Ross v. Ross, 2006 CanLII 41401 (ON CA)

Ross v. Ross

83 O.R. (3d) 1

Court of Appeal for Ontario,

O'Connor A.C.J.O., Borins and Rouleau JJ.A.

December 12, 2006

Family law -- Property -- Stock options -- Stock options awarded to spouse after valuation date should be included in spouse's net family property if spouse had earned right to options on valuation date -- Trial judge not erring in including discretionary stock options awarded to husband after valuation date in husband's net family property where evidence disclosed relatively consistent history of issuing stock options to husband and where options related to husband's efforts during preceding year.

Family law -- Property -- Valuation -- Trial judge erring in applying "if and when" approach to valuation of stock options -- Hindsight evidence should not be used in valuation -- Black- Scholes method of valuing options appropriate valuation approach for publicly-traded stock.

At the date of separation, the husband had 175,000 options of the company that employed him. In December 2001, three and a half months after separation, he received an additional 245,000 options. The trial judge determined that all stock options "received or earned" by the husband as at the date of separation should be included in net family property. She found that the 245,000 stock options were granted to the husband for work done by him during the 2001 year. She therefore included 8/12 of those options in the net family property calculation. The husband had called an expert who valued the stock options issued prior to the date of separation using the Black-Scholes method. The trial judge rejected the expert's opinion as to the value of the options and determined that the fairest way to value the options was to use the "if and when" approach. Under this approach, a court considers the owner of the asset to be holding one-half of the asset in trust for the other spouse. If and when the asset is sold, the owner would be required to pay the other spouse one-half of the gain. The husband appealed.

Held, the appeal should be allowed in part.

Per Rouleau J.A. (O'Connor A.C.J.O. concurring): Stock options are an employment related benefit and should be treated as such. Stock options awarded to a spouse by his or her employer after the valuation date ought to be included in the spouse's net family property if, on the valuation date, the spouse had earned the right to the options. In this case, while there was evidence that the granting of options was discretionary, the evidence also disclosed a relatively consistent history of issuing stock options to the husband. There was evidence that clearly linked the grant of the December 2001 options to the husband's efforts during the almost completed year. There was, therefore, an evidentiary basis for the trial judge's finding that a substantial portion of the 245,000 stock options issued in December 2001 related to work carried out by the husband prior to the date of separation, and that finding ought not to be disturbed. The trial judge was entitled to conclude that, on the date of separation, the husband was the owner of property which consisted of a right to receive or an interest in those earned stock options. [page2 ]

The trial judge erred in using an "if and when" approach to valuation of the stock options. The "if and when" approach is not a valuation technique; rather, it is a method of dividing property. Hindsight evidence should not be used to value assets. The trial judge's exclusive reliance on evidence of what the options were worth when they were exercised resulted in an equalization payment well in excess of what it would have been if the options had been included in the equalization calculation and valued at the date of separation. The Black- Scholes method of valuing options is an appropriate valuation approach in cases such as this where the underlying stock is publicly traded.

Per Borins J.A. (dissenting): A determination of the ownership rights of each spouse on the valuation date is the first step to any equalization of net family property. The next step is to determine whether property owned by each spouse on the valuation date is "property" within the meaning of s. 4(1) of the Family Law Act, R.S.O. 1990, c. F.3. The husband did not own the options on the valuation date. Although in five of the previous seven years the board of directors had issued stock options to the husband, it always did so in the exercise of its discretion. Therefore, it could not be said that on the valuation date the husband had an entitlement, or the right, to receive any stock options in respect of 2001. He had none of the usual incidents of ownership such as title, possession, use, control, risk and the power to convey. The trial judge erred in including the December 2001 stock options in the husband's net family property. The trial judge also erred in valuing the 175,000 stock options on an "if and when" basis. The Black-Scholes model is an appropriate approach to valuing employee stock options.

APPEAL from the judgment of Backhouse J., 2005 63818 (ON SC), [2005] O.J. No. 5792, 19 R.F.L. (6th) 211 (S.C.J.), with respect to equalization of net family property.

