• by David Tobin
Originally published in the OFLM 2024-08 edition
Overview
Obtaining orders for the payment of an equalization payment or the payment of support are great, but of little use if the party against whom the order is made has dissipated all of their assets prior to enforcing the orders.
The manner in which parties can dissipate assets are varied. So to are the tools available to prevent such dissipation.
Preservation orders are helpful tools to ensure a party will have assets available to them to satisfy an equalization payment or a support order. However, attention must be given to the critical questions of whose property are you seeking to preserve and for what purpose
Depending on the facts, a party may have to seek remedies under Sections 12 or 40 of the Family Law Act, the Courts of Justice Act, Rules of Civil Procedure or the Fraudulent Conveyance Act.
This article only addresses orders under Sections 12 or 40 of the Family Law Act.
First, it discusses the object of the order (or against whom an order can be made). Next, this article discusses the onus and test to obtain a preservation order. Lastly it provides examples of when an order will or will not be made.
Family Law Act Preservation orders – Against whom can they be made?
Although it may seem obvious, the object of an order under sections 12 or 40 of the Family Law Act must be the other (former) spouse or party.
Section 12 of the Family Law Act provides that the court has the jurisdiction to order the preservation of property if it is necessary for the protection of a spouse’s interest under section 7 of the Family Law Act – namely the receipt of an equalization payment. Section 12 of the Family Law Act reads as follows:
12. Orders for preservation
In an application under section 7 or 10, if the court considers it necessary for the protection of the other spouse's interests under this Part, the court may make an interim or final order,
(a) restraining the depletion of a spouse's property; and
(b) for the possession, delivering up, safekeeping and preservation of the property.
Section 40 of the Family Law Act reads as follows:
40.Restraining orders
The court may, on application, make an interim or final order restraining the depletion of a spouse’s property that would impair or defeat a claim under this Part. R.S.O. 1990, c. F.3, s. 40; 1999, c. 6, s. 25 (18); 2005, c. 5, s. 27 (21
It is clear from the wording of the Act that sections 12 and 40 only permits a preservation order to be made against a spouse or a former spouse.
Case law has interpreted sections 12 and 40 to be limited to spouses and not applicable to third parties. In practice, this means that if your client thinks (but the fact has not yet been found) that a spouse’s family member is holding property intrust for the spouse, sections 12 or 40 cannot be engaged to preserve the asset/property in question.
Justice Charney in Dimartino v. Dimartino (2016 ONSC 7461) considered whether a wife could obtain an order pursuant to Section 12 of the Act against her son, who she alleged conspired with the husband to dissipate real estate holdings. At paragraph 29 of his decision, His Honour found he lacked the jurisdiction to make such an order because the“language of s. 12 of the FLA is directed to the property owned by the spouse, and not property owned by a third party, even if that property were formerly owned by the spouse.”
If the property in questioned is owned by a non-spouse, the request for preservation must be via a Mareva Injunction, which has a difference legal test and “presents a higher hurdle than the test for a non-dissipation order under s. 12 of the FLA” (Newcastle v. Newcastle, 2018 ONSC 5121 at para. 24).
As such, prior to considering the merits and/or necessity of the order, the moving party must ensure the property is owned by the other spouse. Without an ownership interest by a spouse (or former spouse) then no order can be made under sections 12 or 40.
When will a section 12 order be made?
An order will only be made pursuant to section 12, if it is necessary to protect an equalization claim. If the property in question is owned by the spouse, then the moving party has the onus to demonstrate that an order is necessary to ensure the payment of the equalization payment. (Schaefer v. Richards et al.,2023 ONSC 4733 at para. 48).
The test to be applied on a motion for preservation order was set out by Justice Timms J. in Price v. Price (2016 ONSC 728). At paragraph 6 he states:
The correct standard is the same one to be applied when determining whether to grant an interim injunction:
1. Is there a serious issue to be tried?
2. Will the moving party suffer irreparable harm if relief is not granted? and
3. Which party will suffer the greater harm from granting or refusing the remedy pending a decision of the merits?
The ‘serious issue to be tried’ relates to the likelihood of an equalization payment being ordered in the moving party’s favour. (Gorog v. Gorog, 2019 ONSC 5510 at para. 10).
The question of whether the moving party will suffer irreparable harm if not granted, asks the question “what risk is there of dissipation?” A moving party can demonstrate this by demonstrating that the other party has already began dissipating assets. However, Papageorgiou J. notes that“past dissipation is not required to demonstrate future risk”. (Elham v. Kasra et al, 2021 ONSC 6433 at para. 37).
