When married spouses separate, the default rule is that net family property is equalized upon marriage breakdown. “Net family property” refers to the wealth each spouse accumulates during the marriage. “Net family property equalization” refers to the obligations set out in the Family Law Act in section 5(1), which provides that the spouse with greater net family property split the difference between the two spouse’s net family property through an equalization payment. This is meant to ensure that the spouses equally share in the wealth created during their marriage.
The Family Law Act assumes that married spouses are jointly responsible for childcare, household management, as well as financial provision for the family and that their contributions are equal, whether these contributions be financial or otherwise.
In each case, the court will first determine the net family property of each spouse. Then, the court will perform the equalization calculation, which involves determining the difference in net family properties. The equalization payment is half the difference between the two spouse’s net family properties. For example, if one spouse had a net family property of $100,000 and the other had a net family property of $200,000, the difference would be $100,000. The full equalization payment would therefore be $50,000 from the spouse whose property was $200,000.
If the Equalization Payment Would be “Unconscionable,” a Court is Permitted to Award Less than Full Equalization
While equalization of net family property is the norm, there are rare exceptions. The Family Law Act provides that the court can vary a spouse’s share of the net family property if equalization would be “unconscionable.”
The threshold for unconscionability is exceptionally high. There must be more than unfairness; rather, equalizing net family property in the circumstances must “shock the court’s conscience.” Therefore, once a court has determined what equalization would be, the court can then consider other factors to determine if that equalization should be adjusted due to the full award being unconscionable.
The Family Law Act Provides Factors a Court May Assess to Determine if an Equalization Payment Would be Unconscionable
To make this determination of unconscionability, the court will have regard to a list of potential factors found in section 5(6) of the Family Law Act, which includes:
- A failure to disclosure debts or liabilities existing on the date of marriage
- Debts that reduce a spouse’s net family property were incurred in bad faith or recklessly
- That part of one spouse’s net family property consists of a gift(s) from the other
- Reckless or intentional depletion of a spouse’s net family property
- The fact that the amount a spouse would receive in equalization is disproportionately large given a period of cohabitation of fewer than five years
- One spouse incurring a disproportionately large amount of debts for the support of the family
- A written agreement other than a domestic contract
- Other circumstances
A Total Cohabitation of Fewer than Five Years may Lead to a Finding of Unconscionability
This blog will focus on one of the factors that may lead a court to decline to order a full equalization payment, which is a short-term marriage where the parties cohabitate for fewer than five years.
The matrimonial home, as an asset equalized between the parties in full (with no deduction for its date of marriage value), may create an “unjustifiable windfall” for the non-titled spouse in the case of a short marriage. When considering if the equalization of the matrimonial home would be unconscionable in the case of a short marriage, a court will consider:
- If the home was purchased before the marriage;
- If the non-titled spouse made any contributions to the purchase of the home;
- If the home was improved during the marriage in any way;
- If the titled spouse covered maintenance costs, as well as other living expenses for both parties;
If most of the equalization payment is a result of the value of the matrimonial home;
- If the non-titled spouse improved their financial position during the marriage even without the equalization payment
- If there are children of the marriage
Several cases have relied on these considerations to decline to award a full equalization payment where there was a short marriage. Most equalization payments resulted from the matrimonial home one spouse brought into the marriage. This includes the 2020 case of Cheung v Lim (where the court found no equalization payment was owed) and the 2005 case of Kucera v Kucera, where Justice Heeney distilled the abovementioned considerations. In Kucera, the court excluded the value of the matrimonial home from equalization and then further reduced the remaining equalization payment by 1/6th.
The matrimonial home owned by one spouse is not the only situation that may create unconscionability in a short-term marriage. For instance, Booth v Bilek was a case where the parties had sold the matrimonial home before separation, so it did not form part of the equalization calculation. In that case, the parties had been cohabitating for just over four years when they separated.
At trial, the court found that an award of full equalization would be unconscionable. The trial judge considered the totality of the parties’ circumstances, including that Ms. Bilek had benefited financially from what was a fairly short marriage, including $199,302 from the proceeds of the sale of the matrimonial home, despite having made no financial contribution to its purchase, as well as benefiting from gifts from Mr. Booth (more than $87,000). In this case, the main difference between the parties’ net family properties was due to the growth of Mr. Booth’s investments throughout the marriage (not his contributions – meaning that no family income was used to fund them). The trial judge assessed that Ms. Bilek was better off financially at the end of the marriage “with little if any financial contribution on her part.”
Mr. Booth was also 69 years old and retired, relying on his investments for his income, whereas Ms. Bilek was 46 and self-supporting.
Once the trial judge found that a full equalization payment would be unconscionable, the judge considered what amount would be paid. The trial judge awarded Ms. Bilek 10% of the full equalization amount.
Ms. Bilek appealed this decision to the Ontario Court of Appeal. Ms. Bilek argued both that the trial judge erred in finding that equalization would be unconscionable and, in the alternative, that she erred in awarding only 10% of the full equalization amount. If full equalization was unconscionable, then Ms. Bilek argued that she should receive 87% because they cohabitated for 52 months out of 60 months (with 60 months being a full 5 years). Ms. Bilek was arguing for a pro-rated mathematical formula to be applied.
The Ontario Court of Appeal declined to interfere with the trial judge’s finding of unconscionability and her apportionment of 10% of the equalization payment. The Court of Appeal held that the Family Law Act and the case law did not require the application of a strict mathematical formula.
As noted by the Ontario Court of Appeal in the earlier case of Gomez v McHale, if a court finds that an equal division of net family property would be unconscionable, it will fix a fair amount, just and equitable, considering all the evidence. This only requires a pro-rated equalization payment if it would be fair, just, and equitable. Some cases have used this formulaic approach, such as the case of Kruschenke v Kruschenke, where the court awarded the wife 80% of full equalization after a 4-year marriage.
Contact the Family Law Lawyers at Johnson Miller Family Lawyers in Windsor for Assistance with Property Claims
The experienced family lawyers at Johnson Miller Family Lawyers frequently advise clients on various issues raised in separation or divorce, including asset division and matrimonial property claims. If you have concerns about equalization or asset division, contact us online or call us at 519-973-1500.