Cases referred to Arvai v. Arvai (2001), 2001 24142 (ON CA), 52 O.R. (3d) 481, [2001] O.J. No. 561, 14 R.F.L. (5th) 223 (C.A.); Buttrum v. Buttrum, 2001 28187 (ON SC), [2001] O.J. No. 1390, 15 R.F.L. (5th) 250 (S.C.J.), supp. reasons 2002 78096 (ON SC), [2002] O.J. No. 3528, 31 R.F.L. (5th) 277 (S.C.J.); Miller v. Miller, [2003] N.B.J. No. 170, 259 N.B.R. (2d) 132, 226 D.L.R. (4th) 71, 681 A.P.R. 132, 36 R.F.L. (5th) 386, 2003 NBCA 37 (C.A.), consd Leckie v. Leckie, 2004 10487 (ON CA), [2004] O.J. No. 1550, 238 D.L.R. (4th) 571, 5 R.F.L. (6th) 123 (C.A.), distd Reid v. Reid, 2003 64344 (ON SC), [2003] O.J. No. 5174, 50 R.F.L. (5th) 170 (S.C.J.), supp. reasons [2005] O.J. No. 446 (S.C.J.), not fold Other cases referred to Berdette v. Berdette (1991), 1991 7061 (ON CA), 3 O.R. (3d) 513, [1991] O.J. No. 788, 47 O.A.C. 345, 81 D.L.R. (4th) 194, 41 E.T.R. 126, 33 R.F.L. (3d) 113 (C.A.) [Application for leave to appeal dismissed [1991] S.C.C.A. No. 306]; Best v. Best, 1999 700 (SCC), [1999] 2 S.C.R. 868, [1999] S.C.J. No. 40, 43 O.R. (3d) 740n, 174 D.L.R. (4th) 235, 242 N.R. 1, 49 R.F.L. (4th) 1, revg in part (1997), 1997 576 (ON CA), 35 O.R. (3d) 577, [1997] O.J. No. 4007, 156 D.L.R. (4th) 717, 31 R.F.L. (4th) 1 (C.A.) [Leave to appeal to the Supreme Court of Canada granted [1997] S.C.C.A. No. 611]; Chammah v. Chammah, [1997] WL 414404 (Conn. Super. Ct.); Gardiner v. Gardiner, 1996 19969 (AB KB), [1996] A.J. No. 919, 191 A.R. 139, 66 A.C.W.S. (3d) 505 (Q.B.); Gasparetto v. Gasparetto, 1988 8626 (ON SC), [1988] O.J. No. 860, 15 R.F.L. (3d) 401 (H.C.J.); Marquardt v. Marquardt, [1996] O.J. No. 4139, 19 O.T.C. 69, 67 A.C.W.S. (3d) 108 (Gen. Div.); Marsham v. Marsham (1987), 1987 4041 (ON SC), 59 O.R. (2d) 609, [1987] O.J. No. 440, 38 D.L.R. (4th) 481, 7 R.F.L. (3d) 1 (H.C.J.); Rawluk v. Rawluk, 1990 152 (SCC), [1990] 1 S.C.R. 70, [1990] S.C.J. No. 4, 71 O.R. (2d) 480n, 38 O.A.C. 81, 65 D.L.R. (4th) 161, 103 N.R. 321, 36 E.T.R. 1, 23 R.F.L. (3d) 337; Roberts v. Roberts, [1999] A.J. No. 1445, 1999 ABQB 944, 258 A.R. 392, 3 R.F.L. (5th) 148, 93 A.C.W.S. (3d) 693 (Q.B.); Sandelson v. International Vintners Ltd., 1987 2978 (BC SC), [1987] B.C.J. No. 1841, 18 B.C.L.R. (2d) 86 (S.C.); Slack v. Slack, 2001 28170 (ON SC), [2001] O.J. No. 5115, 23 R.F.L. (5th) 207 (S.C.J.); [page3 ][cf2]Swanson v. Swanson, [2004] O.J. No. 5266, [2004] O.T.C. 1149, 135 A.C.W.S. (3d) 1097 (S.C.J.); Thomson v. Bechtel Canada Ltd., [1985] O.J. No. 1401, 6 C.C.E.L. xxxv, 30 A.C.W.S. (2d) 354 (C.A.), affg [1983] O.J. No. 2397, 3 C.C.E.L. 16 (H.C.J.); Turner v. Canadian Admiral Corp., [1980] O.J. No. 3002, 1 C.C.E.L. 130 (H.C.J.) Statutes referred to Family Law Act, R.S.O. 1990, c. F.3, ss. 4 [as am.], 5, 9, 10 Family Law Reform Act, R.S.O. 1980, c. 152 Authorities referred to Black, F. and M. Scholes"The Pricing of Options and Corporate Liabilities" (1973) 81 J. Pol. Econ. 637 Curtis, L."Valuation of Stock Options in Dividing Marital Property Upon Dissolution" (1998) 15 J. Am. Acad. Matrim. Law 411 Freedman, A.J. et al., Financial Principles of Family Law, looseleaf (Toronto: Carswell, 2001) McLeod, J.G. and A.A. Mamo, Matrimonial Property Law in Canada, looseleaf (Toronto: Carswell, 1993) Richmond, D."The Challenges of Stock Options" (2001-2002) 35 Fam. L.Q. 251 Rosettenstein, D.S."Exploring the Use of the Time Rule in the Distribution of Stock Options on Divorce" (2001-2002) 35 Fam. L.Q. 263 Thomas, T.A."The New Marital Property of Employee Stock Options" (2001-2002) 35 Fam. L.Q. 497

Jeffery Wilson and Maryellen Symons, for appellant. Gerald Sadvari, for respondent.

ROULEAU J.A. (O'CONNOR A.C.J.D. concurring): --

Overview

1The appellant is the former husband of the respondent. He appeals the trial judge's decision with respect to the net family property equalization payment. The appeal raises two issues. The first is whether the trial judge erred in including in the net family property calculation a portion of the stock options received by the appellant from his employer some three and a half months after the date of separation. The second concerns the method used by the trial judge for valuing the options owned by the appellant.

Facts

2The parties were married in 1988 and had two children. They separated on August 31, 2001. At the date of separation, the appellant had 175,000 stock options of IAMGOLD Corporation ("IAMGOLD"), the appellant's employer at the time.

3In January 2000, the appellant was appointed Chief Financial Officer of IAMGOLD and on December 12, 2001, three and a half months after separation, he received an additional 245,000 options. [page4 ]

4The corporate counsel and corporate secretary of IAMGOLD testified that options were not issued every year, were discretionary and were based on the prior year's performance. Each year the compensation committee would review whether options should be granted, and generally, senior executives would be considered as a group. He also testified that there might have been a single grant of options to the appellant when he was promoted to CFO.

5The letter advising the appellant of the grant of 245,000 stock options referred to the significant progress made in the preceding year towards increased value for the shareholders and the company's sincere appreciation of the appellant's effort. At trial, the appellant testified that these options were to bring him into line with the other senior executives of the company upon his appointment as CFO.

6The trial judge determined that the respondent was entitled to have included in the net family property calculation all stock options "received or earned" by the appellant as at the date of separation. The trial judge went on to find that the 245,000 stock options were granted to the appellant for work done by him during the 2001 year. She therefore included 8/12 of these options in the net family property calculation.

7As a consequence, 338,333 stock options owned by the appellant were included in the net family property calculation. The following table lists these, as well as the issue date, the strike price, the date each of the options was exercised and the actual stock price at the exercise date.

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[Editor's Note: Note [See Note 1 below] is included in the image above] [page5 ]

8After separation, the appellant negotiated a new employment agreement that provided that in the event of a change in control of IAMGOLD any unvested share options would immediately vest and could be exercised for a period of 60 days following his severance.

9At the date of separation, the market price of gold was relatively low and the stock price of IAMGOLD was $2.75 a share, well below the price at which the shares had previously traded. As a result, the exercise price for almost all of the options exceeded the then stock price. When the stock price is below the exercise price of an option, the option is said to be "under water".

