When is Prejudgment Interest Granted in Family Law Cases?

Man using calculator representing prejudgement interest in family law cases

Written on behalf of Shariff & Associates

A party who is receiving an equalization payment can ask the court for prejudgment interest on the amount that is owed. The Courts of Justice Act provides that a party entitled to the payment of money can claim interest “calculated from the date the cause of action arose to the date of the order”. However, courts have been clear that granting prejudgment interest is discretionary, and there are some exceptions to this general rule where prejudgment interest will not be awarded.

Payor Will Generally Need to Pay Prejudgment Interest

Section 128(1) of the Courts of Justice Act deals with prejudgment interest, and states that:

“A person who is entitled to an order for the payment of money is entitled to claim and have included in the order an award of interest thereon at the prejudgment interest rate, calculated from the date the cause of action arose to the date of the order”.

This section establishes that individuals who are entitled to the payment of money may claim interest on the payment that is owing. In Muraven v. Muraven, the Ontario Court of Appeal explained that the general rule is that the payor spouse will presumptively need to pay prejudgment interest on an equalization payment that is owing. Courts have previously recognized that applying prejudgment interest can encourage parties to make timely payments and can advance settlements resulting in less litigation. Moreover, section 130 provides courts with discretion in allowing or disallowing interest, or altering the rate or period of time for which interest can accrue.

Courts Outline Exceptions to Awarding Interest

In Burgess v. Burgess, the Ontario Court of Appeal considered an argument that the trial judge erred in not finding that the case fell within an exception to the general rule of awarding prejudgment interest on an equalization payment. The Court recognized that there are exceptions to the normal award of interest, and that interest will not be awarded where “the payor spouse cannot realize on the asset giving rise to the equalization payment until after the trial, does not have the use of it prior to trial, the asset generates no income, and the payor spouse has not delayed the case being brought to trial”.

In this case, the respondent’s position was that the exception to awarding prejudgment interest arose in cases where the payor would have found it a hardship to make the equalization payment. However, in this case, the appellant had liquid assets that could have been used to make the payment. While the appellant did have other assets, the only reason she had to make an equalization payment was because the respondent was entitled to a division of her pension. For the pension, the appellant would not have had to pay, and it would have been the appellant entitled to equalization from the respondent.

Case Does Not Fall Into Exceptions

As the Court explained, the respondent was in a position to claim prejudgment interest because of his entitlement to a share of the appellant’s future pension, which was not currently payable. While hardship may occur if there was no exception to awarding interest, it was not the basis for the exception of prejudgment interest in some scenarios.

The respondent also argued that the appellant kept her pension and that it appreciated in value since the parties separated. However, even if the pension increased in value, it did not generate money that could be available for the payment of interest. Generally, the recipient can be paid upon the judgement, or if the recipient has to wait for payment, they will be entitled to post judgment interest. Here, the respondent was being paid now for his loss of a share in the appellant’s pension that they would have enjoyed in the future. However, since the pension was not currently being paid to the appellant, the respondent was not being kept from money that was owed at the date of trial. Therefore, this case did not fall into any of the exceptions, and the Court ordered that no prejudgment interest should be payable on the equalization payment.

Courts Can Consider the Conduct of the Parties

What is the range of time for which prejudgment interest can accrue? That was a question in Finch v. Finch. The Court explained that prejudgment interest is frequently awarded “as a matter of fairness”. As Justice Minnema explained, without prejudgment interest, the passage of time through the effects of inflation and lost opportunity costs would erode the value of an equalization payment. The effect would be that “the payor spouse will retain more than required and the payee would receive less. This would in effect create an unequal division of property”. This is why, if a party wishes to avoid the presumption in favour of prejudgment interest, they need to convince the court that applying the interest would be unfair.

In this case, the wife sought prejudgment interest to the date of separation and alleged that was the date the cause of action arose. The husband argued the wife’s delay in bringing the matter to Court should disqualify her from prejudgment interest or, in the alternative, limit it to a shorter period. Section 130(2) of the Courts of Justice Act sets out a list of factors that courts shall take into consideration in awarding prejudgment interest, including:

  1. changes in market interest rates;
  2. the circumstances of the case;
  3. the fact that an advance payment was made;
  4. the circumstances of medical disclosure by the plaintiff;
  5. the amount claimed and the amount recovered in the proceeding;
  6. the conduct of any party that tended to shorten or to lengthen unnecessarily the duration of the proceeding; and
  7. any other relevant consideration.

While delay is a relevant consideration, the judge found that neither party was solely responsible for the delay, and that either party could have started the litigation at any time. Instead, the wife was the first one to initiate settlement discussions. Additionally, the judge recognized that the delay benefitted both through increases in the value of the jointly owned matrimonial home. There was no basis to deny prejudgment interest as a penalty for delay, and interest was calculated from the date of separation.

Judges Have Discretion in Granting Prejudgment Interest

There is a presumption that prejudgment interest will be awarded when one party is entitled to the payment of money. Yet, it is important to be aware that there are circumstances where interest will not be appropriate. Furthermore, courts can take into account the unique circumstances of the case in addition to the parties’ conduct in deciding the issue.

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