Deducting, excluding, and tracing – Townshend v. Townshend
This Ontario Court of Appeal case serves as a useful refresher on the proper approach to net family property deductions, exclusions, and tracing.
Mr. and Mrs. Townshend separated after a 23-year marriage that produced four children. At trial, their major issue of contention was equalization of net family property. The trial judge had to make certain preliminary findings of ownership, and rule on certain potentially excluded items, before calculating net family property. In the end, he determined that the wife owed the husband an equalization payment of $31,368.07.
It is the trial judge’s preliminary findings that formed the subject of the husband’s appeal.
Among the various disputed findings were a few of particular note.
The Court of Appeal’s first ruling related to the definition of “property” under s. 4(1) of the Family Law Act. The trial judge had rejected the husband’s claim for an $8,500 net family property deduction from the sale of a parcel of land he inherited from his father before marriage, finding that the money from the sale of the land was not deposited into the husband’s account until after marriage, and that there was disputed evidence as to where that money was in fact deposited. The Court of Appeal overturned and allowed the exclusion, focusing not on the date the money was deposited, but the date that the husband acquired an equitable interest in the property, which was before marriage.
A second issue related to the tracing and exclusion of gifts of cash. The husband argued that the trial judge erred in finding that an inter vivos gift of $25,000, which the husband had received from his mother during the marriage, “lost its exclusionary character” when the husband deposited it in the parties’ joint account. The Court of Appeal agreed with the husband, and held that the proper approach to gifted or inherited funds deposited in joint accounts is to find that one-half of the exclusion is lost, because that half is presumed to be gifted to the other spouse. Thus, $12,500 of that money remained the husband’s excluded property, while the other half belonged to the wife at the time of separation.
The wife’s counsel further resisted the exclusion by submitting that the husband was unable to trace the $25,000 from the date of deposit to the date of separation. Counsel argued that once those funds mingled with the other funds in the joint account, from which money was subsequently deposited and withdrawn, the husband could no longer prove that the $31,000 which remained in the account at the time of separation in fact included the $25,000 gift.
The Court of Appeal rejected this argument as well, condemning it as “overly formalistic.” The $25,000 had been deposited in September 2004, only 9 months before the date of separation. In those circumstances, “a compelling inference arises that the $25,000 inter-vivos gift could be traced into those monies.”
Finally, the Court of Appeal held that a car purchased by the husband for nominal consideration was in reality a gift, and therefore excluded. During the marriage, the husband had purchased a car from his brother for $400, which was stated to be the cost of a new set of tires the brother had recently bought for the vehicle. The trial judge found that the exchange of money (no matter how low the sum) made the car a purchase, rather than a gift. The Court of Appeal, in contrast, held that the car itself should be considered a gift – it was only the tires that were purchased.