10In October 2002, IAMGOLD merged with another company and in January 2003, the appellant was advised that his employment would be terminated as of February 2003. The severance payments to the appellant would continue for two years up until February 28, 2005. As a result of the merger and his termination, all non-vested options immediately became vested and could be exercised until April 28, 2005, being 60 days after the last severance payment to the appellant.

11The appellant exercised options for 50,000 shares on December 11, 2002 and exercised the balance of his options in January and April 2005. The net after-tax capital gain on the 175,000 options issued prior to separation was $424,313. The net after-tax capital gain on the 245,000 options issued on December 12, 2001 was $652,313 of which 8/12, totalling $434,875.33, would be on account of the options the trial judge considered to be part of the appellant's net family property.

12The respondent argued at trial that the best evidence of value was the profit ultimately realized upon the exercise of the options. She submitted that she was entitled to receive one-half of this profit. The appellant argued that the options had to be valued at the date of separation without the benefit of hindsight. He maintained that the respondent was only entitled to one-half of the net after-tax value of the options actually owned on the date of separation and valued as of that date.

13At trial, the appellant called an expert who testified that options could be valued using either the intrinsic value method, which measures the gain that would be realized if the options were exercised on the date of separation, or the Black- Scholes method. The Black-Scholes method is frequently used in the securities industry to value stock options. This method employs a sophisticated mathematical formula that takes into account the option price, the option term, the market value of the underlying security, the risk-free rate of interest and the underlying stock [page6 ]volatility to arrive at an option's present value. Using the intrinsic method, the expert valued the 175,000 stock options issued prior to the date of separation at $5,500. Using the Black-Scholes method, the expert had originally valued these options at $21,100. [See Note 2 below] By the date of trial, the expert had revised these figures and was of the view that the value was $49,200. Only the options issued to the appellant prior to separation were included in her calculations. The expert did not value the 245,000 options granted on December 12, 2001.

14The trial judge rejected the expert's opinion as to the value of the options and determined that the fairest way to value the options was to use the "if and when" approach. She described the "if and when" approach as one where the court simply divides any stock options existing at the time of separation without valuing them and considers the owner of the options to be holding half of them in trust for the other spouse. Using this approach, the trial judge awarded the respondent one-half of the net profit generated by the exercise of the pre-separation options as well as the portion of the December 12, 2001 options she had determined were to be included in the net family property. She calculated the net gain on the exercise of these options to be $859,188.33. Half of this amount, $429,594.17, was awarded to the respondent.

15The appellant raises two issues on appeal:

(1) Did the trial judge err in including in the net family property calculation 8/12 of the stock options received by the appellant subsequent to the date of separation?

(2) Did the trial judge err in rejecting the expert evidence on the proper method for valuing the stock options and in using hindsight to determine the value of the stock options as at the date of separation?

Analysis

(1) Did the trial judge err in including in the net family property calculation 8/12 of the stock options received by the appellant subsequent to the date of separation?

16The appellant takes issue with the trial judge's characterization of 8/12 of the 245,000 stock options he received from his [page7 ]employer IAMGOLD on December 12, 2001, as property subject to net family property equalization. This, he submits, ignores the fact that the options were not awarded to him until three and a half months after separation and, until they were awarded, he had no right to these nor did his employer have any obligation to grant them.

17The trial judge's reasons on this issue are as follows [at paras. 59-61]:

I do not accept the wife's constructive trust claim for one- half of the stock options issued to the husband. The wife is entitled to have included in net family property the stock options received or earned by the husband by the date of separation.

Approximately four months after separation, 245,000 stock options were issued to the husband. The letter from the employer announcing the grant of stock options in December 2001, states that the grant reflected the husband's efforts during the then almost completed year. While both the husband and Larry Phillips commented that stock options were issued to the husband to bring him into parity with other senior executives when he was promoted to CFO, there was no evidence as to what portion of the stock options were for this purpose.

On balance, I conclude that the 245,000 stock options were given for work done by the husband for the prior year. As the separation occurred after eight months of 2001, 8/12 of 245,000 stock options issued in December 2001 should be included in net family property.

18Although the appellant agrees with the trial judge's statement that stock options "received or earned" by the date of separation ought properly to be included in the net family property calculation, he argues that the December 12, 2001 stock options had not been earned as they did not exist at the date of separation. The issuing of these stock options was discretionary and the options were not earned until the Board made the decision to grant them. Accordingly, the appellant submits that he had no entitlement to these options on the date of separation and, as a result, no portion of these options should have been included in the net family property.

19This, he submits, is consistent with s. 4(1) of the Family Law Act, R.S.O. 1990, c. F.3. That section provides that the value of "any interest, present or future, vested or contingent" in personal property "owned" by a spouse on the valuation date is to be included in the net family property calculation.

20According to the appellant, the court should treat options in the same way as it treats severance packages received by one of the spouses after the date of separation. We were referred to this court's decision in Leckie v. Leckie, 2004 10487 (ON CA), [2004] O.J. No. 1550, 5 R.F.L. (6th) 123 (C.A.) wherein the court explained [page8 ]that where a severance package does not exist at the date of separation, neither party had any entitlement to such a package at the date of valuation. Accordingly, the severance package and, by analogy, the December 12, 2001 options are not property as defined in the Family Law Act and cannot be "owned" by the appellant.

21In my view, the present case can be distinguished from Leckie. Stock options granted as part of a remuneration package are different from severance packages. Severance packages are tied to a specific event, the employee's termination. Where the offer of a severance package and the termination of the employee do not occur until after the date of separation, the employee has no right or entitlement to the severance package at the date of separation. Although the size of the severance package is often related to the length of service of the employee, it is the termination of the employment that creates the entitlement and the length of prior service is used to determine the length of the notice period or pay in lieu of notice appropriate for that employee. In other words, the severance package is directed at compensating for the loss of employment and is not intended as pay for past service.