In Elham, Papageorgiou J. granted a preservation order where the responding party: 1) held back important disclosure related to property; 2) renewed the mortgage for the property on a five-year closed basis, despite the moving party’s intention to bring a motion to sell the property; 3) relied on fraudulent documents during questioning; and 4) provided inconsistent explanations as to the whereabouts of $150,000.00 which belonged to him.
Papageorgiou J. relied on Justice Emery’s reasoning in Barbini v. Edwards, 2014 ONSC 6762, at para. 91 and found the preservation order was:
…warranted given the complexity of the issues yet to be determined by the court in this application, questions of credibility on those issues and the ever present risk that . . . assets could be dissipated to defeat the rights of another without it.
In Brkljac v. Todorovic, 2022 ONSC 6653, Faieta J.ordered the continuation of a preservation order where the responding party: 1) failed to provide full and frank disclosure; 2) previously swore a false document in order to obtain a mortgage on a property which he subsequently sold and did not disclose the whereabouts of the sale proceeds; and 3) held a Serbian passport, had undisclosed Serbian bank accounts and admitted to transferring money to Serbia from Canada. Faieta J. found a serious issue to be tried where the responding party was likely to owe an equalization payment of roughly $660,000.00.
Without a basis for a party being concerned about dissipation, an order under section 12 should not be made.Kraft J., inZadeh v. Zamani (2023 ONSC 522), refused to grant such an order where there was no evidence that the responding party was a flight risk or that she would hide or deplete assets, especially in the circumstances where the Responding party had delivered financial statements and disclosure (at para. 44).
When bringing a motion for a preservation order, a party must be specific about what property they hope to preserve. A court may not grant broad or ill defined preservation requests because of harm it may cause to the responding party.
An early leading case interpreting s. 12 is Lasch v. Lasch (1988), 64 O.R. (2d) 464, 1988 CanLII 4581 (ON SC). Lasch was recently adopted in Conforti v. Conforti (2021 ONSC 1767 at paragraph 28- 29). In Lasch, Granger J. holds that:
A restraining order should be restricted to specific assets and there should be an onus on the party seeking the restraining order to prima facie show that he or she is likely to receive an equalization payment equal to the value of the specific assets.
Conforti v. Conforti, 2021 ONSC 1767 at paras. 28-29.
Sah J.,in Schaefer v. Richards et al. (2023 ONSC 4733), refused to grant a section 12 order where the “requested orders in the case at bar [were] too broad” (at para. 60). In that case, the moving party sought “a non-depletion order against the Respondent Richards and a freezing of any of his bank accounts or investments, under ss. 12 and 40 of the FLA” (at para. 1). No specific accounts or assets were noted. Consequently Sah J. could not know the ‘amount’ an order would actually tie up.
An order should not preserve an amount greater than the payment it is seeking to secure. In fact, Kraft J. specifically held that a“spouse is not entitled to security dollar for dollar of what he/she says is his/her best day in terms of property division.” (Zadeh v. Zamani, 2023 ONSC 522 at para. 44.)
When will a section 40 Order be made?
While the language of section 40 is different from that in section 12, the considerations are similar. A moving party must demonstrate 1) a triable issue; 2) that they will suffer irreparable harm if the order is not granted; and 3) their harm will be greater than the other party’s. (Taus v. Harry, 2016 ONSC 219, at para. 34)
A non-depletion order may be made pending trial where a party has not complied with previous orders for support and the recipient is in need. A moving party will need to adduce proof of non-compliance or blameworthy conduct. (Keyes v. Keyes, 2015 ONSC 1660 at paras. 74 & 76)
Where there is only a concern of dissipation and no evidence of non-compliance with a support order, a section 40 order will likely not be made. (Gerges v. Gerges, 2023 ONSC 2662 at para. 11)
Given that the weight of the case law states that there needs to be evidence of non-compliance with a support order or some other blameworthy conduct, it may not pay for your client to bring a motion in circumstances of a party’s compliance with a support order.
Other circumstances
At times, a party may need to preserve property for reasons other than an equalization payment or support. For example, where a moving party is not a married spouse and is advancing an unjust enrichment claim. In such a case, sections 12 or 40 of the Family Law Act may not be available and the moving party may have to seek a Mareva Injunction.
Similarly, if property has already been dissipated, sections 12 or 40 of the Family Law Act will be of little value and as such, an application under the Fraudulent Conveyance Act may be necessary.
Conclusion
Family lawyers work hard as it is obtaining favourable results for their clients. It therefore would be a shame if such positive orders become useless in situations where the opposing party depletes their assets and leaves their former spouse high and dry.
Accordingly, counsel should be mindful of the tools that the Family Law Act offers to protect clients from such injustices. Counsel should also not only screen for such risks in the beginning of a file, but also assess for them throughout the course of the negotiations and/or litigation.
And if the tools are used properly, a client will not only be happy with their lawyer’s services, but also the results.