asset and equally divide the proceeds of sale, but (contrary to the common misconception) it is not necessary (or desirable) to do this for every asset.  This part of the process allows for the most creativity by the spouses, and increases the potential for a “win-win” result: both spouses may be able to walk away with the mixture of assets and debts that is most beneficial for their future plans.
  4. Equalization.  Once you have done the allocation of the property and debts, you need to equalize any imbalance between the net amounts that each spouse receives from the allocation.  Each spouse is entitled to 50% of the net value of the property as a whole.  Therefore, if one spouse gets more than half of the net value of the property in the allocation process, then that spouse has more than he or she is entitled to.  The fix is a cash payment from the spouse who got more to the spouse who received less, in an amount to equalize them.  Here is a simple illustration.  If the net value of the matrimonial property is $800,000 in total, then each spouse is entitled to $400,000.  If the wife receives net property worth $600,000 and the husband receives net property worth $200,000 when allocating the assets and debt, then the wife will need to pay an equalization payment of $200,000 to the husband so that they both end up with their equal shares.

Overall, it has been our experience at Patriot Law that taking a methodical approach to the division of matrimonial property makes the process easier to understand and to simpler to resolve.


Pick any two …

455px-Project-triangle.svgMany years ago, I first heard the following:

“You can pick any two of the following: fast, good or cheap.”

The idea is that customers buying goods or services would like to have it all: high quality, delivered quickly and at a low price.

“Pick any two” reflects the reality from the perspective of the manufacturer or service provider.   Providing any combination of two of these three characteristics can be done relatively easily, but only by sacrificing the third element.  In other words:

  • You can have it delivered fast and at a high quality, but it won’t be cheap.
  • You can have it delivered fast and cheap, but it won’t be high quality.
  • You can have it delivered at a high quality and cheaply, but it won’t be fast.

A more nuanced way of looking at it is that speed, quality and price must be balanced.  If you want more of one (or two) of these elements, then the result is a trade-off against the remaining one.

We see this balancing act at play in the delivery of legal services at our firm.  Here is how we approach the problem.

Firstly, high quality is always our top priority.  Among other things, this is a function of being professionals: we simply won’t agree to provide lower quality legal services.  Of course, clients want that as well.  We’ve never had a client ask for lower quality legal advice and representation.

Our main focus is to balance the other two issues: speed and price.  We work with our clients to help them choose whether speedy delivery of services or a lower price is more important.

Our experience most often is that clients want the high quality legal services as quickly as possible.  The challenge is to identify how fast is necessary.  If the matter has to be prioritized ahead of already existing commitments to our other clients, then this means that we have to “find” the time elsewhere by reallocating our resources.  In practical terms, this means working overtime to meet the client’s needs.  This is reflected in a higher price.

Sometimes the choice is already made.  When a client comes to us with an imminent court date or a real estate transaction closing on a tight timeline, the “any two” have already been allocated.  The client receives high quality legal services quickly, but this is reflected in the price.

There are several ways to control costs for clients.

First, we can sometimes bundle some legal services together so that they are priced lower that the components would be if purchased separately.  The best example of this is in our estate planning services.  We offer bundled pricing for the most common estate planning documents: a Will, Enduring Power of Attorney and Personal Directive.

Another approach is so-called “unbundling” of legal services.  Here the lawyer and client  agree to limit the scope of the legal services being provided.  Essentially, this means limiting the quantity of what the lawyer does.  In this model of delivering legal services, lawyer and client examine the range of tasks necessary to deal with a legal problem and decide which tasks the lawyer will deal with, and which the client will handle.  This allows the client to have better control over his or her budget for legal expenditures.

Overall, maintaining high quality and getting the best balance between speed and price is our day-to-day focus at Patriot Law.

“Pre-nups”, Cohabitation Agreements and Marriage Contracts

From time to time we are retained to prepare a “pre-nup” for a client.  This term is in common use among clients, and in full it means a “prenuptial agreement” (an agreement made prior to marriage).  In practice, however, it means any agreement that a couple may wish to make to set out their rights and obligations towards each other by means of a binding contract rather than relying on the general law that applies if there is no agreement.

These agreements can cover both married and unmarried (common-law) relationships, and they can be made prior to moving in together or marriage or at some point after the commencement of the married or common-law relationship.

