• by Amruta Ponkshe
Originally published in the OFLM 2023-11 edition
It is common knowledge that when a marriage ends, property gets divided. Section 5 of the Family Law Act deals with the equalization of net family properties upon the breakdown of a relationship. The general rule for the division of property, as set out in subsection 5(1), is that the spouse whose net family property is the lesser of the two net family properties is entitled to one-half the difference between them.
But that is not always the case. In appropriate situations, judges in Ontario have granted one spouse an amount that is more or less than one half the difference between the two net family properties, deriving their authority to do so from section 5(6) of the Family Law Act.
This article discusses recent and more familiar cases in how courts exercise their discretion and implement uneven sharing of wealth. This uneven sharing can arise from a spouse’s financial malfeasance including reckless depletion of wealth and incurring disproportionately large debts.
When can a court award unequal division?
Section 5(6) of the Family Law Act discusses eight situations where an equalization payment may be varied:
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.
The Test of Unconscionability
In Serra v. Serra (2009 ONCA 105), the Ontario Court of Appeal, at para. 47, discussed that the test for “unconscionability” under section 5(6) is a high one. The jurisprudence is clear that circumstances which are “unfair”, “harsh” or “unjust” alone do not meet the test. To cross the threshold, an equal division of net family properties in the circumstances must “shock the conscience of the court”.
In Smith v. Smith (2012 ONSC 1116), Justice Chappel held as follows as para. 23:
The test of unconscionability is not met by showing that equalization would lead to hardship to one spouse, or by the fact that an equalization payment would leave the parties with a difference net worth. Nor is it met by simply demonstrating that an equalization of net family properties would be unfair, harsh, inequitable or unjust. In order to satisfy the test of unconscionability, the circumstances of the case must be such that equalization would be "repugnant to anyone's sense of justice"
In Merklinger v. Merklinger (1992 CanLII 7539 ONSC), a husband’s conduct, particularly in relation to his dealings with the parties’ $1.1 million cottage, which he finagled to acquire from a bank for less than two thirds of its value, led Justice Jennings to grant an unequal division of the parties’ net family properties in the wife’s favour. At para. 54, Justice Jennings stated:
Section 5(6) permits me to order an unequal allocation of value if to do otherwise would be unconscionable. The legislature deliberately chose to strictly define the severity of the application of section 5(1) which must pertain before there can be any judicial intervention. The result must be more than hardship, more than unfair, more than inequitable.
Justice Jennings’ decision was upheld by the Ontario Court of Appeal in Merklinger v. Merklinger (1996 CanLII 642 ON CA).
In Cosentino v. Cosentino (2015 ONSC 271), Justice Perkins clarified that the list of considerations in determining whether the threshold has been crossed is not open ended. All of the provisions of section 5(6) are directly linked to the impact on one of both spouses’ debts, liabilities and property. A general sense of outrage, absent a clear connection to the parties’ debts, liabilities and property, is not sufficient. It is the financial result, the result of the usual NFP equalization that must be unconscionable, after taking into account only the eight enumerated considerations, nothing else.
N.R.I.H. v. M.G.S.H. (2015 ONSC 3277) involved a claim by the wife that the husband had sexually assaulted her the night before the parties separated and that the parties’ net family property should be divided unequally. The basis of the wife’s claim was that it would be unconscionable for the husband to receive any portion of the family assets, given his lack of contribution to the marriage and conduct on the evening before the parties’ separation. While Justice Wildman held that the evidence adduced by the wife fell short of establishing that the husband had sexually assaulted her, her Honour further elaborated that even if that finding had been made, the court could not impose a financial punishment on him by varying his share of the net family property. To do so would consider conduct that was not related in any way to the property that the parties had on the date of separation.
Justice Wildman reiterated at paragraph 291 that there is nothing in paragraph 5(6) that give the court some general authority to punish a spouse for objectionable conduct by varying his or her equalization payment.
