COVID-19 – SPOUSES – IF YOU SEPARATE RECENTLY BEFORE OR DURING THE PANDEMIC, BE CAREFUL! YOU MAY NOT HAVE TO PAY AS MUCH TO SETTLE PROPERTY – WHAT YOU NEED TO KNOW
When two married spouses separate, among other issues they must resolve, they must “equalize” their “net family property”, respectively.
Basically, the spouse whose net worth increased more between the date of marriage and the date of separation must pay to the other spouse one-half of the difference in that increase over the other spouse, subject to a few rules and exceptions that often cause disputes in and of themselves.
If Sharon’s net worth increased by $10 during the marriage, but Mike’s, her married spouse’s, net worth only increased by $5, Sharon would legally be required to pay to Mike $2.50, thereby equalizing their net family properties.
Of course, it is more complicated than this, as special rules and exemptions also apply, but this is the basic family law requirement, unlike in most of the United States, where a married spouse is entitled to half of the combined assets and liabilities, generally.
COVID-19 now casts an uncertain shadow over this family law rule.
Assets have already substantially lost value during the pandemic, particularly investment holdings and likely the value of matrimonial homes, farms, etc.
The key dates are the date of marriage and the date of separation (referred to as the “valuation day”).
So, if the date of separation was early on during, or even before, the pandemic affected Ontario, there is substantial risk involved with utilizing the date of separation fair market value for assets to compute the equalization of net family properties.
It may create unfairness to the higher net worth spouse, forced to solely burden the economic impact of the virus, particularly if a settlement or trial does not take place for several months after the pandemic struck us.
If an asset is jointly-owned, the issue is less likely to arise, as both spouses typically, subject to a few exemptions, bear the prevailing market conditions post-separation.
Furthermore, there is so much uncertainty about the future of the economy and market forces, the risk may actually be increasing as time passes during the pandemic.
A higher net worth spouse in these circumstances does, at law, have a remedy to assert to try to gain some relief.
Under the legislation for Ontario, the Court is empowered, subject to strict conditions, to reduce or vary an equalization payment by the higher net worth spouse to the other.
This is commonly referred to as an “unequal division” of net family properties.
The relevant section of Ontario’s Family Law Act reads:
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).
(7) The purpose of this section is to recognize that child care, household management and financial provision are the joint responsibilities of the spouses and that inherent in the marital relationship there is equal contribution, whether financial or otherwise, by the spouses to the assumption of these responsibilities, entitling each spouse to the equalization of the net family properties, subject only to the equitable considerations set out in subsection (6). R.S.O. 1990, c. F.3, s. 5 (7).
The test to be given an unequal division by the Family Court is high and onerous.
Essentially, applying the regular and usual family law must, in the special circumstances, be shocking and unconscionable to the Court.
The question is: does COVID-19 fall into that high threshold potentially?
Certainly the 2008 recession was considered by the Court to justify deviating from the otherwise normally-applied family law for equalization of net family property.
It seems, then, that COVID-19 would also be proper grounds to request an unequal division, in the right circumstances.
Indeed, a spouse’s net worth may be substantially impacted by the pandemic between the date of separation and the time when the Court holds a trial, or there is a settlement reached.
What to do?
If a spouse has experienced a material decline in his or her net worth since the onset of the pandemic, before or after a separation date, careful consideration needs to be given to possibly seeking an adjustment to how the law would otherwise, normally be applied by the Court.
It may be that, due to the virus, there are justifiable reasons to assert that the high test has been met to warrant a lesser property settlement payment than would otherwise be required.
April 13th, 2020
Posted in COVID-19