We are now a few months into the COVID-19-era and just over a month into the implementation of “stay home” protocols and the shutting down of “non-essential” businesses. The full scope of the financial consequences arising from these changes remains unknown. The corresponding impact on financial issues in family law cases is also unfolding before us.
We know that many Canadians lost their jobs or have been laid off.
We know many businesses are deemed “non-essential” and cannot operate.
We know many businesses, although deemed “essential”, are experiencing a loss in revenue and difficulties meeting expenses.
We know the value of many investments decreased.
We do not know how much longer this situation will persist or what the long-term effects will be on the income, assets, and debts of the families we assist.
Questions arise almost daily as a result of the current situation. One such question is whether we will see any application of Serra v Serra 2009 ONCA 105 in cases where the net family properties of spouses have been significantly decreased by market-driven changes resulting directly or indirectly from COVID-19.
In Serra v Serra, the key facts were as follows:
- The parties separated after 24 years of marriage in around November 2000.
- On the date of separation, the husband owned a successful textile business valued between $9.5 million and $11.25 million.
- The trial took place about 6 years later in 2006. The value of the husband’s business had decreased to somewhere between $1.875 million and $2.6 million. The decreased value of his business was attributed entirely to changes in the market that affected the textile industry in Canada.
The husband argued that an equalization payment based on the date of separation value of their net family properties would be “unconscionable” and relied on s.5(6) of the Family Law Act to advance his claim. Such an order would require the husband to pay an equalization payment that exceeded his total net worth at the time of trial.
The Ontario Superior Court ruled that it could not take into account a market-driven decline in the value of a spouse’s asset after the date of separation under s.5(6) of the Family Law Act. The court ordered the husband to pay the larger equalization payment based on the date of separation values.
The Court of Appeal found the trial judge erred by not considering the market-driven decline in the value of a spouse’s asset after the date of separation under s.5(6) of the Family Law Act. The court found the husband had absolutely no control over the factors that caused the decline in the value of his assets. The court also found that the husband made best efforts to save the business, despite the external forces hitting his business. As a result, the court ordered applied the reduced trial-date valuation of the husband’s assets and made an upward adjustment of $250,000.00 to take into account a number of factors, including the remote possibility of a turnaround in the market for textile industries in Canada.
In these times, Serra v Serra reminds us that:
- An order for an unequal division of net family property is exceptional and the threshold for “unconscionability” is very high. Circumstances that are “unfair” do not meet the test. An equal division of net family property must “shock the conscience of the court”.
- Conduct may be a consideration in determining whether equalizing net family property is unconscionable, but it is not a prerequisite to a finding of unconscionability.
- If a court finds that an equalization of net family property is unconscionable in the circumstances, the court may exercise its discretion to do what is fair and equitable in the circumstances. This does not necessarily mean that the court will make an order based solely on the decreased value of the asset.
The outcome in Serra v Serra also reminds us that the court may take the nature of the decrease into consideration. For example, perhaps courts will distinguish between a temporary decrease in the value of an asset resulting from a temporary economic recession and seemingly irreparable financial decline for a “non-essential” small business.
The value of assets is only one issue that arises from our current situation. In addition, there are issues of job loss and decreased income on child and spousal support claims, both in the interim and the future. Both a payor and a recipient may express cash flow concerns with their existing support arrangements in the current circumstances. We will address this in our next blog post.
Our philosophy at Paul Family Law/Oakville Mediation is to assist families to negotiate resolutions in compassionate and creative ways. Feel free to contact us for more information about our lawyer-mediators, Cathryn Paul and Robina Khan. We are here to help.