Like any type of contract, the goal is to establish both partners’ rights and obligations so as to provide both partners with certainty and predictability in the event of the termination of the relationship. While that does not sound very romantic, the truth is that all relationships eventually come to an end in one of three ways:

  • There is a relationship breakdown (one or both partners actively terminate the relationship because they don’t want to be in it anymore).
  • One of the partners becomes incapacitated.
  • One of the partners dies.

These kinds of agreement are particularly useful for dealing with property issues.  For example, you can use an agreement to:

  • Preserve certain property that was originally yours from claims by your partner.
  • Determine how increases in value to property will be dealt with. (Will it be shared or will an increase in value be only for the benefit of the person who is the legal owner?)
  • Determine how you will acquire new property.  (Will it be in the name of one of you or both of you?)
  • Determine how property will be disposed of during the relationship. (For example, who gets the proceeds of any sale?)
  • Determine how property will be dealt with at the end of the relationship.  (This may be different depending on whether the reason for the termination of the relationship is a breakdown, incapacity or death.)

You can also use this kind of agreement to deal with issues involving children and financial support for your partner.  For example:

  • What is the plan if you have a child or children together?  (Will one of you be staying home to raise the child?  If so, for how long?  What about the financial effect that staying home may have on the ability of that parent to earn income in the future?)
  • What is the plan if there are children from a prior relationship?  (Is the “step-parent” going to function like a parent or not?  Will he or she be expected to contribute directly or indirectly to the financial care of the child?)
  • What are the plans for work and home life?  (Will both of you be working, or will one person stay home?)
  • If there is a relationship breakdown, how will each partner support himself or herself in the future?

Finally, It is important to note that lawyers play a vital role in ensuring that any agreement of this type is binding and enforceable.  The lawyer contributes two very important things:

  • The agreement is in writing, and is both clear and comprehensive.  While clients often attempt drafting these agreements themselves, the result is rarely clear and comprehensive.  This is for good reason:  lawyers have the specialized training to identify, analyze and advise you on all of the legal issues discussed above, and many more. Normally, a lawyer is retained by one of the partners in the relationship to produce the first draft of the agreement.
  • The agreement is signed with both partners having independent legal advice before signing. Many a time I have heard clients express dismay that a second (and independent) lawyer needs to be involved.  Obviously there is some additional expense involved, but it is for the important goal of ensuring that neither party can ever say in the future, “I didn’t understand what I was signing”, or “I had to sign the agreement – I didn’t have a choice”.  Having independent legal advice on both sides effectively prevents this sort of problem from arising because it is the lawyer’s job to clearly explain and provide advice about every aspect of the agreement so that the client makes the active and informed decision whether to sign the agreement. (We’ll have more to say about independent legal advice in a future blog post.)

This blog post discusses the law in Alberta relating to these issues but it is not intended to be legal advice for any particular situation.  If you want legal advice, then meet with a lawyer so that you can get it.

(photo “DIY Prenup Photoshoot – Fort Canning Park” by Bambi Corro III is licensed under CC BY-ND 2.0)

The Roles and Responsibilities of Client and Lawyer

handshake3An effective lawyer-client relationship is based on mutual trust and respect. To have this trust and respect, both client and lawyer need to understand each other’s roles and responsibilities.  These roles are very different, but the are complementary to each other.  Here is how we see it at Patriot Law.


The client’s role and responsibilities

The client is the person who makes the important decision that he or she requires a lawyer for some reason.  The client hires the lawyer and gives the lawyer his or her instructions.  For example, the lawyer may be hired (or, as lawyers sometimes say, “retained”) to represent the client in a real estate transaction as buyer or seller, or a court case, or preparing a Will.

The client’s role is to make all of the important decisions in a legal matter.  For example, it is the client’s role to:

  • decide whether to enter into a contract (or to breach a contract, for that matter);
  • decide who to name as executor of the client’s Will;
  • decide whether to commence divorce proceedings;
  • decide whether to start a lawsuit, or defend against a lawsuit in which the client is named as a defendant; and
  • decide whether to settle a lawsuit, and on what terms.

In working with a lawyer, the client is responsible to do two major things:

  • make the key decisions (such as those noted above) when required; and
  • provide the lawyer with the information (and records) necessary to understand the facts applicable to the legal matter.

