There is no concrete evidence that a bad economy or recession can impact divorces in Canada, but thanks to a recent decision of the Ontario Court of Appeal, it is possible to consider the impact of declining market forces when determining how assets are to be divided upon separation or divorce.
EQUALIZATION OF NET FAMILY PROPERTY
When married people in Ontario separate, there is an “equalization” of net family property which often means that one spouse must pay an amount to the other spouse to ensure an equal division of assets. The value of family property at the date of separation is used to determine the amount payable by one spouse to another to equalize family property. This could potentially lead to a grossly unfair result if one party’s assets drop in value post separation due to declining market forces. An example of this situation occurred in Serra v. Serra, where Mr. Serra’s textile business dropped dramatically in value from $9.5 to $11.25 million at separation to $1.9 to $2.6 million at the date of trial. On appeal, Mr. Serra’s equalization payment was reduced from $3.3 million to $900,000 as a result of the reduced value of his business.
DOES A RECESSION GUARANTEE UNEQUAL DIVISION OF ASSETS?
While the “Serra v. Serra” decision is obviously an important one given the current economic recession, it is important to note that a drop in a person’s stock portfolio or RRSPs will not necessarily lead to an unequal division of assets in every case. In order to be granted a less than equal division of family property, one must first establish that an equal division would lead to an “unconscionable” result. This is an exceptionally high standard to meet and should not be confused with “fairness”.