Unconscionability in the equalization of Net Family Property

BY VALERIE DYE

Under Section 5 (6) of the Family Law Act of Ontario (The Act), the court may order an unequal division of assets where an equal division of assets would be unconscionable.  This means that the court may award to one spouse either less or more than that spouse may be ordinarily entitled to receive.

Most cases leading to an unequal division of assets relate to situations where one party in the marriage has deliberately or recklessly depleted the matrimonial assets to such an extent that it would be unconscionable for the court to divide the remaining assets equally. An example of this is the case of Dillon v Dillon[1] where the husband incurred substantial debts and impoverished the family. The court ordered an unequal division of assets and reduced the amount of money owed to the husband by $50,000. The basis for the court’s decision rested on section 5(6) of the Act.

In 2009 the case of Serra v Serra[2] highlighted another way in which the court may apply section 5(6) of the Act. In this case, the husband’s assets at the date of separation were valued between $9.5 million and $11.5 million. By the time the trial date had come around the husband’s assets had declined in value as a result in a market decline in the shares of his company. The value of the shares had decreased by about $8 to $9 million.

Since equalization is done on the basis of the value of assets at separation (valuation) date the husband would ordinarily have to pay the wife approximately 5 million dollars which represents half the value of his net family property at the date of separation.  Obviously, this would result in an unconscionable result given the fact that by the trial date the value of his company shares had dwindled to approximately $1 million.

At trial, the judge strictly applied the equalization principle and ordered the husband to pay the wife a total of $4.1 million which far exceeded his net worth at that time. The Court of Appeal overturned this ruling and applied section 5(6) of the Act on the basis that it was unconscionable for the husband to pay the wife that amount of money.

The Court of Appeal stated that: A market-driven post-valuation date change in the value of a spouse’s assets may be taken into account in determining whether an equalization of family property is unconscionable under s. 5(6) of the FLA.

The court was careful to note that ordering an unequal division was exceptional and such orders should only be made in circumstances related to the acquisition, disposition, preservation or maintenance of the assets and where equalization would be unconscionable as a result of this. The court considered the fact that the husband could not sell the business as he had to make payments to the wife which could only be done if he kept the business. The wife had also obtained an order that prevented him from selling the business just after separation. If the business was sold at separation date the husband would have been able to recover the separation date value.

Once the court is satisfied that an equalization payment would be unconscionable the court will exercise its discretion and award an amount that is just, and fair given all the circumstances of the case.