The lawyer’s role and responsibilities

The lawyer brings to the table legal knowledge and expertise that the client does not have have.

The lawyer’s role is to provide the client with two main things:

  • Advice as to what law applies to the factual situation that the client brings forward, how that law applies to the client’s facts and what client should do to address the legal issue or problem; and
  • If the client requests it, representing the client by taking certain actions on the client’s behalf.  This may be representing the client in a court case, where the lawyer literally speaks on behalf of the client to the Judge.  It can also mean taking a client’s wishes for how to deal with his or her estate and putting it on paper in a Will that will ensure that the client’s intent is achieved.

In working with a client, the lawyer is responsible for many things, including:

  • being knowledgeable about the law (in the areas in which the lawyer practices, of course);
  • being thorough and analytical in applying the law to the client’s factual situation;
  • being practical is making recommendations on courses of action and the consequences of those courses of action; and
  • being ethical and civil in dealing with the client as well as others such as an opposing party, the court and the public in general.

Synergy between lawyer and client

More than anything else, the key to having an effective relationship is for both lawyer and client to realize that their relationship is dynamic and requires open, effective and honest communication,  The lawyer cannot do his or her best job unless the client is forthcoming about the facts, even if they may be unpleasant or embarrassing.  On the other hand, the lawyer must help the client to understand what kinds of information or facts are important in a given case.

The best client-lawyer relationships are characterized by very effective communication. This creates the best conditions in which mutual trust and respect develop and are maintained.

There are limits on what a client can require a lawyer to do.  This will be the topic of a future blog post.

What on earth is a “FIAT”?  (Hint:  it’s not a car)

fiat image

We do not use a lot of Latin words or phrases at Patriot Law.  However, one simple one that we use on occasion is the FIAT.

There are a number of definitions for the word.  In the legal context, in the simplest sense, the word comes from the Latin for “let it be done.”  It is effectively direction from a legal authority that something be done.  Most commonly, it is a brief “order” from the Court (most commonly obtained in Alberta  from a Master in Chambers of the Court of Queen’s Bench) directing that a document be used or registered or filed with an authority of some kind notwithstanding some technical deficiency.    Generally, a FIAT is granted by a short notation on the document by the applicable Master or Justice, under the heading “FIAT” and with wording that states something like:

“Let the within [document] be filed/registered/processed notwithstanding [the technical deficiency]”.

Some common examples of the circumstances in which it may be necessary for a lawyer to obtain a Fiat (all of which we have dealt with at Patriot Law) are as follows:

  1. Permitting an Affidavit sworn outside of the Province of Alberta to be filed with the Court even though it was sworn before a Commissioner for Oaths and not a Notary Public;
  2. Permitting an Affidavit sworn outside of the Province of Alberta to be filed with the Court or by the Land Titles Office despite the fact that the Notary Public commissioning the affidavit did not affix his or her notarial seal to the affidavit;
  3. Permitting an Order of the Court to be filed with the Land Titles Office even though an appeal period has not expired;
  4. Permitting a document to be filed with the Court despite the fact that the deadline for filing the document has passed; and
  5. Allowing a copy of a document to be filed with the Court or with the Land Titles Office when an original is not available.

Of course, the aim should always be to follow the technical rules.  Those rules are important and exist for good reasons. However, our judicial system recognizes that there may be circumstances where the technical rules cannot be precisely followed and it is in the interests of justice that a deviation from the rules be permitted.   Accordingly, our justice system allows the exercise of discretion to allow deviation from the technical rules in appropriate circumstances.

Real Estate Contracts – Things to Keep in Mind

Home for saleWe are often asked to review real estate purchase contracts (sometimes referred to as “offers to purchase”) before an offer is made by a buyer or accepted by a seller. It’s a great opportunity for the lawyer to highlight important issues and help you avoid common problems.

There are many background searches and other matters that a lawyer will review or consider prior to giving advice about a specific contract.  This blog post highlights a few of the key issues that we look at in reviewing a residential real estate purchase contract.  I have organized them from the perspective of Seller and Buyer.