22To me stock options are more properly considered to be an employment related benefit and should be treated as such. Accordingly, stock options awarded to a spouse by his or her employer after the valuation date ought to be included in the spouse's net family property if, on the valuation date, the spouse had earned the right to the options.

23A useful analogy is a wrongfully terminated employee's entitlement to claim a bonus, profit sharing, stock option or similar form of remuneration which would have been earned but for the wrongful termination. In the employment context, Osborne J. in Thomson v. Bechtel Canada Ltd., [1983] O.J. No. 2397, 3 C.C.E.L. 16 (H.C.J.) at p. 21 C.C.E.L., affd [1985] O.J. No. 1401, 6 C.C.E.L. xxxv (C.A.) observed:

[A] benefit beyond salary should be included as part of the employee's remuneration package if the employee has established an entitlement to the benefit. Discretionary benefits are not always to be excluded. The substance of the arrangement between employer and employee must be determined. The form of the arrangement is often helpful in that determination. It is not always conclusive of the substance of a particular arrangement. It is necessary to consider whether the bonus or claimed profit-sharing entitlement is an integral part of the plaintiff's salary or remuneration package. Were bonus and performance so closely related so as to lead to the conclusion that the defendant has received performance in circumstances that would have attracted payment of bonus or perhaps profit-sharing, had the plaintiff not been fired? All of the circumstances of the profit- sharing and bonus arrangements have to be considered. [page9 ]

24It therefore must be determined whether, as at the date of separation, the appellant was entitled as of right to the benefit or whether the benefit was ex gratia. The answer to this question will depend on the evidence and, specifically, how the benefit arrangements are structured.

25Corporate counsel for the appellant's employer testified that "[e]ach year come November there would be a compensation review for the past year, and that would include the issue of whether to grant options. So everyone was dealt with as a group on an annual basis."

26Although there was evidence that the granting of options was discretionary, the evidence also disclosed a relatively consistent history of issuing stock options to the appellant. Prior to receiving the December 2001 options, he had received stock options in March 1996, December 1996, December 1997, February 2000 and December 2000. Past conduct can be such that what started as a discretionary benefit becomes an integral part of an employee's compensation package (see Turner v. Canadian Admiral Corp., [1980] O.J. No. 3002, 1 C.C.E.L. 130 (H.C.J.) and Sandelson v. International Vintners Ltd., 1987 2978 (BC SC), [1987] B.C.J. No. 1841, 18 B.C.L.R. (2d) 86 (S.C.)).

27After observing that the respondent was entitled to have included in net family property stock options "received or earned" by the appellant by the date of separation, the trial judge then referred to evidence led at trial that clearly linked the grant of the December 2001 options to the appellant's efforts during the almost completed year. She also noted that other evidence suggested that these options were issued to the appellant because of his January 2000 promotion to CFO so as to bring him into parity with other senior executives. There was, therefore, an evidentiary basis for the judge's finding that a substantial portion of the 245,000 stock options issued in December 2001 related to work carried out by the appellant prior to the date of separation. This finding is entitled to deference as a factual finding and ought not to be disturbed.

28Although the trial judge did not put it this way, I interpret her finding and her inclusion of a portion of the December 2001 options in net family property as meaning that, as at the date of separation, the appellant had earned 8/12 of the as yet unissued stock options and that, on a balance of probabilities, was entitled as of right to that benefit on the date of separation. In other words he was, within the meaning of s. 4(1) of the Family Law Act, the owner of property which consisted of a right to receive or an interest in these earned stock options. In my view, this finding was available to her on the evidence and, [page10 ]in the circumstances of this case, it is the interpretation that best achieves the Family Law Act's primary goal of a division of assets that is fair to both spouses. [See Note 3 below]

(2) Did the trial judge err in rejecting the expert evidence on the proper method for valuing the stock options and in using hindsight to determine the value of the stock options as at the date of separation?

29At trial, only the appellant tendered evidence as to the value of the stock options issued as at the date of separation. The evidence came in the form of expert testimony from a valuator. The expert used the Black-Scholes approach in valuing the five sets of options held by the appellant on the date of separation. She had arrived at a value of $21,100, but after reviewing her evidence before trial, she revised her calculations and came to a value of $49,200. The expert did not however give any evidence as to the value of the 245,000 options received by the appellant in December 2001.

30The trial judge rejected the expert's opinion as to the value of the options. Instead of determining the value of the options on the date of separation, the trial judge followed the "if and when" approach used by Snowie J. in Reid v. Reid, 2003 64344 (ON SC), [2003] O.J. No. 5174, 50 R.F.L. (5th) 170 (S.C.J.). Under this approach, a court considers the owner of the asset to be holding one-half of the asset in trust for the other spouse. If and when the asset is sold, the owner would be required to pay the other spouse one-half of the gain. By the date of trial, the appellant had already exercised all of his options. Therefore, the trial judge simply included the net gain realized by the appellant on these options in the net family property calculation. As set out earlier, the net gain on the pre-December 2001 options was $424,313 and 8/12 of the net gain on the December 2001 options was $434,875.33 for a total of $859,188.33.

31The appellant argues that, in following this approach, the trial judge ascribed a value to the options on the valuation date that reflected events that occurred long after separation. The appellant says that this is contrary to s. 4 of the Family Law Act, which requires that the court determine the value of the property on the valuation date. In the present case, both parties agree that the valuation date is August 31, 2001, the date of separation. The appellant submits that the trial judge should base the value on [page11 ]the information available at that time and cannot use hindsight or evidence that was not available on the valuation date.

32The appellant also submits that the trial judge erred in rejecting the expert's evidence, the only evidence before the trial judge of the value of the appellant's stock options on the valuation date, without adequate explanation as to why. The appellant asks this court to accept the expert's revised calculation of the stock options held by the appellant as of the date of separation and to adjust the equalization payment order accordingly.

