III. ONTARIO’S FAMILY PROPERTY LEGISLATION

III. ONTARIO’S FAMILY PROPERTY LEGISLATION2017-03-03T18:30:50+00:00
Undoubtedly the most important provincial statute insofar as family law matters in Ontario are concerned is the FLA. As stated in its preamble, its enactment was motivated by the perceived need

…to recognize the equal position of spouses as individuals within marriage and to recognize marriage as a form of partnership….[89]

This section of the report provides an overview of the family property provisions of Part I of the FLA and in particular how those provisions effect the recognition of the spouses as equals in an economic partnership.

A. The Equalization Regime

The FLA family property provisions address the question of how, upon marriage breakdown, the assets that were accumulated by the spouses during their time together are to be divided. In terms that build upon the themes set out in the preamble, the purpose of these provisions is stated to be to recognize

…that child care, household management and financial provision are the joint responsibilities of the spouses and that inherent in the marital relationship there is equal contribution, whether financial or otherwise, by the spouses to the assumption of these responsibilities….[90]

Part I fulfils this purpose by providing, presumptively, that on marriage breakdown the spouses are entitled to share equally not only in the value of all assets acquired by either spouse during the marriage but also in any post-nuptial growth in the value of any assets brought into the marriage. To that end, Part I establishes a set of equalization rules based on the “net family property” of each spouse.

Subject to some qualification, the amount of a spouse’s net family property is calculated as follows. First the total value of all assets owned by him on the valuation date (generally, the date of separation)[91] is determined. From that figure two sums are deducted: the total amount of all of the spouse’s debts and liabilities in existence on the valuation date, and the difference between the marriage-date value of assets he brought into the marriage and any debts and liabilities he had at the marriage date.[92] (Where these deductions would otherwise result in a negative amount, the net family property is deemed to be zero.)[93] On marriage breakdown, the spouse with the lower-valued net family property is accorded a monetary entitlement equal to half of the difference between his net family property and that of the other spouse. (It should be noted that the FLA, unlike the family property regimes of some other provinces,[94] does not give the spouses joint interests in the various family assets; rather, ownership remains separate, and the spouses are instead placed in a debtor-creditor relationship.[95])

The fact that only one spouse provided the purchase moneys for an asset is not a basis on which its value can be disregarded for equalization purposes, because it is presumed that the spouses make an “equal contribution, whether financial or otherwise”. Contributions can take many forms; some contributions may be indirect, some may even be intangible, but the view that informs Part I is that it is the combination of the contributions made by both spouses that makes the acquisition of property by the family unit possible.[96]

The FLA family property regime may in one sense be regarded as quite sweeping, in that it does not as a rule make distinctions between assets used for family purposes and other assets, as its predecessor, the Family Law Reform Act (FLRA),[97] did.[98] The term “property” itself is defined very broadly; it includes future and contingent interests and even, in certain circumstances, property that a spouse does not own.[99] Most importantly, so far as the subject of this report is concerned, it includes rights under a pension plan,[100] as is discussed is more detail below. However, there are some significant limitations on the application of the equalization regime and its operation.

To begin with, it applies only to persons who are married to each other;[101] unlike most Ontario statutes that employ the term “spouse”, including the PBA[102] and, indeed, some other parts of the FLA itself,[103] Part I does not apply to cohabiting persons in a conjugal relationship who have not married.[104] Further, spouses are largely free to contract out of Part I through the vehicle of a domestic contract;[105] a separation agreement that deals with family property will prevail over the FLA regime in the event of conflict, as will a marriage contract (except to the extent that it purports to limit possessory and related rights respecting the matrimonial home).[106] There are also numerous exceptions and special rules relating to the question of what is and what is not considered to be net family property. The FLA expressly excludes the value of some types of property from the calculation of net family property; generally, property that is attained through gift or inheritance from a third party after the marriage date is excluded. However, the value of a matrimonial home that is obtained as a result of a third-party gift or inheritance after the date of marriage is included.[107] Further, while in calculating net family property a spouse is generally entitled to deduct the value of property that she owned prior to getting married, that is not so in the case of a house acquired by one spouse before marriage that was being used as a matrimonial home at the time of separation.[108]

