With the Canadian economy officially in a recession, discussions surrounding Serra v Serra, 2009 ONCA 105 (“Serra“), resurged. For those unfamiliar with Serra, the case was Ontario Court of Appeal’s development in family law during the global financial crisis in 2009.
In Serra, the Appellant’s shareholdings in his textile business were valued between $9.5 and $11.25 million at the time of separation. By the time of trial, however, the company value had dropped significantly down to $1.9 and $2.6 million. The depreciation was found entirely attributed to shifting market forces (i.e. the decline in commodity exports and surging oil prices). The Court of Appeal was charged with answering whether a market-driven decline in value of a spouse’s assets post-separation maybe considered as a factor in determining whether an equalization of net family property is unconscionable as contemplated by subsection 5(6) of the Family Law Act, RSO 1990, c F.3 (“FLA“).
Justice Blair answered in paragraph 67:[A]n equalization of net family property that requires [the Appellant] to pay more than his total net worth (and arguably as much as twice his net worth) because of a marked decline in the value of his major asset post-separation – over which he had absolutely no control and in spite of his best efforts to save the business in the face of [the Respondent’s] trust claims, the preservation order and the need to comply with his support obligations – is, in my view, unconscionable.
With respect to the “unconscionability” analysis, Serra reiterated the law in paragraphs 47 and 48 that an “exceptionally high” evidentiary threshold must be crossed before a court will characterize one party’s deprivation to the benefit of the other as “unconscionable”. By statutory design, under subsection 5(6), Courts only have minimal discretion to order anything other than an equal division of family property, thus to cross the threshold of unconscionability, an equal division of net family properties in the circumstances must “shock the conscience of the court”.
A significant devaluation in the value of an individual’s asset when triggered by a deep recession does not automatically meet the threshold of unconscionability; although, it may be a factor for consideration when analyzing s. 5(6)(h) of the FLA.
However, once the threshold is met and judicial discretion is triggered, the Court should exercise its discretion by coming up with a result that is just, fair and equitable in the circumstances.
After all, the preamble of the FLA calls for “the orderly and equitable settlement of the affairs of the spouses upon the breakdown of the partnership.”
Each case must be determined on its own set of facts. If you have any questions regarding this blog, or someone you know needs legal help with family matters, MEHDI AU LLP is a full-service firm that serves clients across the GTA and Ontario.
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