Unequal property division for short marriages

• by Amruta Ponkshe & David Frenkel

Originally published in the OFLM 2023-12 edition

Overview

Section 5(6)(e) of the Family Law Act permits a court to order an unequal division of property in situations where married parties have cohabited for a period less than five years.

When parties have lived together less than five years, there is a body of case law that uses a mathematical formula that reduces the equalization payment inversely proportionate to the period of cohabitation. One year of cohabitation equals 1/5th of the total equalization, two years of cohabitation equals 2/5th of the total equalization, etc. However, there are also cases that do not automatically apply this formula.

Therefore, this article discusses these two streams of cases and attempts to clarify the differing approaches.

Introduction

Section 5(6) of the Family Law Act is an exception to the general rule of equalization of net family properties. Specifically, courts can rely on this section to implement uneven sharing of wealth as a result of 8 different factors as listed at 5(6)(a) to (h).  These factors include (a) a spouse’s failure to disclose debts, (b) recklessly incurred debts, (c) gifts from a spouse, (d) intentional depletion of property, (e) cohabitation lasting less than five years, (f) incurring large debts for the support of the family, (g) a written agreement other than a domestic contract, or (h) other circumstances relating to property.

Pursuant to subsection 5(6)(e) of the Family Law Act, the court has the discretion to award a spouse an amount that is more or less than half the difference between the net family properties. To do this, the court must be of the opinion that equalizing the net family properties would be unconscionable, having regard to the fact that the amount a spouse would otherwise receive is disproportionately large in relation to a period of cohabitation that is less than five years.

In Serra v. Serra (2009 ONCA 105), the Ontario Court of Appeal, at paragraph 47, discussed that the test for “unconscionability” under section 5(6) is a high bar. 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 M.N.B. v. J.M.B. (2022 ONSC 38 at para. 135), the court held that to make an unequal division of net family property, the court must find that:

  1. (a) the parties cohabited for less than five years;

  2. (b) payment of the presumptive amount would be unconscionable; and

  3. (c) that the presumptive amount is disproportionately large in relation to the length of cohabitation.

In the recent case Daciuk v. Daciuk (2023 ONSC 70), Justice Kurz raised the fact that the parties’ marriage lasted only about 3.5 years and questioned whether that fact itself would be sufficient to reduce the wife’s claim for equalization considering section 5(6)(e). However, the parties had cohabited for approximately 3.5 years prior to being married, and the total period of cohabitation was, in fact, seven years. 

After considering Pope v. Pope (1999 CanLII 2278 ON CA) and Janjua v. Khan (2013 ONSC 44), Kurz J. concluded that section 5(6)(e) allows the court to consider unconscionability within the context of “a period of cohabitation that is less than five years”, not just the length of marriage.

Booth v. Bilek (2021 ONCA 128)

In the 2021 Court of Appeal decision of Booth v. Bilek (2021 ONCA 128), the parties separated after four years of marriage. Prior to the marriage, the parties had cohabited for four years. The trial judge declined to award the wife an amount that would equalize the parties’ net family properties and instead awarded her $10,627, or 10% of the full amount ($106,274) that would equalize the parties' net family properties.

In the trial decision, the court acknowledged that the threshold for unconscionability is high and determined that strict equalization would be inappropriate, given the circumstances of the case, noting that:

  • the wife had benefited financially from the comparatively short marriage, and her net family property was mostly derived from gifts given to her by her husband;

  • the wife had received one half of the proceeds of sale of the matrimonial home, despite having made no direct financial contribution to its purchase;

  • the difference between the parties’ respective net family properties was attributable largely to the growth of the husband’s investments during the marriage;

  • the husband was 69 years old, retired, and was solely dependent on the income generated through his investments;

  • the wife was 46 years old and had become self-supporting;

  • there were no children of the marriage; and

  • the wife was much better off financially than she was at the beginning of the marriage, “with little if any financial contribution on her part”.

The wife appealed the original decision, disagreeing with the finding that a full equalization would be unconscionable, and alleging that the trial judge did not properly explain how she determined that an equalization figure of 10% would be appropriate. 

The Court of Appeal disagreed and noted that:

Section 5(6)(e) of the  Act  specifically identifies that a period of cohabitation less than five years is relevant to whether full equalization may be unconscionable. This promotes certainty about equalization for marriages longer than five years. It also provides notice to parties who have been married for less than five years that a court may take a closer look at whether equalizing would be unconscionable in the specific circumstances of a shorter marriage. (at para. 13)

The wife further argued that, if unequal division was appropriate, the trial judge should have applied a formula that prorates the equalization according to the length of the cohabitation.  As the parties cohabited for 52 months, the wife suggested that any unequal division should be calculated at 87% of full equalization (52/60 months), which would have entitled her to $92,458.80.

The Court of Appeal did not agree with the wife’s argument and stated that while applying a mathematical formula based on the length of the marriage provides the benefit of certainty, neither the Family Law Act nor relevant case law requires the court to do so. The Court concluded that the trial judge’s decision to award the wife 10% of the total equalization was reasonable in the circumstances of the parties’ marriage.

When to apply the mathematical formula

Whether a court applies the mathematical formula or not will depend on the circumstances of the case.

