One of the most important property-related issues that must be dealt with during a separation and/or divorce is the equalization of net family property. In a nutshell, Ontario’s property equalization scheme provides that when two people enter into a marriage, each spouse becomes automatically entitled to an equal share of the profits of the marriage.
The Family Law Act of Ontario (FLA) sets out the rules for the division of property following the breakdown of a marriage.
Let’s look at some of the specifics. Section 5(1) of the FLA provides as follows:
Equalization of net family properties
5. (1) When a divorce is granted or a marriage is declared a nullity, or when the spouses are separated and there is no reasonable prospect that they will resume cohabitation, the spouse whose net family property is the lesser of the two net family properties is entitled to one-half the difference between them. R.S.O. 1990, c. F.3, s. 5 (1).
In calculating net family property, the parties must determine the value of all the property that each spouse owned on the “valuation date”. The valuation date is defined in s. 4 of the FLA:
“valuation date” means the earliest of the following dates:
1. The date the spouses separate and there is no reasonable prospect that they will resume cohabitation.
2. The date a divorce is granted.
3. The date the marriage is declared a nullity.
4. The date one of the spouses commences an application based on subsection 5 (3) (improvident depletion) that is subsequently granted.
5. The date before the date on which one of the spouses dies leaving the other spouse surviving. (“date d’évaluation”) R.S.O. 1990, c. F.3, s. 4 (1); 2006, c. 19, Sched. C, s. 1 (2); 2009, c. 11, s. 22 (1-4); 2009, c. 33, Sched. 2, s. 34 (1).
It’s not uncommon for parties to disagree in relation to No. 1 above – “the date the spouses separate and there is no reasonable prospect that they will resume cohabitation” – especially they continue to occupy the same premises.
In addressing this issue, courts have sought guidance from Oswell v. Oswell, a 1990 decision of the Ontario High Court of Justice in which the Court set out a list of factors to be considered when determining whether parties who occupy the same premises are living separate and apart. The factors can be summarized as follows:
- Has there been a physical separation of the parties notwithstanding that they remained in the same home?
- Has one or both spouses withdrawn from the matrimonial obligation with the intent of repudiating the matrimonial relationship?
- Has there been a continuing sexual relationship?
- Has there been ongoing discussion between the spouses of family problems; have they attended social activities together and continue to share meals, etc?
- Have there been changes in the performance of household tasks?
- Are there indicia of a spouse’s true intent as opposed to stated intent?
- Has a spouse made plans for his or her assets as a separated spouse?
- Any other relevant factor
Joanis v. Bourque
The Ontario Superior Court of Justice was recently asked to rule on the issue of the correct valuation date for divorced parties in a case called Joanis v. Bourque. In Joanis, the wife discovered that her husband had been having an affair in August 2006 and ordered him from their bedroom. The parties continued to live together but their relationship was strained and devoid of affection, trust or respect. After the passage of some time, things resolved and returned largely to normal. On Oct. 31, 2010 the relationship broke down again. The wife consulted a lawyer shortly thereafter and the husband moved out of the home.
Although the parties were clearly separated with no reasonable prospect that they would resume cohabitation after Oct. 31, 2010, it was unclear whether between August of 2006 and November of 2010 the parties were living under the same roof but separate with no reasonable prospect that they would resume cohabitation.
The Court’s Finding: A Reasonable Prospect of Resuming Cohabitation
The Court held that the parties did not separate in August 2006, or even if they did, there was a reasonable prospect that they would resume cohabitation. The facts leading the Court to its conclusion were:
- The family continued to function as it had in the past, eating dinner together, celebrating birthdays and holidays, and attending social events together;
- The family’s financial arrangements did not change to reflect any type of separation;
- The wife continued to work at the husband’s business until their physical separation in 2010;
- Neither party consulted lawyers or took steps to address support of division of property until November 2010;
- The husband didn’t confide in close family that he was separated in 2006;
- The husband’s friend testified that the husband stated that he hoped the marriage would turn around and get better;
- Both parties continued to file their tax returns as married and not separated until 2010;
- The husband signed a letter in December 2006 to the wife’s former husband indicating that the family was happy together;
- The husband didn’t take steps to change his Will or life insurance beneficiary designations to exclude the wife until 2008.
- The husband admitted that it was “a matter of time” after August 2006 that he and his wife would separate, indicating that there had not yet been a separation;
- The husband hired a private investigator in 2008 to determine whether the wife was having an affair. If they were already separated, why would he take this action?
Taking all these factors into consideration, the Court ruled that the the correct valuation date was October 31, 2010.
Why Does the Valuation Date Matter So Much?
The valuation date is so important because it is a snapshot in time of a monetary value that may increase or decrease significantly at any time. It can mean the difference of thousands of dollars in calculating an equalization amount. In Joanis v. Bourque, the value of certain of the parties’ assets increased significantly between the two dates in question. Whether they separated in 2006 or 2010 was of critical importance to both the husband and wife.
If you have questions about the division of property or any other family law matter, contact Gelman & Associates at (416) 736-0200 or 1-844-742-0200 or contact us online for a confidential initial consultation.