Post-Separation Debt, Unconscionability, and Unequal Division of Net Family Property
Panchalingam v. Pathmalingam, 2013 ONSC 4284
This case involves an assessment of whether the conduct of a spouse in relation to their post-separation debt and the subsequent result was sufficiently unconscionable to constitute reckless depletion and justify an unequal division of net family property upon divorce pursuant to the Family Law Act section 5(6).
The husband and wife separated after a 13-year marriage. In the 7 years since their separation, the husband fully supported their three children whom resided with him in the jointly owned matrimonial home. The wife, claiming financial hardship, did not provide any child support. She also allowed significant bank debts and a Legal Aid lien to accrue against the home without the husband’s knowledge. Though the wife incurred these loans solely for her own benefit, she chose to ignore her repayment obligations. The resulting financial burden fell upon the husband to pay off after he received notice of possible eviction.
At the time of separation, the matrimonial home was the most significant asset of the parties. The husband claimed the circumstances arising from the wife’s conduct warranted an unequal division under s. 5(6) of the FLA. As such, he argued that there should be no equalization payment and the home should be vested in him absolutely.
Unequal Division of Net Family Property Under FLA s. 5(6)
Section 5(6) allows for an unequal division of net family property if it would be unconscionable to equalize the net family properties after considering of a number of factors set out in the section. The husband asserts that the wife’s behaviour constituted an ‘intentional or reckless depletion of [her] net family property’ under s. 5(6)(d), and that he, within s. 5(6)(f), ‘has incurred a disproportionately larger amount of debt’ than his wife for ‘the support of the family.’
The court accepted the husband’s reliance on Serra v Serra where it was noted that the test for unconscionability is a high one and that unconscionability may be grounded in conduct or results, regardless of whether or not that result flowed from fault based conduct.
Reckless Depletion by the Wife
The judge found that the wife’s act of incurring the Legal Aid lien or the bank debt was not an intentional or reckless depletion of her net family property under s. 5(6)(d). The loans were necessary for the wife’s post-separation expenses. She needed the borrowed money for life necessities and needed Legal Aid to assist her with custody issues arising from marriage breakdown.
However, the wife’s apathy and unresponsiveness in dealing with her loans constituted a reckless depletion of her net family property where this irresponsible conduct led to the imposition of liens and created the risk of losing the family home where her children lived. The judge specifically noted her awareness of these liabilities over the span of years and her failure to take responsibility for them as crucial to this finding.
Husband’s Disproportionate Amount of Debt
Citing Laing v Mahmoud, the judge found that the post-separation circumstances could be taken into account when assessing the unconscionableness of an equalization payment. Additionally, following the decision in Davies v Davies, all contributions – not just financial ones – are relevant when considering grossly disparate contributions to the family unit.
The husband incurred a disproportionately larger debt than the wife as a result of her indifference to her loan obligations and her refusal to contribute to the children’s needs. She failed to take responsibility for child support and allowed a significant amount of arrears to accumulate. As the wife did not want to contribute at all to the household, family, or children’s expenses, the husband shouldered the entire burden of household upkeep and parenting.
The purpose of equalization of net family properties as articulated in s. 5(7) of the Family Law Act is to recognize that equal contribution inherent in the marital relationship entitles spouses to equalization when spouses assume the joint responsibilities of childcare, household management and financial provision. Being mindful of this purpose, the judge found that an equal division of net family property was unconscionable pursuant to s. 5(6) in light of the risk created by the wife’s apathy and the husband’s assumption of disproportionate liabilities in maintaining the home and caring for the children.
As a result, title of the home was vested solely in the husband and he did not owe the wife anything in the equalization payment.