33In contrast, the respondent argues that when the precise value of property is impossible to determine with any degree of accuracy as at the valuation date, but is known by the date of trial, the Family Law Act demands that the latter value be used in order to obtain an equitable result. The respondent submits that if the stock options had not been exercised before trial, perhaps the court would have had no choice but to look at other valuation methods; however, when actual results are known, relying on them is by far the most appropriate method of valuation. The respondent also submits that the trial judge rejected the expert's evidence, finding that it was of little use. This is a finding of credibility with which this court should not lightly interfere.

34I will deal firstly with the trial judge's use of hindsight in the valuation of the options and, secondly, the trial judge's rejection of the expert's evidence.

(a) The trial judge's use of hindsight evidence to value the stock options

35By following the Reid decision, the trial judge was, in my view, led into error. She ought not to have used what she termed an "if and when" approach to value the appellant's stock options. As noted by Aitken J. in Buttrum v. Buttrum, 2001 28187 (ON SC), [2001] O.J. No. 1390, 15 R.F.L. (5th) 250 (S.C.J.), at para. 37, the "if and when" approach is not a valuation technique; rather, it is a method of dividing property. Although this technique has been used in similar cases involving stock options in other jurisdictions, such as Alberta and New Brunswick (see for example Gardiner v. Gardiner, 1996 19969 (AB KB), [1996] A.J. No. 919, 191 A.R. 139 (Q.B.); Roberts v. Roberts, 1999 ABQB 944, [1999] A.J. No. 1445, 258 A.R. 392 (Q.B.); Miller v. Miller, 2003 NBCA 37, [2003] N.B.J. No. 170, 36 R.F.L. (5th) 386 (C.A.)), those jurisdictions have matrimonial property regimes different from Ontario's in that they provide for the division of matrimonial property in specie. [page12 ]

36Ontario courts have the responsibility of, first, valuing all assets and debts as of the valuation date and determining each spouse's net family property in accordance with s. 4 of the Family Law Act, second, equalizing their net family property in accordance with the provisions of s. 5 of the Act and, third, selecting the method or methods for the satisfaction of the equalization payment in accordance with s. 9 (see Marsham v. Marsham (1987), 1987 4041 (ON SC), 59 O.R. (2d) 609, [1987] O.J. No. 440, at p. 615 O.R. (H.C.J.); and Buttrum, supra, at para. 37).

37An Ontario court cannot use the "if and when" approach to value property and use this value to determine the appropriate equalization payment required. By using the "if and when" method to value the property for the purpose of determining the amount of the equalization obligation, the trial judge erred. To the extent that Reid stands for the proposition that such a method of valuing property for purposes of the net family property calculation is appropriate in Ontario, it ought not to be followed.

38As set out above, s. 4 of the Family Law Act requires a court to value all of the property (except property excluded under s. 4(2)) that a spouse owns on the valuation date. The value of property on a date before or after the valuation date is not necessarily the value of the property on the valuation date. This is particularly so when valuing volatile assets like securities. In Buttrum, supra, Aitken J. recognized this when she noted at para. 45 that a valuation of stock options "based on information only available following the valuation date, or on events that occurred after the valuation date, . . . is based on hindsight and cannot be used. In any event . . . the higher value would be subject to a discount for contingencies."

39I also agree with Aitken J.'s statement at para. 17:

In valuing an asset as of the valuation date, only facts known or reasonably foreseeable on that date should be taken into account. It is inappropriate to look to events that occurred after the valuation date if they were not reasonably foreseeable on the valuation date. Nevertheless, post- valuation events can be looked at to confirm or challenge the reasonableness of inferences drawn based on the information available on the valuation date.

40As this court noted in Best v. Best (1997), 1997 576 (ON CA), 35 O.R. (3d) 577, [1997] O.J. No. 4007 (C.A.), at p. 585 O.R., revd in part 1999 700 (SCC), [1999] 2 S.C.R. 868, [1999] S.C.J. No. 40:

[T]he use of hindsight evidence would introduce great uncertainty in the litigation process and, as a result, may well militate against the early resolution of matrimonial disputes.

41Although the general rule is that all property must be valued and included in the net family property calculation, this [page13 ]court has stated that it does not constitute a reversible error to deal separately with an asset omitted from the equalization calculation where doing so does not ultimately give rise to an error in that calculation. (See Arvai v. Arvai (2001), 2001 24142 (ON CA), 52 O.R. (3d) 481, [2001] O.J. No. 561, 14 R.F.L. (5th) 223 (C.A.).)

42The respondent argues that the trial judge's treatment of the stock options in this case falls within the parameters of the Arvai exception. The respondent submits that, in effect, what the trial judge did was to exclude the options from the net family property calculation and then, with the benefit of hindsight, determine the value as being the amount ultimately realized from the sale of this excluded property. As a result, the respondent argues, there is no error in the equalization calculation. The trial judge simply excluded an asset from that calculation, something this court found to be permissible in Arvai. The subsequent equal division of the sale proceeds of this excluded asset, the options, could not therefore result in the equalization calculation being in error.

43In Arvai, this court found no reversible error because the size of the equalization payment ordered by the trial judge was essentially the same as the one that would have been ordered had the asset, in that case a truck, been valued at the time of separation and included in the equalization calculation. The issue of the use of hindsight evidence was not an issue before the court.

44The situation is quite different in the case at bar and, in my view, the Arvai exception ought not to be extended so far as to cover what the trial judge did here. Here, the trial judge did more than exclude an asset from the equalization calculation and account for it separately. She awarded the respondent one-half of the profit generated when the options were ultimately exercised several years after separation. By doing so, she relied exclusively on evidence of what the options were worth when they were exercised. This resulted in an equalization payment well in excess of what it would have been if the options had been included in the equalization calculation and valued at the date of separation. In my view, this approach is inconsistent with the scheme of the Family Law Act, is contrary to established jurisprudence and valuation principles and results in an incorrect equalization calculation.

(b) The trial judge's treatment of the expert valuator's evidence

(i) The trial judge's reasons

45The appellant's expert valuator used the Black-Scholes method to value the 175,000 options issued as at the date of [page14 ]separation and initially arrived at a value of $21,100. However, in reviewing her calculations before trial, the expert revised her calculation and found the value to be $49,200. She made this change because, in her view, she had given insufficient weight to the time value of the options in the original calculations.

