Written on behalf of Shariff & Associates

In Ontario, during divorce proceedings, couples must value their assets and debts to equalize net family property. In some cases, it will become apparent that one party will owe the other an equalization payment, even if the exact payment amount has not yet been determined. The process of obtaining full financial disclosure and dividing assets and proceeds of jointly owned property can take a significant amount of time which may delay the eventual equalization payment. However, in certain circumstances, a party who is owed an equalization payment can sometimes ask the court for an advance on the equalization transfer.

Court Has Authority to Order an Advance Payment

Historically, when a party sought an advance on an equalization payment, the courts had to determine whether they held jurisdiction to make such an order as there was no express provision in the legislation.

In Zagdanski v. Zagdanski, Justice Lane reviewed prior cases, including Rawluk v. Rawluk, where the Supreme Court of Canada commented on the court’s jurisdiction under the Family Law Act. In Rawluk v. Rawluk, the Court explained that the Family Law Act is not an “exclusive code for determining the ownership of matrimonial property.” This answered the question of whether courts could make an order for the advance payment of equalization.

Nothing in the Family Law Act explicitly excluded the possibility of such orders, and the jurisdiction of a Superior Court could only be limited by express words. Additionally, with regard to the equalization of net family property, the Family Law Act granted courts specific authority in section 7(1) to “determine any matter respecting the spouses’ entitlement.”

What Circumstances May Justify an Advance on an Equalization Payment?

After finding that courts have jurisdiction to award an advance on an equalization payment in certain cases, Justice Lane determined that such an order could be appropriate in situations where:

• there will be little or no realistic chance that the amount of the contemplated advance will exceed the ultimate equalization amount;
• there is a considerable degree of certainty about the right to, and likely minimum amount of, an equalization payment;
• the party has a need or a reasonable requirement for funds in advance of the final resolution of the equalization issue, including funds to enable the continued prosecution or defence of the action; and
• there may be other circumstances such that fairness requires some relief for the applicant, including if there has been a delay in the action, prejudicing the applicant, such as running up the costs.

Earlier cases had held that expenses, such as legal fees, were not appropriate reasons under which an interim disbursement could be ordered. However, Justice Lane noted that it was the applicant’s own money that was being advanced. Consequently, there could be no objection to the applicant using the funds to put to the litigation, particularly in circumstances where there is a disparity in resources between the parties; part of the equalization amount could restore some balance.

In Wallwin v. Wallwin, the husband brought a motion requesting the release of $105,000 to each party from the proceeds of the sale of the matrimonial home, which was being held in trust. The wife opposed the release of the funds, claiming it would prejudice her claims for equalization or an unequal division of the proceeds. There was a high degree of certainty the wife would be entitled to an equalization payment, but given that it was in dispute, the judge decided a partial holdback of $150,000 was appropriate to protect both parties’ possible claims. The balance could be dispersed as an advance payment to both parties.

Courts Consider Fairness to Both Parties

Courts have looked at the findings in Zagdanski v. Zagdanski and have further refined the factors that Justice Lane initially identified. In Firestone v. Pfaff, the wife sought an order requiring the husband to pay $2 million as an advance on the equalization payment. She argued that the Court had inherent jurisdiction to award an advance on an equalization payment. While the husband’s counsel did not challenge that jurisdiction, they took the position that the factors in Zagdanski v. Zagdanski should be revised to include consideration of fairness to the husband.

The judge reviewed the parties’ financial statements. Although several matters remained outstanding and could impact the final equalization payment, the judge determined that the respondent would owe a payment of at least $2 million. Therefore, there was no realistic chance that the amount of the advance would exceed the final equalization amount. The wife’s finances were strained as she was engaged in costly litigation in Ohio relating to her father’s estate, and she had purchased a property which she was required to borrow funds to close the transaction. At the time of the application, she was carrying costs of over $15,000 per month. The husband suggested that the wife’s decisions were imprudent and that the Ohio litigation was unrelated to these proceedings. However, despite these characterizations, the judge noted that it was up to the wife to choose how to spend her money.

The husband argued that the analysis should include consideration of fairness to both parties, not just the party advancing the equalization claim, and the judge agreed. Due to various payments, the husband had made over the previous five years, he had already reduced the amount owing to the wife. He asked that any equalization payment be made over 10 years. However, there was no indication he could not pay $2 million. The judge decided that the husband should make an advance payment in two installments of $1 million within 14 days, along with payment of his share of proceeds from a property sale no later than the date of the property closing. This decision balanced the wife’s needs and the husband’s ability to pay.

Court Needs Certainty About the Right to an Equalization Payment

Courts have the discretion to award an advance on equalization before the total amount of the equalization payment is determined. A set of factors provide guidance as to when it may be appropriate for parties to receive an advance. This includes considering the fairness to both parties and whether any party has acted improperly.

The Family Lawyers at Shariff & Associates in Stouffville Advise on Property Division and Equalization Payments

The experienced separation and divorce lawyers at Shariff & Associates regularly advise clients on the processes involved in a divorce, which includes valuing assets and debts to determine whether an equalization payment will be owed. Your unique circumstances will be reviewed by our lawyers, who will be able to provide a realistic assessment of your options moving forward. We advocate on behalf of our clients to obtain the best possible outcome. If you have questions about property division or are seeking an advance on an equalization payment, contact us online or call us at 905-591-4545.