Issues from the Seller’s Perspective

  1. Is the Seller married?  One of the very first things that a lawyer will do is review a copy of the title to the property.  If there is only one person registered as the owner, then the lawyer will need to gather information about whether the seller is married.  This is because of the Dower Act, which is an Alberta statute that is designed to protect a married spouse who is not on the title to the family home from having the property sold (or otherwise disposed of) without his or her consent.  So, if there is only one person on the title, if the seller is legally married (not common law) and if  the property being sold is the family home, then usually the seller’s spouse (wife or husband) will need to consent to the sale and sign certain of the transfer documents.  There are some exceptions to this, and your lawyer can assist you with determining whether the Dower Act is an issue for your sale or not.
  2. Is the Seller required to supply a real property report and a compliance certificate?  Most standard contracts for residential properties include a provision requiring the seller to provide the buyer with a Real Property Report (“RPR”)  reflecting the current state of improvements on the land and evidence of municipal compliance (or legal non-conformance). [See our prior blog post on RPRs for more information on these documents].  So, one of the first things that we ask is whether the seller has these documents and, even if so, if there have been any changes to the house or other structures on the property since the RPR  was prepared.  If there have been changes (such as the addition of fences, gazebos, or decks, to name some of the most common issues), the standard contract terms would require a new RPR to be obtained.  If a new RPR has to be obtained, this can take anywhere from 3-8 weeks depending on how busy the local surveyors are at the time.  Not having these documents available prior to closing can delay a closing, or require that some funds from the sale be held back until the documents are available.   A new RPR and compliance letter from the municipality can cost between $700 to $1,000 to obtain.   It may be possible to change the contract (before it is fully signed) to either remove the requirement to provide these documents, or to confirm that the Buyer will accept an older version of these documents where applicable.
  3. Will the sale proceeds generate sufficient funds to pay all of the required obligations?  It is important to ensure that the funds available on closing of the sale will be sufficient to pay all of the typical costs:  realtor commissions, mortgages on title, property taxes, legal fees for the sale, and any others that apply.
  4. Is there sufficient time prior to closing?  While sellers are often keen to have their property sold quickly, it is important to be mindful that a variety of things have to happen between the signing of the contract (and the lifting of any required conditions) and the closing date in order for the deal to close efficiently.  Of course, there is often substantial work for the sellers to move out if the property is not already vacant.   We recommend at least 2 weeks between condition removal and closing.  Sellers should also ensure that the closing date allows enough flexibility for them to schedule an appropriate appointment with their lawyer prior to closing.  (So, don’t sign your contract and then head off to Mexico until the day before the scheduled closing date!!).

Issues from the Buyer’s Perspective

  1. Will the purchase be financed with a mortgage?  It is important for a lawyer to know whether the purchase will be financed with a loan or whether the Buyer has sufficient cash to close the deal without financing.  Where a mortgage loan is involved, it is important for there to be an appropriate financing condition.  A financing condition means that the purchase deal is not “firm” or “final” until such time as the Buyer has lifted or waived this condition.  This is necessary even if the Buyer has been “pre-approved” for a certain amount of a loan.  This is because pre-approval is generally focused on credit-worthiness and the ability of a Buyer’s income to support a certain maximum loan payment.  However, lenders normally need to do an approval/appraisal process related to the specific property being purchased (to ensure that the land is valuable enough to support the amount of the loan).
  2. Is there a need for other conditions?  Since there is generally a “buyer-beware” approach to purchasing property, we recommend that Buyers consider other common conditions, such as a property inspection condition, or (where the water is by a well) a water potability condition.
  3. Is the Buyer eligible to own the land? We handle many transactions involving rural land.  In Alberta, land ownership is subject to the Foreign Ownership of Land Regulations.  These regulations are designed to ensure that Alberta’s rural, agricultural and recreational lands are largely kept in the hands of Canadians.  So, if a Buyer is purchasing lands outside of a City, Town, or Village, the Buyer’s lawyer will need to confirm the Buyer’s citizenship (or permanent resident status) in order to confirm if the Buyer is eligible to own the land.
  4. Is the Seller required to provide a RPR and Compliance Certificate?  This is discussed in #2 above from the perspective of the Seller.  However, looking at this issue from the perspective of the Buyer, lawyers will generally advise that it is preferable to be provided with these documents so that the Buyer can be sure of the property boundaries, that all of the structures on the land are within the property boundaries, and that the development on the property complies with the municipal land use requirements.
  5. Is there sufficient time prior to closing?  This may be an issue from the Buyer’s perspective as well. In particular, if a mortgage loan is required for the purchase, the mortgage lender will need to send instructions to the lawyer handling the purchase.  It can take time for these instructions to be sent, for the lawyer to have the opportunity to prepare all of the required documents, and for the buyer to obtain all of the things necessary to satisfy the bank that the loan is ready to be advanced (such as confirmation of insurance).   Again, a minimum time period should be 2 weeks between removal of any financing condition and the closing date.  Longer may be required if the lender is not a chartered bank, or the financing was arranged through a mortgage broker.