For example, in Gomez v. McHale (2016 ONCA 318), the Ontario Court of Appeal recognised that courts have looked at the actual period of cohabitation and then fixed an unequal division of net family property using that period as a percentage of the five-year statutory period. However, it held that section 5(6) requires only that the court carefully look at the backgrounds of both parties and that judges have the discretion to fix reasonable values for equalization if they determine that an equal division would be “unconscionable” based on the backgrounds of the parties. The courts have the flexibility to determine whether an equal division would be unconscionable and, if so, fix what it regards as a reasonable figure that is fair, just and equitable in consideration of all the evidence.

In Gomez, the court upheld the trial judge’s finding that the appellant wife was only entitled to the payment of $60,000 rather than her 4/5 entitlement of otherwise entitlement of $268,000 (i.e., $214,000) because of their four-year period of cohabitation. 

In contrast, in Dworakowski v. Dworakowski (2022 ONSC 7209), Justice Sharma applied the mathematical formula. The court considered that the parties cohabited for 34 months and that the bulk of the value of the equalization payment arose from the husband’s acquisition of a property before marriage. His Honour determined that the application of the presumptive equalization payment would result in a shocking windfall to the wife that was not representative of her contributions. Accordingly, he concluded that 34 months of cohabitation would result in 57% of the equalization payment, or $139,553.41, being paid to the wife. His Honour found this amount to be fair and equitable under section 5(6) and that it appropriately compensated the parties for their respective contribution and the growth in value of their most significant assets during the marriage.

Similarly, Kruschenske v. Kruschenske (2018 ONSC 4342) was a case where the parties cohabited for 50 months and the husband brought almost all of his assets into the marriage, including the matrimonial home.  After considering Gomez, Justice Kane used the mathematical formula in determining division of the parties’ net family property. At para. 137, his Honour discussed that:

While not a legal requirement as determined on appeal in Gomez, use of the length of cohabitation in circumstances which are unconscionable to determine what is a fair and just equalization is logically consistent with the Act’s use of time, namely the 5-year threshold in s. 5(6) after which full equalization is required.  The customary use of a time-based formula for cohabitation for less than 5 years provides separated couples with the certainty …which encourages settlement and potentially avoids costly litigation.

Applying a time-based formula to a period of cohabitation that was one year less than the five-year threshold, Justice Kane concluded that the husband had to pay 80% of what he owed the wife as per the net family property equalization calculation, that is, $170,127.08 (instead of $212,658.85), less payments made pursuant to previous order(s).

In Kucera v. Kucera (2005 CanLII 12854), the parties separated after only 10 months of marital cohabitation. The central issue was whether it would be unconscionable for the wife to receive the full equalization payment after such a short marriage, a payment which was almost entirely generated by the fact that the husband brought the matrimonial home into the marriage and was unable to claim a credit for the date of marriage value due to the Family Law Act prohibiting deduction of its value as of the date of marriage.

Justice Heeney discussed that marriage is a form of partnership, and it is inherently fair that wealth accumulated during the life of that partnership should be shared equally. However, where application of the legal framework potentially becomes unfair, the special provisions under section 5(6) come into play.

His Honour further commented that:

…the equalization process does not only share wealth accumulated during the marriage, but also shares the value of one specific asset, the matrimonial home, that was accumulated prior to the marriage.  In very short marriages, this represents an unjustifiable windfall to the non-titled spouse. (at para. 19)

His Honour confirmed that section 5(6) can be used to redress such unfairness and concluded that based on the mathematical formula, payment of one-sixth of the full equalization payment was fair and reasonable in the given circumstances. In reaching this decision, Justice Heeney considered the following factors:

  • the home was purchased by the husband well before the marriage, with no contribution from the wife;

  • the home was not improved during the marriage in any way;

  • the husband paid all the bills to maintain the house, as well as all other living expenses for both parties, during cohabitation;

  • the bulk of the presumptive equalization payment had not been generated from any significant increase in the value of the husband’s assets during cohabitation, but from the value of the matrimonial home he brought into the marriage;

  • the wife had improved her financial position without receiving an equalization payment; and lastly,

  • there were no children of the marriage.

Though almost two decades old, Kucera is still good law and continues to be routinely cited by courts when discussing treatment of matrimonial homes in cases of separation subsequent to a short-term cohabitation for married couples.

Conclusion

A short period of cohabitation does not automatically guarantee unequal division of property. It is a fact-specific exercise and involves careful analysis of the contributions made by each party to the marriage.

As family lawyers, while it is important to be mindful of the high threshold of unconscionability, we should not shy away from using this very effective provision in relevant circumstances – a provision that exists to redress a wrong that may occur due to an indiscriminate application of the equalization principle.

However, whether one uses the 5-year mathematical formula, as adopted by some courts, will depend on the circumstances and the specific facts of the case.

There also does not appear to be a clear direction from the bench as to when to use the 5-year formula and when not to.

For example, in a cohabitation period of 4 years, 4/5th of the equalization may be too generous, and thus, arguments should be made as to why the formula is not applicable. Since there is jurisprudence that supports using and not using the formula in such a case, it may be best to collect the best cases for your client’s position and discern the unsupportive jurisprudence. However, be mindful that that the opposing counsel will use the other set of cases to argue the other side of the coin – but hopefully not more effectively than you.

Therefore, it appears that what is more important than the 5-year mathematical formula in an unequal division case is the substance of the arguments and the reasons supporting one position over another.

And as the American mathematician William Thurston once said, “Mathematics is not about numbers, equations, computations, or algorithms: it is about understanding.”

Nice quote, and equally applicable to family law calculations as well.