Equalization Payment Disguised as Support Enforcement Issues
Korn v Korn, 2016 ONSC 241
This case involved a motion by an ex-husband to vary his spousal support payment to his ex-wife pursuant to section 17 of the Divorce Act after a lump sum settlement of all claims had been reached prior. It analyzed if the lump sum settlement was considered spousal support for the purposes of variation.
Mr. Korn and Ms. Korn were married in 1980 and separated in 2008. In June 2009, the parties signed minutes of settlement that provided the respondent (Mr. Korn) would pay $3.6 million to the applicant (Ms. Korn), paid in four installments.
A separation agreement was signed in February 2010, making reference to the installments as “support payments” that were “enforceable as incidents of spousal support” and stated the payments were a settlement of all claims. Only after full payment of the $3.6 million would the agreement provide for the release of spousal support rights.
In April 2010, a divorce order was obtained, which provided that the respondent husband would secure the support payments by a second mortgage and again stated they were enforceable as incidents of spousal support.
The respondent still owed $1.67 million by January 2011. He owned a business that failed which was the main reason he became unable to continue making installment payments. The parties then entered into an amending agreement that month, where the respondent agreed to sell his home immediately, the proceeds of which would be paid to the applicant. This amended agreement provided for a new payment schedule and interest rates, enforceable as incidents of lump sum spousal support. Mr. Korn continued making payments under the new terms from January 2011 to June 2013.
In July 2013, the Royal Bank called a commercial loan given to the respondent’s company. At this time, the respondent husband became unable to make payments following the new terms and still owed the applicant $800,000 plus interest.
The applicant wife filed an enforcement order with the Family Responsibility Office (FRO) in October 2013. FRO sought to have the respondent’s driver’s license suspended.
By early 2014, the respondent husband filed for personal bankruptcy. The applicant was a creditor in the bankruptcy and argued that the debt owed to her should survive bankruptcy as it was an incident of support. The trustee in bankruptcy confirmed the applicant’s claim was for support payments and should not be extinguished by bankruptcy.
The respondent husband submitted a motion to change his spousal support obligations under s.17 of the Divorce Act, claiming he suffered a catastrophic change. The applicant argued that s.17 of the DA should not be available to the respondent to seek to change support and that because the $3.6 million was a lump sum settlement of all claims and not broken down based upon the type of claim, there was no way to differentiate the spousal support piece from the other items in the context of a motion to change.
The court looked at whether s.17 of the Divorce Act was available for the respondent’s motion to change. Section 17 provides for a variance for a support order where there is a change in the condition, means, needs or other circumstances of either former spouse since the making of the spousal support order or the last variation made in respect of that order.
The court refers to the Ontario Court of Appeal’s decision in Pustai v Pustai, where it is clear that a consent order arising from a separation agreement may be varied in the event of a material change. Further, the court also references the ONCA’s decision in Vance v Vance (1974), which held that the court has jurisdiction to vary a spousal support order that is for a lump sum.
The court decided that it is not open to the applicant wife to suggest the amount still owing to her is not spousal support for the following reasons:
- The terms of the settlement agreement, amending agreement and all orders made it clear that the parties characterized the payments as spousal support.
- The characterization of the payments as support was confirmed by the applicant’s actions when she sought to enforce the order by the FRO. The FRO will enforce support orders but will not enforce equalization or property orders.
- The applicant confirmed the amount outstanding was support with the trustee in bankruptcy when she sought to have the amount excluded from the bankruptcy discharge, which the trustee agreed with. The outstanding support was not extinguished by the respondent’s bankruptcy. Equalization can’t be treated as support to secure preferential treatment in bankruptcy.
Ultimately, the court found all amounts still owing are spousal support or interest on unpaid spousal support. They found the applicant wife could not argue otherwise after having received the benefits of the outstanding amount being classified as spousal support through the enforcement process and the bankruptcy process. Therefore, the court did have jurisdiction under s.17 of the DA to consider the respondent’s motion to change and the amounts owing under the agreement may be subject to such motion to change.
The court left the issues of whether there is a requisite material change and whether the change should be granted to be addressed on the motion to change. Justice W. Matheson required the parties to schedule and attend a case conference as the next step.