Written on behalf of Shariff & Associates

In divorce proceedings, married spouses in Ontario are generally entitled to one-half of the value of property accumulated during the marriage. An equal distribution of net family property is often standard, but what happens if one party’s conduct has been improper such that they have incurred significant debts, depleted family property, or used family finances to support gambling or an addiction? Can this financial misconduct impact the equalization payment?

Financial Impact of a Spouse’s Misconduct is Relevant

Section 5(6) of the Family Law Act permits courts to award an unequal division of net family property to divorcing spouses if equalizing the net family properties would be unconscionable. The statute lists eight factors that courts must consider in determining whether an unequal division of property is appropriate. These factors include considering whether a spouse has intentionally or recklessly depleted their net family property or whether one spouse has incurred a disproportionately large amount of debts. Consideration of whether to award an unequal division of property focuses on the unconscionable results that would occur in a standard equalization of property. In Serra v. Serra, the Court of Appeal explained that the financial consequences of a party’s conduct is relevant. Consequently, fault-based conduct by a spouse may give rise to relief under section 5(6) where it relates to the handling of property.

In Frick v. Frick, the wife learned that the husband had been involved in an affair and alleged that because the husband had depleted the net family property, she was entitled to an unequal division of property. The motion judge decided to strike the wife’s claim on the grounds that it was based on marital misconduct. However, section 5(6) of the Family Law Act does not focus on immortal conduct but rather financial consequences. The judge determined the wife’s claim could not succeed as there was no evidence that the husband’s affairs had an impact on the family property, and she was prevented from raising section 5(6) at trial. The Ontario Court of Appeal disagreed with this approach. While it was correct that a claim based on infidelity would not easily succeed. However, section 5(6) was drawn to exclude consideration of matrimonial misconduct. Morally objectionable conduct must fall within the clauses listed under the Family Law Act. As such, determining whether an equal division of family property results in unconscionability can only be made once the equalization payment is known. Therefore, this finding could not be made on a pleadings motion, and the wife could not pursue her claim at trial.

Judge Finds Spouse Placed in Position of Economic Vulnerability

In Dillon v. Dillon, the applicant argued that it would be unconscionable for her to pay the equalization payment to her husband. She argued that his conduct, which included reckless depletion of family property due to his alcoholism, warranted an unequal division of net family property. The husband was unable to maintain a job due to his alcoholism, which strained the family’s finances. When creditors pursued the husband for debts, the applicant used her own financial resources to pay the bills. The financial strain left the applicant with anxiety and depression.

The judge accepted that both the reckless depletion of assets and incurring debts had previously been found to be unconscionable in cases involving alcoholism or gambling. Referring to Naidoo v. Naidoo, the Court noted that finding required “something more than unfairness or inequitability.” Gambling on its own did not amount to the reckless deprivation of net family property. Instead, gambling had to be considered among other factors, such as the financial amounts involved, the parties’ income, the resources the parties brought into the marriage, the conduct of the parties, and whether the financial risk was condoned. In Dillon, the husband never disclosed his income and the applicant was not immediately aware of the loss of family assets, but when she did have knowledge of the losses, she acted to protect her interests. The Court could not calculate the extent to which family assets were depleted during the marriage, but known liabilities amounted to $100,000 on the valuation date.

Justice Annis accepted that the husband recklessly dissipated family assets which left the applicant in a perilous economic situation. A factor that contributed to the finding of unconscionability was the fact that the respondent took advantage of the applicant when she abandoned her employment for the family, which placed her “in a position of economic vulnerability.” The husband then refused to share information about his income or their financial situation and misled the applicant by suggesting they had no financial difficulties and that she could rely on him to resolve financial matters. In the judge’s view, the applicant had to accept the husband’s secrecy, which indicated the husband’s control over her, and she could not prevent his misconduct. Justice Annis concluded that where there is already clear evidence of a reckless depletion of property, “the abuse of the applicant’s vulnerability by misleading her and refusing to divulge information on the respondent’s financial situation is a further and substantial constituent to a finding of unconscionability.” The Court held that the husband’s reckless behaviour depleted the family assets, and it would therefore create an unconscionable result if he were to share in the remaining assets equally. The judge reduced the applicant’s equalization payment by $50,000, which was half of the known liabilities generated by the husband.

Court Considers the Impact of Spouse’s Addiction

The depletion of family property due to addictions, such as alcoholism, can amount to unconscionability. In Denis v. Ostrowalker, the applicant admitted that she was a non-functioning alcoholic and was unable to maintain a job. The judge accepted testimony that the applicant had destructive outbursts and would destroy matrimonial property when she was drinking, damaging vehicles that the parties owned and the matrimonial home.

At issue was the treatment of the equity in the matrimonial home, which was the only significant asset available for equalization. After accounting for the mortgage and lien registered against the property, there was $20,000 worth of equity in the home. However, the value of the damage to matrimonial property caused by the applicant exceeded that amount. The question was whether any equalization payment should be ordered.

The judge noted that the respondent was the only party who earned money to pay the mortgage and was the only party who amassed debt from the marriage. Additionally, the applicant’s destruction of property left a serious financial impact on the respondent. Justice Varpio also acknowledged that due to the applicant’s illness, any funds available from the home sale may be used to sustain her alcohol addiction, while the respondent would be left without a residence. Given these factors, ordering the sale of the matrimonial home for the purpose of an equalization payment would be unconscionable. Instead, the applicant was required to make an equalization payment which was equal to her half interest in the value of the matrimonial home.

Contact the Family Lawyers at Shariff & Associates in Stouffville for Trusted Advice on Matrimonial Property Division

The compassionate family lawyers at Shariff & Associates understand that there are many considerations and uncertainties for parties going through a separation or divorce, which is why we work to ensure that our clients understand their options and are positioned for the best possible outcome. We work with clients through the valuation process and help them understand their rights when it comes to equalization payments. In order to best assist you, our lawyers will review your unique circumstances and will provide a realistic assessment of the options available to you to help you move forward. To schedule a confidential consultation with one of our family lawyers, contact us online or call our office at 905-591-4545.