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Net Family Property, Unconscionability, and Unequal Division 

property division

The Court of Appeal decision of Czieslik v. Ayuso, 2007 ONCA 305 changed the manner in which the courts have approached fault-based conduct and the division of net family property in Ontario. We will discuss how this important case has changed family law.

Background 

The parties married in 1989. This was the third marriage for the wife, von Czieslik, and the second for the husband, Ayuso. Both parties came into the marriage with their own separate properties and placed mortgages of varying amounts on these properties to purchase the matrimonial home.

In 1994, when the parties’ marriage became rocky, the husband placed a mortgage on his separate property in favour of his close friend’s corporation. He did this without his wife’s knowledge even though she was well acquainted with the husband’s friend. The friend did not provide any funds as consideration for the mortgage nor did the husband make any payments on the mortgage. 

In January 2000, about 10 months prior to the date of separation, the husband sold his property for $330,000.00. According to the closing documents, he received nothing from the proceeds of sale. The only beneficiary from the sale of the house was the corporation of the husband’s friend which received $189,683.14to discharge the mortgage. The wife did not learn about the sale of the husband’s property until after the date of separation

Trial 

The issue at trial was how this gift of $190,000.00 to the husband’s friend should be treated in terms of the net family property and what equalization payment would be appropriate given the husband’s conduct.  

Since the husband did not own the property at the date of separation, nor the $190,000.00 gifted to his friend’s corporation prior to the separation, the husband had no interest in either and did not have to include it in his net family property. In this case, the parties’ net family properties were relatively the same such that difference between them was only $10,466.00.

The trial judge made a finding of unconscionable conduct against the husband in that he had “intentionally incurred [the Three R mortgage] for the purpose of keeping the equity held by him in that asset or any portion of the proceeds of its sale out of von Czieslik’s hands”. For if the husband had not engaged in the unconscionable conduct, and he had included the mortgage proceeds in his net family property, this would have resulted in an equalization credit for von Czieslik in the amount of $95,000.00.

Issue #1 – Can the Court award more than the difference in the parties’ net family property?

The main question left to be determined by the trial judge was whether the court could make an order for an equalization payment that was more than the difference in the parties’ net family properties. 

The Law

S. 5(6) of the Family Law Act is the legislation with enables the court to make an order for unequal distribution of the net family property in cases where the court makes a finding of unconscionable conduct based on the factors listed from (a) to (h). 

Variation of share

(6) The court may award a spouse an amount that is more or less than half the difference between the net family properties if the court is of the opinion that equalizing the net family properties would be unconscionable, having regard to,

(a)  a spouse’s failure to disclose to the other spouse debts or other liabilities existing at the date of the marriage;

(b)  the fact that debts or other liabilities claimed in reduction of a spouse’s net family property were incurred recklessly or in bad faith;

(c)  the part of a spouse’s net family property that consists of gifts made by the other spouse;

(d)  a spouse’s intentional or reckless depletion of his or her net family property;

(e)  the fact that the amount a spouse would otherwise receive under subsection (1), (2) or (3) is disproportionately large in relation to a period of cohabitation that is less than five years;

(f)  the fact that one spouse has incurred a disproportionately larger amount of debts or other liabilities than the other spouse for the support of the family;

(g)  a written agreement between the spouses that is not a domestic contract; or

(h)  any other circumstance relating to the acquisition, disposition, preservation, maintenance or improvement of property.  R.S.O. 1990, c. F.3, s. 5 (6).

The trial judge relied on s. 5(6)(d) of the Family Law Act and made an order for 100% of the difference of the parties’ net family property to be awarded to the wife on the basis that the husband’s dealings with the mortgage constituted an “intentional or reckless depletion of…net family property.” 

The trial judge considered all of the relevant authorities in her determination of the remedies available under s. 5(6). The trial judge held that the case law was not in favour of the court awarding more than the difference in the net family properties. 

The case of Stone v. Stone, 2001 CanLII 24110 (ON CA), 55 O.R. (3d) 491 (C.A.) held that section 5(6) of the Family Law Act only empowers the court to order an unequal division of the difference in value of net family property. It affirmed that s. 5(6) did not empower a court to set aside a disposition of property to innocent third parties as had occurred in this case. The court could only make an order based on the net family property defined in s. 4 of the Family Law Act. 

Section (4) of the Family Law Act calculates net family property by subtracting the spouse’s marriage date net family property from the value of their property owned on the date of valuation, after first deducting of all debts and liabilities.