Of course, there are many other things that your lawyer will review and discuss with you.  At Patriot Law Group, we encourage people to talk to a lawyer before signing any important contract.  We are happy to discuss your purchase (or sale) with you.  Feel free to contact us.

Legal services provided on a “limited scope”

When you are involvedHandshake in a legal dispute – be it a divorce, the breach of a contract or a wrongful termination from employment – the path to resolution can be lengthy. Many lawyers (and clients, for that matter)  think of legal services being delivered in this type of situation over a significant span of time, where the lawyer advises and represents the client throughout the process of resolving a dispute.  But not all clients want, or can afford, legal services provided in this way.

Some clients would prefer it if they could retain a lawyer to help with just one  aspect (or a few aspects) of their legal problem, while the client does the rest.  Alternatively, the client would prefer to actively control the conduct of the case, and determine if, when and in what circumstances legal advice or skills is necessary.   In order words, the client wants a more limited range of legal services to be provided by the lawyer.

This type of delivery of legal services is referred to by lawyers using various terms:  “limited scope” legal services, “brief legal services” and “unbundled legal services”.  The concept is that a client decides to retain the lawyer to perform only certain very specific legal services.  The client is responsible for everything else.  Another way to think of it is that a person is generally self-represented, but retains a lawyer to assist with those portions of the matter where the lawyer can most effectively assist the client, but within the client’s limited budget.

Here are just a few of the things that a lawyer can do on a limited scope basis:

  • Meet with a client to provide an initial assessment and explanation of the client’s general legal situation.  The client is obtaining an understanding of the law as it applies to his or her factual situation.
  • Write a “demand letter”.  The client uses the lawyer’s skills of knowledge, persuasion and determination to attempt to resolve a dispute at the earliest possible point.
  • Assist a client in drafting court documents.  The client is tapping into the knowledge and experience that a lawyer has in properly presenting evidence to be used in a court process.
  • Assist a client in a specific court appearance.  The client is leveraging the lawyer’s skill in advocating on behalf of the client in an environment (the court room) in which few non-lawyers are comfortable.
  • Research a point of law.  The client gets a thorough review of the law that applies to the client’s facts, summarized so that the client can thoroughly understand the law – or a part of the law – that applies to his or her individual circumstances.  This helps with effective decision-making.

It is important to note that the high degree of competence, diligence and ethical behavior required by lawyers are not reduced in any way when legal services are delivered on a limited scope basis.  All that is different is the scope – the range and duration – of the services to be delivered by the lawyer.

Not all lawyers are comfortable with providing limited scope legal services, just as not all clients are well suited to receiving limited scope legal services.  What is important to understand, however, is that it is an option that is appropriate for some clients in some circumstances.

If you think that limited scope legal services might be right for you, talk to your lawyer about it.  If your lawyer does not do limited scope work, then ask for a referral to a lawyer who does this type of work.  When enough clients start asking for limited scope legal services, lawyers will meet the demand.

At Patriot Law Group, we offer the option of limited scope legal services when they are appropriate to both the situation and the client.


Some Basic Information on Dividing Matrimonial Property


When married couples decide to part ways, one of the things that needs to be determined is what to do with all of the stuff that they’ve amassed during the relationship.

In Canada, the law of divorce falls within the federal sphere of power but the division of a married couple’s property is governed by provincial law. In Alberta, that law is the Matrimonial Property Act (MPA). The MPA empowers a court to distribute the property owned by either or both of the spouses.

(The MPA does not apply to unmarried couples. We will discuss how property for unmarried or “common law” couples gets divided in a future blog post. Stay tuned!)

The general concept is that spouses are financial partners in a marriage and, broadly speaking, each spouse has a claim to half of the value of the property that the couple acquired during the marriage. This means that it usually doesn’t matter whether a car is registered in only one spouse’s name or whether the home the couple lives in has only one name on the title – each spouse has a claim to half the value of that property if it was acquired during the marriage.