While the equalization entitlement is presumptively one-half of the difference between the net family properties of the two spouses, subsection 5(6) of the FLA does give a court jurisdiction to award a greater or lesser amount where it is of the opinion that equalization would be “unconscionable”. The legislation enumerates a number of grounds to which a court may have regard in forming that opinion, including the failure of a spouse to disclose to the other spouse at the time of marriage the extent of his debts or liabilities,[109] the fact that debts or liabilities were incurred recklessly or in bad faith,[110] the fact that a spouse has incurred a disproportionately larger amount of debt or liabilities than the other spouse for the support of the family,[111] the fact that, in the case where the spouses cohabited for less than five years, a one-half equalization entitlement would be disproportionately large in relation to the period of cohabitation[112] or

…any other circumstances relating to the acquisition, disposition, preservation, maintenance or improvement of property…[113]

While this last ground may on first impression appear very broad, the references to “acquisition”, “disposition” and similar verbal nouns seem to have been taken to suggest that the Legislature’s intention was not to confer an open-ended discretion.[114]

In the event that the spouse who is liable to make an equalization payment fails to do so, section 9 of the FLA gives a court various powers to ensure that the liability is discharged. It can simply order that the equalization amount be paid over to the creditor spouse, or where full and immediate settlement would impose hardship on the debtor spouse it can order that payments be deferred for or made in instalments over a period of as long as ten years. It can also order that security, such as a charge on property, be given to ensure the performance of equalization obligations or that property be transferred to a spouse or made subject to a trust or be partitioned and sold.

B. Equalization and Death

The equalization regime applies not only upon the breakdown of a marriage, but also, potentially, in the event of termination of a marriage as a result of the death of one of the spouses (although equalization in that case is a “one-way” matter, in that the surviving spouse would not have a liability to the deceased spouse’s estate in the event that he had the higher-valued net family property).[115]

Where a spouse dies, subsections 6(1) and (2) put the survivor to an election: he may choose to take his entitlement under Part I of the FLA or may instead choose to receive whatever is bequeathed or devised to him under the deceased’s will, or, if the deceased died intestate, to receive his entitlement under Part II of the Succession Law Reform Act (SLRA).[116] (Under the SLRA, where a spouse dies intestate, the survivor is entitled to the entire estate if there are no children or a “preferential share” of the estate if there are children;[117] the amount of the preferential share is prescribed by regulation and is currently $200,000.[118] If the net value of the estate exceeds that amount, the surviving spouse is entitled to the preferential share plus one-half of the residue if there is a child or one-third the residue if there is more than one child.[119]) Where a surviving spouse who elects equalization is entitled to receive a lump sum payment under the deceased’s pension plan, the amount of the lump sum is credited against the equalization entitlement unless the deceased had specifically directed otherwise. [120]

C. Pensions as Family Property

As was noted above, pension entitlements are treated as family property for equalization purposes. The term “property” is defined in subsection 4(1) of the FLA as including

…in the case of a spouse’s rights under a pension plan that have vested, the spouse’s interest in the plan including contributions made by other persons.[121]

The reference to vesting formed the basis for early decisions holding that rights that had not yet vested at the point of marriage breakdown were not included,[122] but “the weight of authority” now favours the view that unvested rights do constitute property,[123] although this may not have been the Legislature’s intention.[124] The reference to contributions made by persons other than the member spouse appears to have been intended to ensure that employer contributions are taken into account in placing a value on the pension rights where the rights have vested;[125] however, while that is certainly appropriate in the case of a defined contribution plan, the amount of contributions, whether made by the employer or the employee, is generally not a relevant consideration in valuing rights under a defined benefit plan,[126] for reasons that are explained below.

The inclusion of the value of pension interests in the member spouse’s net family property had the highly laudable goal of achieving greater fairness between the spouses following the collapse of their marriage, but it has also proven highly problematic insofar as rights under defined benefit pension plans are concerned.

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