Deducting Real Estate Commissions: No Longer A Minor Deduction

With the average price of a matrimonial home in the GTA exceeding $1 million, the value of a real estate commission at 5% amounts to $50,000 plus HST. In many divorce cases, one spouse intends to purchase the home from the other spouse. In these cases, it is not uncommon for there to be a dispute as to whether a notional real estate commission should be deducted from the buyout price. Given the size of this deduction, some cases proceed through litigation to determine whether real estate commissions should be deducted and, if so, what the percentage should be.

Recently, the Ontario Court of Appeal in Bortnikov v. Rakitova, 2016 ONCA 427 was faced with this issue yet again. In this case, the appellant argued that the trial judge erred in deducting notional real estate fees from the value of the property because “there was no evidence that the prospect of such a sale was reasonably likely.” The judge concluded that notional real estate fees of 5% of the date of separation value of the motel property should be deducted because “it is clear that sooner or later the respondent will sell the Grand Motel” and “the prospect of a sale was sufficiently likely within the foreseeable future”. As for the precise percentage of real estate commission, the appellant argued that the judge noted that “even though there was evidence that standard real estate fees are 5%, he did not indicate what evidence or inference led him to the conclusion concerning the foreseeability of the sale of the motel property.”

In repeating the status of the law on this subject, the Court of Appeal stated:

“As a general rule, in determining whether disposition costs should be deducted from an asset’s value, the analysis should take into account evidence of the probable timing of the asset’s disposition. It is appropriate to deduct disposition costs from the net family property if there is satisfactory evidence of a likely disposition date and if it is clear that such costs will be inevitable when the owner disposes of the assets or is deemed to have disposed of them. Sengmueller v. Sengmueller (1994), 17 O.R. (3d) 208 (C.A.) An allowance for disposition costs from net family property should not be made in the case where it is not clear when, if ever, a sale or transfer of property will be made. McPherson v. McPherson (1988), 63 O.R. (2d) 641 (C.A.). However, it is not necessary for the court to determine whether the disposition of the assets is inevitable; rather, the court should determine on the basis of the evidence whether it is more likely than not that the assets would be sold, at which point disposition costs would inevitably be incurred: Buttar v. Buttar, 2013 ONCA 517.”

It therefore remains clear that deducting real estate commissions where the property remains in the family is not automatic and requires the spouse who is keeping the property to prove a likely future sale, that such costs will be inevitable and the probable timing of the sale.

Steven Benmor is certified as a specialist in family law by the Law Society of Upper Canada and also serves as a private divorce mediator and arbitrator for high net worth families. Steve can be reached at steve@benmor.com