However, not all property owned by a spouse is necessarily subject to an equal split. The MPA identifies three broad categories of property and how they are dealt with:

1) Exempt Property. Certain property is exempt from being distributed as matrimonial property, based on the idea that not all property falls within the financial partnership of a marriage. This category includes gifts from third parties, inheritances, property that was owned before the marriage, awards for damages (such as an award in a slip-and-fall lawsuit) and proceeds of certain insurance policies. The value of the property at the date of the marriage or at the date the thing was acquired (whichever is later) is exempt from distribution.

2) Increases in the Value of Exempt Assets. The court must order a “just and equitable” distribution of property for the increase in value of an exempt asset or the income generated by an exempt asset for the period of the marriage. For example, the value of a collectible car owned by one spouse before the marriage is exempt, but the increase in its value over the course of the marriage – the accrued equity – is subject to a “just and equitable” division (which is not necessarily 50/50). Determining what is “just and equitable” requires the court to consider a variety of specific factors. For example, one such factor that the court will consider is any contribution (financial or otherwise) made by a spouse (or on behalf of spouse) in relation to the acquisition, conservation or improvement of the property.

3) Everything Else. If the property does not fall into the first two categories, then its value is subject to division between the parties. This is typically an even-steven split but it doesn’t have to be, if the court thinks that an even split would actually be unfair.

Most of the time, couples are able to come to an agreement on how they will split their property. The MPA specifically allows couples to make agreements that opt out of the MPA default rules for dividing property, so long as the agreement is in writing and both spouses have independent legal advice before signing. For the times when a couple doesn’t agree, Alberta courts rely on the MPA to determine the division of property.

If you have questions about divorce and your legal entitlements to property, Patriot Law Group can help.

What if you could be the bank?

moneyWe have had a large number of “private lender” transactions come through our office of late. This is what got us thinking about this blog article.

Most of us have borrowed money in the past to buy a car or a home or something else that we did not have enough cash on hand to buy outright.  Banks make money by lending money to others and charging interest on the amount loaned.

What if you could be the bank?  It’s possible and can be profitable to do so.

Here’s what it takes:

  1. Have the money to lend.
  2. Have some tolerance for risk.
  3. Identify a credit worthy borrower.
  4. Document the loan.
  5. Secure the loan.

Having the money

Of course, to lend money you need the available cash in the first place.  However, the amounts at issue are not always that large .  We have seen private mortgage loans just in the last few weeks ranging from $30,000 to $200,000.

Risk tolerance

Private loans (just like any loan) have risk attached.  The risk can be larger or smaller depending on a number of factors including:  the amount of the loan, the credit worthiness of the borrower, the availability of collateral to secure the loan, and the degree to which any collateral is leveraged.  On this last point, for example, a $50,000 secured  loan for the purchase of a property worth $200,000 is relatively lower risk than a loan equal to the value of property being purchased.  Risk is often partly addressed by assigning an appropriate interest rate.   Generally speaking, the higher the risk attached, the higher the interest rate you would expect to see. This makes sense.  If you are going to take more risk, you want a higher reward.

Credit worthy borrower

When banks or other commercial lenders grant loans, they usually go through an evaluation process to assess the credit-worthiness of the borrower.  This is a risk mitigation strategy.  The evaluation process may include doing a credit check, reviewing financial status documents, and doing a variety of other searches.  Private lenders should do the same due diligence and lawyers can assist with some of that.

Documenting the loan

One of the common mantras for lawyers is “get it in writing.”  This is no different for loans.   It is critical that loans be properly documented in writing, This is to ensure that the borrower’s obligations are clear and that the terms of the loan are clear.  In addition, if the borrower is providing collateral to support the loan, appropriate documentation in writing MUST be in place.  Lawyers can add considerable value in preparing loan documentation for you.

Securing the loan

As discussed above, one way to mitigate risk to a lender is to have the loan “secured.” This really just means that some kind of collateral is being pledged as security for the debt obligation.    If no security is pledged in support of a loan, then the lender is “unsecured.”

Being a “secured creditor” is preferable to being an “unsecured creditor.”  An unsecured creditor will generally have a higher priority of claim for the debt owed, at least in respect of the collateral pledged by the borrower.

