Straub v. Straub – Constructive Trust Confusion

Background

The husband and wife met in high school, were married for 25 years, and have three children. Their marriage was on the rocks for approximately four years before they finally separated with no hope of reconciliation. At the time of the trial, there were several highly contentious issues between them, including child support obligations for their youngest child, the ownership of various pieces of property, and the value of other pieces of property.

The most interesting issue from a family law perspective, however, was the issue of constructive trusts.

The husband and wife each brought a constructive trust claim against the other. The wife was the owner of the (former) matrimonial home, a property in Richmond Hill that had substantially increased in value since the date of separation (the valuation date). The husband wanted to share in this post-valuation-date increase, and accordingly brought a constructive trust claim for an interest in the property. The wife used the same tactic in an attempt to share in the increase in value of the husband’s investment portfolio post-separation.

Analysis

Justice McKelvey dismissed both constructive trust claims quite quickly. It is clear that neither the husband nor the wife had much of an argument for unjust enrichment. Neither could show any specific contribution to the asset in question. There was an enrichment in both instances, but no corresponding deprivation.

Justice McKelvey went on to state, “The use of constructive trust, in my view, should not be routinely applied where the parties have the benefit of equalization under the Family Law Act.” It is indeed rare to find courts applying constructive trust doctrines in such situations, despite the fact that constructive trust claims are available to married couples, according to the Supreme Court’s decision in Rawluk v. Rawluk.

On the facts of this case, it is hard to imagine an equitable remedy being appropriate, given that both spouses were leaving the marriage with substantial assets, and there did not seem to be any overall inequity. In fact, the husband’s and wife’s constructive trust claims were of roughly equal value – his was for a sum of $125,000, hers for $100,000. In this situation, it is perhaps easy for the court to simply call it a wash.

It also seemed, as Justice McKelvey acknowledged, that the spouses should have been bringing claims for unequal division of net family property (permitted under section 5(6) of the Family Law Act, in certain limited circumstances). However, the spouses would not have been any more successful in those claims. The Ontario Court of Appeal held in Serra v. Serra that in order for the court to depart from equalization as a result of post-valuation date changes in value, the claimant must show, (i) that the circumstances giving rise to the change in value relate to the “acquisition, disposition, preservation, maintenance or improvement of property,” and (ii) that equalization would therefore be unconscionable. Neither parts of that test could have been made out on these facts.

Courts may be increasingly reluctant to apply constructive trust doctrines in cases involving married couples, but such claims remain available, according to the Supreme Court. If the right facts were to arise – for example, a large asset, excluded from equalization, to which one partner made extensive contributions – a court would likely have no choice but to find a constructive trust.

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