Steps to follow
Before determining whether an unequal division of net family property is ordered, the court must first determine the net family property of each spouse at valuation date. Next, the court determines the equalization payment. Finally, the court determines whether the equalization would be unconscionable, in accordance with the factors set out in the Act: see Venton v. Venton (2015 ONSC 4705), at para. 93
Restrictions on “more or less than”
Subsection 5(6) provides that the court may award an amount that is more or less than half of the difference between the parties’ net properties. There is no restriction or cap on the “more than” and, therefore the Act does not limit the award to 100 per cent of the difference between their net family properties. If the difference between their net family properties is zero, a court may still award more than that amount, although the payment cannot exceed the total value of a spouse’s net family property: see Czieslik v. Anyso (2007 ONCA 305) at paras. 25, 35 and 36; Ottewell v. Martin (2023 ONSC 5696) at para. 21.
Recent Decisions discussing Unequal Division of NFP
Moretti v. Moretti
The parties in Moretti v. Moretti (2023 ONSC 5240) were married for fourteen years and had a son who, though an adult, continued to be “a child of the marriage” because of his autism. The wife sought retroactive and continuing child and spousal support, equalization, and a 50% interest in the matrimonial home. The husband argued that the wife had dissipated family assets to the tune of $5 million because of her gambling addiction. He relied on subsections 5(6) (d) of the FLA to claim that the wife’s reckless and intentional depletion of her net family property that this disentitled her to an equalization payment, spousal support, and child support.
While the wife admitted to having a gambling problem, she had failed to take any steps to address it. She argued that the husband knew, approved, and encouraged her gambling. However, Justice Sugunasiri held that that fact that the husband might have driven her there at a time when the extent of the gambling was not obvious did not lead to his condonation.
Further, the husband had to sell a property and take out a line of credit against another property, totalling to approximately $580,000, to help the wife meet loan repayment obligations she had to friends.
Her Honour concluded that the husband took on a greater burden to assist the wife despite her gambling. The wife recklessly depleted funds that could have provided for her retirement and care of the party’s son. Justice Sugunasiri accepted the husband’s NFP calculation of $238,308.29 but reduced the wife’s entitlement to zero asserting that the wife’s behaviour had shocked the court’s conscience, and an unequal division was warranted.
Choudhury v. Awal
In Choudhury v. Awal (2023 ONSC 4064), Justice M. Fraser was presented a claim from the husband for an unequal division of the parties’ net family properties based on an apparent $69,000 he asserted the wife removed from a bank account prior to the parties’ separation. The wife maintained that the funds removed from the account were, in part, provided to the husband, applied toward debt for mutual benefit and to finance one of the parties’ trips to Bangladesh.
Her Honour concluded that the husband’s evidence on the issue fell woefully short and did not approach a finding of unconscionability.
Her Honour reminded readers at paragraph 128 that although unconscionable conduct is an appropriate consideration in carrying out the analysis required under section 5(6), the true target of the section is a result that is unconscionable to one of the parties.
Osborne v. Shevalier
In Osborne v. Shevalier (2022 ONSC 73), the wife sought an unequal division of net family property alleging that without her knowledge and contrary to the husband’s assurances that the parties were financially secure, the husband withdrew approximately $99,000 from his RRSP over the course of the parties’ seven-year marriage.
After reviewing the evidence adduced by each party, Justice Sproat concluded that the parties were always living beyond their means and that at its highest, the husband told the wife not to worry about finances and that things would be fine. The finances were largely open to the wife.
There was no evidence to suggest that the husband had a covert lavish lifestyle. The wife had at least partially contributed to the parties living beyond their means by purchasing a new vehicle in priority to paying down debts.
The RRSP withdrawals benefitted the wife by funding living expenses, reducing family debts or enhancing the value of family assets. As such, there were no grounds for ordering an unequal division of net family property.
Clients may find making a claim for uneven sharing of wealth very appealing monetarily, but as family lawyers, it is our duty to remind them that misbehaviour or negative actions by a spouse are not enough to meet the test of unconscionability.
Determining an unequal division of property is a fact-specific exercise and the onus of meeting the test of unconscionability for unequal division of net family property lies with the party requesting the variation – a bar much too high to achieve in most circumstances.