There are many different types of security that can be provided by a borrower to a lender.  Some common examples (but not an exhaustive list) are the following:

  •  Land Mortgage.  A Mortgage charges a parcel of land (and the buildings on it) as security for a loan.  It also provides a lender with a variety of remedies in the event that the borrower does not make the required payments.  Essentially, the lender can use a court  (foreclosure) process to either sell the land, or have the land transferred to the lender, to recover the debt owed.   A mortgage is registered against title to the land.
  • Assignment of Rents and Leases.  This document relates to land also. It essentially lets the lender step in and act as the landlord, and collect any rent payments payable.  This applies when the borrower will be renting out the property, and typically  operates only when the borrower is not otherwise making the required payments on the loan.   This is usually registered (by way of a caveat) against title to the land.
  • Security Agreement.  This document charges personal (not land) property as security for the debt owed.  It can be very general in nature and charge “all present and after acquired property”, or be specific and charge specific items (such as a vehicle, mobile home, etc.). Specific property is often identified by make, model and serial number.  A security agreement is registered in the Personal Property Registry.

What if things go wrong?

Of course, borrowers do not always pay the amounts owed as planned.  Depending on whether a debt is secured or unsecured, there are different remedies available to a creditor to collect on the debt owed. Your lawyer can prepare provisions in the loan agreement and security documentation to provide effective remedies when things go wrong.

If you are planning on being a lender, or have questions about collection of a debt (secured or unsecured), please contact us. We know business and we can help.

Executors beware: new duties apply to you

Will documentOn June 1, 2015, the Estate Administration Act came into force in Alberta.

This new legislation updates and modernizes the approach taken to the administration of the estates of deceased persons in Alberta.  It is the third significant update to this general area of the law.  In 2012, the Wills and Succession Act modernized the law governing the making of wills and the default rules that apply when you die without a will.  Before that, the Adult Guardianship and Trusteeship Act was brought into force in 2019, creating a new approach to adults who have a diminished capacity to care for themselves or manage their financial affairs.

Among the most important changes in this legislation are the new duties and tasks assigned to the “Personal Representative”.  (A Personal Representative is most commonly the executor appointed by a Will.  It also includes, however, a person appointed by a Court to administer an estate where there is no Will or where a Will does not appoint an executor.)

The 3 duties of the Personal Representative are to perform his or her role:

  1. honestly and in good faith;
  2. in accordance with the intentions of the testator (the maker of a Will) and the Will, if a valid Will exists; and
  3. with the care, diligence and skill that a reasonable and prudent person would exercise in comparable circumstances where a “fiduciary” relationship exists.  (A fiduciary relationship is a relationship of the utmost good faith.)

There are 4 core tasks for the Personal Representative set out in the new legislation:

  1. To identify the estate assets and liabilities;
  2. To administer and manage the estate;
  3. to satisfy the debts and obligations of the estate; and
  4. to distribute and account for the administration of the estate.

Neither the duties nor the key tasks are new; they have been well established for many years. But they now appear up front in the legislation, in order to set clearer and more consistent expectations for the Personal Representative.

The most important new feature of the new legislation is a requirement for the Personal Representative to give written notice to certain persons even when administering an estate without a grant of probate or administration issued by a Court.  A notice is required to be given to 4 types of persons:

  1. To the beneficiaries, specifying (among other things) the gifts left to them.
  2. To any family member of the deceased who may have a potential claim against the estate because the family member has not been adequately provided for under the Will.  (For example, this could involve a family member, such a spouse, who was dependent on the the deceased at the time of death.)
  3. To a spouse, notifying him or her of rights under the Matrimonial Property Act, if the spouse was not the sole beneficiary under the Will.
  4. To persons acting as trustees or guardians for adults, and to the Public Trustee with respect to any minor who is interested in an estate.

These kinds of notices have been required for many years in estates that are being administrated through the authority of a grant of probate or administration.  The new feature is that they are now required even when informally administering an estate.

This new law has the goal of simplifying and clarifying the manner in which estates are to be administered.  However, it is also abundantly clear now that Executors will be held to the same high standard of conduct and performance whether or not the estate is being administered informally (outside of the Courts) or with a formal grant of probate.  Proceeding with legal advice is now more important than ever.