46The expert's evidence can be understood as being comprised of two components. The first part was the use of the Black-Scholes method to generate a value assuming that the options were vested and there were no restrictions on transfer. Using these figures and adjusting for taxes, I calculate the after-tax value of the 175,000 options to be $118,447 as follows:

[QL:GRAPHIC NAME="83OR3d001-2.jpg"/]

[Editor's Note: Note [See Note 4 below] is included in the image above]

The second part was to take that value determined by using the Black-Scholes method, which assumes that the options are vested and publicly traded, and apply discounts to it to take into account contingencies including the time until the options vested, the risk of forced early exercise, the risk of termination of employment or death prior to the options vesting, the lack of marketability and transaction costs. [See Note 5 below]

47The trial judge rejected the expert's opinion for two reasons. The first was that she did not accept certain assumptions made by the expert. The trial judge said that the expert had "made a number of assumptions, in making her calculation, one [page15 ]of which she changed prior to testifying. She did not explain her other assumptions or why she considered them appropriate." The trial judge then concluded that she "did not find [the expert's] evidence helpful or persuasive" [at para. 62].

48Unfortunately, the trial judge's reasons relating to the expert's assumptions make up only three lines in the judgment and are of little assistance to this court in understanding why she considered the expert's evidence unhelpful. Further, they do not tell us what assumptions she questioned and what parts of the approach and calculations she rejected. I hasten to add, however, that the expert's report and testimony provided limited assistance to the trial judge as these contained little explanation of the assumptions used and were difficult to understand.

49That said, it seems apparent from the trial judge's questioning of the expert that her difficulty with the expert's evidence related to the second component of the expert's evidence, being the adjustments made to the figure generated by the Black-Scholes method. This rejection of the second component of the expert's evidence is entitled to deference in this court. I do not understand the trial judge to have rejected the assumptions used by the expert to reach the Black- Scholes value of $118,447 and, on this record, I find no basis for doing so. Rather, the trial judge's concerns seem to have centred on the very significant reductions to that figure proposed by the expert.

50The second reason that the trial judge rejected the expert's valuation appears to have been a concern that the Black-Scholes approach was not appropriate to value options that are not publicly traded. Immediately following the rejection of the expert's opinion as to the value, the trial judge set out a lengthy discussion of the appropriate approach to be taken in valuing employee stock options in a family law context. The trial judge referred Reid v. Reid, supra, noting that in that case Snowie J. had "rejected the Black Scholes approach on the basis that it was not the appropriate method where the stock options were not publicly traded or vested" and found "that the 'if and when' approach was the most reasonable and the fairest way to determine the value of the stock options".

51The trial judge then cited the New Brunswick decision of Miller v. Miller, supra, and summarized that court's view as follows [at para. 67]: "[T]he Black Scholes method is simply a complicated mathematical formula that considers a number of market factors. However the formula is limited because it cannot consider limits on the options, such as delayed vesting dates or limits on selling the stocks. As such, the formula needs to be adjusted for such limits". The trial judge then concluded that the [page16 ]"fairest way to value the options is on an 'if and when' basis. This approach is not dependent on the educated guesses of experts, so that the person who holds the options is at risk or has the potential for gain."

52I conclude from this analysis that the trial judge was aware that the Black-Scholes method is, in essence, a mathematical formula and an accepted method of valuing options. She also recognized that, in the case of employee options, limits as to the marketability and as to vesting are such that the actual value of these options is normally less than the value generated by the Black-Scholes method and that certain adjustments are normally necessary to account for these contingencies. However, rather than taking the Black-Scholes figure generated by the expert and determining what adjustments, if any, should be applied to this figure to account for contingencies, the trial judge concluded that the "if and when" approach was preferable to the Black-Scholes approach because the "if and when" approach avoided having the holder of the options bear the risk of loss and the potential for gain. In effect, she adopted a method which makes no attempt to provide a valuation date value and which enjoys the benefits of hindsight over one which values the options as at the valuation date based on information available at that time. In so doing, the trial judge erred.

53On this record the trial judge should have adopted the number generated by the expert's Black-Scholes calculation and, having rejected the expert's evidence as to the appropriate adjustments for contingencies, determined what adjustments, if any, were appropriate based on the evidence she did accept. As discussed in the balance of these reasons, I consider the Black-Scholes method of valuing options to be an appropriate valuation approach in cases such as this where the underlying stock is publicly traded. The Black-Scholes value can, and normally should be, adjusted to account for contingencies such as the delay in vesting, limits on exercise and so on. This is not to say that trial judges cannot choose a different approach in appropriate cases nor that the expert's calculations and assumptions cannot be questioned or rejected where warranted.

(ii) The Black-Scholes method

54The Black-Scholes method is a broadly accepted method of valuing options for publicly traded shares (see James Gary McLeod & Alfred A. Mamo, Matrimonial Property Law in Canada, looseleaf (Toronto: Carswell, 1993) at V-36). It is described as a "probability model" because it is based on the underlying [page17 ]assumption that future stock prices can be estimated by using a probability distribution. It was developed to value options that trade in the public markets; however, this model is also often used where the shares of the company are publicly traded but the options are not. This is the situation in the case at bar. Discounts can be applied to the figure generated by the Black-Scholes model to account for vesting restrictions, performance contingencies or to acknowledge that the options are not saleable or transferable. (See Andrew J. Freedman et al., Financial Principles of Family Law, looseleaf (Toronto: Carswell, 2001) at pp. 27-7 and 27-10.)

55As noted by Freedman et al. in their text Financial Principles of Family Law, supra, at p. 27-11"[t]he quantum and applicability of a particular discount [to option value] is somewhat subjective and therefore a source of controversy in most cases". Accordingly, trial judges likely have more latitude to take issue with certain of the expert's discounts than with the use of the Black-Scholes method itself.

