This case involved the appeal of two trial decisions, one addressing parenting issues and the other addressing financial issues, however, the below discussion focuses exclusively on the following issues relating to the equalization of net family property:
- Whether the date-of-marriage mortgage against a matrimonial home can be included in the calculation of a spouse’s net family property (“NFP”) if said mortgage was not specifically obtained for the purpose of acquisition or significant improvement of the home;
- Whether an unequal division of NFP is warranted where a spouse has contributed financially to the value of the matrimonial home which is solely in the other spouse’s name and the other spouse solely benefits form a post-separation increase in the value of the home; and
- Whether pre-judgment interest (”PJI”) should be awarded on an equalization payment where the recipient of said equalization payment maintained full enjoyment of the primary asset for which the equalization payment was to be made.
The parties were married for 17 years, separated in December of 2010, and had 3 children of the marriage who were ages 17, 17, and 19 at the time this appeal was decided.
The husband is a plastic surgeon, earning approximately $850,000.00 per year. The wife was a urologist with a busy medical practice when the parties got married, however, she withdrew from practice during the marriage after being diagnosed with a hereditary degenerative eye condition and she received approximately $220,000.00 per year including investment income and tax-free disability benefits in the amount of approximately $114,000.00 per year which increased by 7% per year to account for inflation.
Prior to separation, the parties enjoyed a comfortable upper middle class lifestyle and resided in a large mortgage-free home in Toronto.
The husband owned a home on the date of marriage, the title of which was in his name only, with a mortgage against the home in the amount of approximately $415,000.00 and said home became the parties’ matrimonial home.
The husband had originally co-owned the home with other partners, however, prior to the marriage, he obtained a vendor take back mortgage against the home to finance the purchase of his partners’ half interest in the home. He subsequently refinanced and replaced his original mortgage and vendor take back mortgage with a single conventional mortgage, which remained on the property at the date of marriage. Said mortgage was paid off during the marriage.
The wife contributed financially to the matrimonial home both before and during the marriage, however, title to the home remained solely in the husband’s name. The home was worth approximately $1.97 million at the date of separation and its value subsequently increased to approximately $2.1 million by the time of the trial.
After separation, the wife continued to reside in the matrimonial home and still resided there at the time of the trial. During this time, the wife maintained full enjoyment of the home and paid no occupation rent for same at any time. The husband had no access to income from the property following separation.
Trial and Appeal
The parties commenced a 10-day trial on multiple issues in February of 2014, after which the trial judge’s orders included an equal division of NFP to be satisfied by the husband making an equalization payment to the wife in the amount of $1,384,704.50.
The trial judge declined to order pre-judgment interest on the equalization payment.
The wife appealed the trial decision on multiple issues including those set out below.
- Should the husband’s mortgage against the matrimonial home at the date-of-marriage be included in calculating his net family property (“NFP”) if said mortgage was not specifically obtained for the purpose of acquisition or significant improvement of the home?
- Should there be an unequal division of the parties’ NFP to compensate the wife for her financial contributions to the matrimonial home given that the home was owned solely by the husband and he solely benefited form a post-separation increase in the value of the home?
- Should the wife have been awarded pre-judgment interest (”PJI”) on the equalization payment when she maintained full enjoyment of the primary asset for which the equalization payment was to be made?
The Court dismissed the wife’s appeal.
Exclusion of Date-of-Marriage Mortgage from NFP
The Appeal Court reviewed section 5(1) of the Family Law Act (FLA), which provides that there is an exception to the rules governing the calculation of NFP with respect to the matrimonial home. As a result, the matrimonial home may not be counted as a date-of-marriage asset to be deducted from NFP. Further section 4(1) specifies that certain date-of-marriage debts against the matrimonial home may not be counted to increase the value of a spouse’s NFP where the debt or liability is related “directly to the acquisition or significant improvement of a matrimonial home”.
In this case, the wife argued that the husband’s mortgage was not directly related to the acquisition or significant improvement of the matrimonial home. The wife claimed that the mortgages obtained for the purpose of acquiring the home were paid off well before the mortgage that existed at the date-of-marriage. If the wife was correct, this would mean the husband’s date-of-marriage mortgage would be included in his NFP and he would owe a larger equalization payment to the wife.
The trial judge rejected the wife’s premise and stated that the subsequent mortgage was simply replacing the original mortgages, which were obtained specifically to acquire the property. As the matrimonial home could not be a deduction from the husband’s NFP, the mortgage could accordingly not be included to increase his NFP.
Unequal Division of NFP under s. 5(6) of the FLA
The Court reviewed section 5(6) of the FLA, which sets out the requirement for unconscionability as a ground for unequal division of NFP. The Court explained that in order to warrant an unequal division of NFP, it must be established that equalization would be unconscionable and, the threshold of unconscionability under s. 5(6) is “exceptionally high”.
To meet the threshold for unconscionability, the result of equalization must shock the conscience of the court.
The wife in this case based her claim on unjust enrichment claiming that she should receive more than half of the value of the parties’ combined NFP because her financial contributions to the home added to its increased value. The wife further claimed that she had a constructive or resulting trust interest in the home because she would not share in the increased value of the home as it was solely in the husband’s name.
The trial judge found that the equalization payment “adequately compensated” the wife for any unjust enrichment that may have resulted from her contributions to the home. Further, the trial judge found that the wife was able to completely shelter her pre-marital assets from equalization due to the deductions allowed in the calculation of NFP for date-of-marriage assets, whereas the husband’s primary asset became the matrimonial home and was thus not eligible for such treatment. The trial judge also noted that most of the financial contributions the wife made to the home were from her pre-marital assets, which means that she had already received a deduction from NFP for same.
For the above-stated reasons, the trial judge held that the wife failed to meet the very high threshold for unconscionability.
The appeal court agreed with this decision and found that the trial judge correctly exercised his discretion to refuse to grant unequal division of NFP.
Pre-judgment interest (PJI) on the equalization payment
The trial judge declined to order PJI as the wife maintained enjoyment of the matrimonial home following separation until the trial and she had the “advantage of the asset” without paying any occupation rent while the husband did not maintain use of the home and he did not enjoy the benefit of any income from its value during the same period.
The appeal court held that it was within the trial judge’s discretion to decline to award PJI and said discretion would not be interfered with.
The appeal court revisited its decision in Burgess v. Burgess (1995), 24 O.R. (3d) 547 (Ont. C.A.), where it stated that PJI is discretionary and is not available where “the payor spouse cannot realize on the asset giving rise to the equalization payment until after the trial, does not have the use of it prior to trial [and] the asset generates no income”.