This meant that the court could not consider property that did not form part of one spouse’s net family property on the date of valuation. In effect, even if one party was found to have recklessly depleted assets with the intention of lower their net family property, s. 5(6) is only useful to the wronged party if the spouse who made the transfer has sufficient assets on the actual date of valuation to make an order for unequal sharing. 

In this case, the difference in the parties’ net family property was only $10,466.00. Thus, although the trial judge found that the husband’s conduct was “reprehensible” the court was limited in only being able to award 100% of the difference in the net family property, that is $10,466.00, to the wife. 

The wife appealed the trial decision to the Court of Appeal. 

Court of Appeal 

The Court of Appeal agreed with the wife and took a broad interpretation of the wording of s. 5(6). Specifically, paragraph 25 of the Court of Appeal decision found that a plain reading of s. 5(6) can be interpreted to mean that the court may award an amount of money that is more (or less) than the difference the parties’ net family property and not just restrict itself to an award of the difference itself. The Court of Appeal recognized that there was nothing in the wording of s. 5(6) that placed a “cap, restriction, or limitation on “more than”, on its face.” The fact that the legislature could have placed a cap on the award but declined to do so was deemed to be intentional. Logically, since there was no ceiling on what was meant by an award of more than the difference in the net family properties, the Court of Appeal rejected the husband’s argument that the remedies afforded by s. 5(6) were restricted to a transfer of only the difference in the net family properties.  

The court also commented on this new interpretation of the powers of s. 5(6) being harmonious with the overall policy objective of the Family Law Act which is to provide an “orderly and equitable” resolution of the parties’ disputes. In some marriages, as in this case, the difference in the parties’ net family properties was minimal. Therefore, the overarching purpose of the FLA would not be achieved if the court was to interpret s. 5(6) in a narrow sense where one party successfully establishes fault-based conduct against the other spouse. The husband in this case would be permitted to benefit from his wrongful manipulation of the net family property by effectively taking $95,000.00 from what would otherwise be owed to his wife through the sham mortgage. In paragraph 34, the Court of Appeal concluded that s. 5(6) was designed to redress exactly this type of wrongful conduct.  

Paragraph 34 of Czieslik v. Ayuso, 2007 ONCA 305

“When a party absconds with part of that property through unconscionable conduct, he or she has altered the value of the net family property that the legislature intended would be equalized. It must be that, by the enactment of s. 5(6), the legislature intended to give the courts the ability to correct the wrong by awarding the other party the value of the offending party’s net family property.”

Award

The Court of Appeal found in favour of the wife and varied the final order by awarding her 100% of the value of the husband’s net family property in the amount of $74,385.

Takeaway

The case of von Czieslik v. Ayuso was a crushing blow to the husband and is a cautionary lesson for the pre-separation depletion of assets. As a result of the court’s expansion of the powers under s. 5(6) the husband was forced to transfer his entire net family property to his wife. The result is that he would have come out farther ahead had he not deliberately diminished his net family property by making a gratuitous transfer to his friend. This case will certainly have a deterrent effect on any spouses who are planning on a pre-separation transfer of assets to avoid their obligations under the Family Law Act

Find the Right Lawyer in Mississauga

Mississauga lawyers can assist clients in net family property disputes by providing comprehensive legal guidance and representation throughout the process. Here are some ways they can help:

  1. Legal Assessment: Lawyers can evaluate the client’s situation and provide an overview of their rights and obligations under Ontario’s Family Law Act regarding net family property.
  2. Gathering Documentation: Lawyers can assist clients in gathering all relevant financial documentation necessary to calculate net family property, including assets, debts, income, and liabilities.
  3. Calculation of Net Family Property: Lawyers can perform the calculation of net family property according to the guidelines set out in the Family Law Act, ensuring accuracy and fairness. 
  4. Negotiation: Lawyers can engage in negotiations with the opposing party or their legal representative to reach a fair settlement outside of court. This may involve mediation or collaborative law processes.
  5. Litigation: If an agreement cannot be reached through negotiation, lawyers can represent their clients in court proceedings. They will present evidence, make legal arguments, and advocate for their client’s interests before a judge.
  6. Enforcement of Settlements or Court Orders: If a settlement or court order is not being followed, lawyers can take legal action to enforce compliance, such as filing a motion for enforcement with the court.
  7. Appeals: In cases where there are grounds for appeal, lawyers can assist clients in navigating the appellate process to seek a review of a court decision.
  8. Alternative Dispute Resolution (ADR): Lawyers can explore alternative dispute resolution methods like arbitration or mediation to resolve the matter more efficiently and cost-effectively.

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