56Although the Black-Scholes method is a broadly accepted method of valuing options for publicly traded shares, I am aware of no Canadian family law case that specifically uses it. In Buttrum, supra, at para. 36, the trial judge referred to the valuator's opinion that the Black-Scholes approach was not an appropriate method to value stock options where the shares in the company are not publicly traded. Without public trading in the underlying shares, there is little information available on the price fluctuations. Price fluctuations are used to measure the volatility of the underlying stock. The volatility of the stock makes up an important component of the Black-Scholes formula.

57In Miller, supra, and Reid, supra, mention was made of the Black-Scholes approach but the courts chose to use an "if and when" approach. As I set out earlier, I would not follow Reid. Further, although the court in Reid considered that the Black-Scholes approach was not an appropriate method to use because the subject stock options were not publicly traded or vested, this comment ignores the fact that discounts can be applied to take these factors into account. The Miller decision is a New Brunswick decision and is not relevant to this case. New Brunswick operates under a different statutory regime which provides for the division of matrimonial property in specie.

58The Black-Scholes method has been used to value stock options in American family law cases (see Freedman et al., supra, at p. 27-10). However, like Reid, supra, some American cases have criticized the use of the Black-Scholes method for valuing employee stock options in the family law context, since the method was designed for publicly traded options [page18 ](see Chammah v. Chammah, [1997] WL 414404 (Conn. Super. Ct.)). Unlike the stock options for which the Black-Scholes valuation method was designed, many employee stock options cannot be traded or sold and may be subject to vesting conditions. As I have noted earlier this criticism can be addressed, when the underlying shares are publicly traded, through the application of discounts that account for the lack of marketability, the unvested nature of the options or other similar restrictions on the options.

59The Black-Scholes model, like any model that tries to predict the future, obviously has its limitations. However, the matrimonial property regime in Ontario requires courts to conduct an equalization accounting. In order to do so, courts must determine the value of various property interests owned by the spouses as of the valuation date. Certain property interests, such as stock options will be difficult to value because of the contingencies surrounding their future exercise. Accordingly, courts will often have to rely on actuarial approaches such as the Black-Scholes model to value these interests.

60Although the Black-Scholes method for valuing stock options may not be perfect, it is an accepted method and one that can be adapted to take into account the various restrictions that are placed on options, particularly in the employment context. In my view, it is no answer to the valuation challenge presented by employee stock options to say that the Black-Scholes method is too complicated, too variable or better suited to publicly traded options. To comply with the Family Law Act, parties to matrimonial proceedings and the courts must find a way to value options as at the valuation date. The Black-Scholes method is one accepted method of doing so and, as noted by Freedman et al., supra, at p. 27-10"[a] lthough this model has its shortcomings, it has become the most popular method among business valuators when valuing employee stock options in a family law case".

61Accordingly, notwithstanding its lack of reported use in Canadian family law cases to date, I view the Black-Scholes method as an acceptable method for valuing stock options where the underlying stock is publicly traded. It was the only method of stock option valuation available to the trial judge in this case that actually provided a valuation date estimate of the value of the 175,000 options issued prior to the valuation date. The trial judge's preference for the "if and when" approach over the Black-Scholes approach because the Black- Scholes approach did not use hindsight was, as set out earlier, an error. After rejecting the expert's opinion as to the value and as to the adjustments necessary to account for the restrictions and unvested nature of some of the options, the trial judge ought not to have rejected the [page19 ]Black- Scholes approach outright and opted for the "if and when" approach; she ought to have determined what, if any, reduction to the $118,447 figure generated by the Black-Scholes model for the 175,000 stock options issued prior to the valuation date was appropriate on the facts of this case.

Remedy

62The respondent, who was self-represented at trial, chose not to adduce any expert evidence as to the value of the options. The only evidence of the valuation date value that was before the trial judge was the figure generated by [the] expert for the 175,000 options using the Black-Scholes approach.

63Absent a finding by the trial judge as to how the figure generated by the Black-Scholes method should be adjusted to account for contingencies and absent a Black-Scholes value for the 163,333 [See Note 6 below] December 2001 options, I must now determine whether this court should make the necessary findings in order to set a valuation date value for all 338,333 options or return the matter to the Superior Court for a new trial.

64In my view, it is preferable to resolve the matter here rather than to refer it to the Superior Court where the parties would be required to incur further expense and may well decide to advance different evidence and theories as to the appropriate valuation. With a view to not prolonging this litigation further, I think that justice to the parties can best be achieved if this court determines the value of the options based on the evidentiary foundation that the parties have poured and on our assessment of that record.

65The trial judge did not accept the expert's adjustments to the Black-Scholes figure for the pre-December 2001 options and considered the magnitude of the proposed adjustments to be excessive. I see no basis to interfere with this finding. Using the expert's non-discounted Black-Scholes valuation of $118,447 as a starting point to setting the value of the pre-December 2001 options, I consider that some adjustment to account for the restrictions on and unvested nature of some of the options is nonetheless appropriate. The reductions suggested by the appellant's expert amounted to almost 60 per cent of the basic Black-Scholes value. She had assumed that, for unvested options, the holder would be risk averse and would purchase a put option to protect against the risk of ups and downs. To this reduced figure [page20 ]she applied further discounts to account for the time value of money, the risk of forced early exercise and the risk of termination of employment or death prior to vesting. For vested options she applied a 50 per cent discount for lack of marketability and transaction costs. It can be inferred from the reasons of the trial judge and the record that the trial judge did not consider the need for reductions of this magnitude to have been made out, and I agree. Nonetheless, some reduction is appropriate to account for transaction costs and the restrictions on and unvested nature of some of the options. In the circumstances, I consider a discount of 20 per cent to the $118,447 figure to be fair. This reduces the value to $94,757.60.

66With respect to the December 12, 2001 options, in light of the absence of evidence as to the Black-Scholes value of these specific options at the date of separation, I will estimate their value based on the value I have set for the pre- December 2001 options. Although I recognize that the 163,333 December 2001 options have different terms and conditions than the other 175,000 options, the Black-Scholes value for those other options is the best information available on this record as to the valuation date value of options of this kind.

67The 175,000 pre-December 2001 options are made up of five sets of options each having a different exercise price (some higher and some lower than the December 2001 options), each having various vesting dates (some having vested as at the valuation date, some not), and each having different periods within which they can be exercised. I calculate the exercise price of the December 2001 options as being almost equal to the weighted average exercise price of the 175,000 pre-December 2001 options [See Note 7 below] and, although none of the December 2001 options would have vested by the valuation date, this is offset somewhat by the fact that they have a longer period remaining within which they can be exercised. On the whole, therefore, I consider that the average per option value of the pre-December 2001 options is a fair estimate of the per option value for the December 2001 options. Using the $94,757.60 value I have set for the pre-December 2001 options, I calculate the per option value of the 175,000 pre-December 2001 options to be approximately $0.54. Applying this per option value to the 163,333 December 2001 options produces a value for these options of $88,199.82. [page21 ]

68The respondent therefore, is entitled to have $182,957.42 (being $94,757.60 for the pre-December 2001 options plus $88,199.82 for the December 12, 2001 stock options) included in the appellant's net family property to reflect the value of the appellant's interest in IAMGOLD stock options as at the valuation date. This is a $676,230.91 reduction from the $859,188.33 amount calculated by the trial judge for the value of these stock options. The respondent is therefore entitled to half of the value of the stock options and the equalization payment must be adjusted accordingly. [See Note 8 below]

Conclusion

69In conclusion, I would allow the appeal in part and vary para. 4 of the trial judge's order from $357,203.14 to $19,087.68.

70I would award the appellant costs on a partial indemnity basis fixed at $20,000 inclusive of GST and disbursements.

BORINS J.A. (dissenting): --

I

71I am unable to agree with Rouleau J.A.'s resolution of this appeal. Although the appellant owned 175,000 unexercised employee stock options on the valuation date, he did not own the 245,000 employee stock options that he acquired about four months thereafter. Consequently, the 245,000 options were not part of his net family property. In implicitly finding that the appellant owned these phantom options on the valuation date, the majority has reached the conclusion that a person is capable of owning something that does not exist.

II

72The property provisions of the Family Law Act, R.S.O. 1990, c. F.3 ("FLA") were enacted to recognize that marriage is a form of partnership and, upon the breakdown of the partnership, to provide for the equitable settlement of the affairs of the spouses. Thus, the purpose of the FLA is to ensure that the value [page22 ]of all assets acquired by the parties by virtue of the marriage are shared equally upon the marriage breakdown. The key property settlement provisions are ss. 4 and 5. Together, they provide that the value of all property accumulated during the marriage partnership, with some exceptions, as opposed to the property itself, is to be shared equally by the spouses on marriage breakdown. This is accomplished by the equalization process described in s. 5. The first step in the equalization process is to determine each spouse's net family property under s. 4(1) on the valuation date. The second step is the valuation of the net family property as of the valuation date. The third step is equalizing the value of such property.

73It is apparent from s. 4 of the FLA that central to determining a spouse's net family property is the identification of the property owned by the spouse on the valuation date. In this regard, it is helpful to reproduce s. 4(1) and s. 4(2):

4(1) In this Part"court" means a court as defined in subsection 1(1), but does not include the Ontario Court of Justice; ("tribunal")

"matrimonial home" means a matrimonial home under section 18 and includes property that is a matrimonial home under that section at the valuation date; ("foyer conjugal")

"net family property" means the value of all the property, except property described in subsection (2), that a spouse owns on the valuation date, after deducting,

(a) the spouse's debts and other liabilities, and

(b) the value of property, other than a matrimonial home, that the spouse owned on the date of the marriage, after deducting the spouse's debts and other liabilities, calculated as of the date of the marriage; ("biens familiaux nets")

"property" means any interest, present or future, vested or contingent, in real or personal property and includes,

(a) property over which a spouse has, alone or in conjunction with another person, a power of appointment exercisable in favour of himself or herself,

(b) property disposed of by a spouse but over which the spouse has, alone or in conjunction with another person, a power to revoke the disposition or a power to consume or dispose of the property, and

(c) 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; ("bien")

"valuation date" means the earliest of the following dates:

1. The date the spouses separate and there is no reasonable prospect that they will resume cohabitation. [page23 ]

2. The date a divorce is granted.

3. The date the marriage is declared a nullity.

4. The date one of the spouses commences an application based on subsection 5(3) (improvident depletion) that is subsequently granted.

5. The date before the date on which one of the spouses dies leaving the other spouse surviving. ("date d'évaluation")

(2) The value of the following property that a spouse owns on the valuation date does not form part of the spouse's net family property:

1. Property, other than a matrimonial home, that was acquired by gift or inheritance from a third person after the date of the marriage.

2. Income from property referred to in paragraph 1, if the donor or testator has expressly stated that it is to be excluded from the spouse's net family property.

3. Damages or a right to damages for personal injuries, nervous shock, mental distress or loss of guidance, care and companionship, or the part of a settlement that represents those damages.

4. Proceeds or a right to proceeds of a policy of life insurance, as defined in the Insurance Act, that are payable on the death of the life insured.

5. Property, other than a matrimonial home, into which property referred to in paragraphs 1 to 4 can be traced.

6. Property that the spouses have agreed by a domestic contract is not to be included in the spouse's net family property.

(Emphasis added)

74It follows that the issue in this appeal is whether, on the valuation date, the appellant owned the 245,000 employee stock options that he acquired subsequent to that date. If so, the next question is whether the stock options constitute "property" within the broad definition of property in s. 4(1). If the stock options are property, it is then necessary to value the stock options on the valuation date for the purpose of calculating the appellant's net family property within the meaning of s. 4(1).

III

75The Supreme Court of Canada considered the FLA in Rawluk v. Rawluk, 1990 152 (SCC), [1990] 1 S.C.R. 70, [1990] S.C.J. No. 4. In reference to the enactment of the FLA in 1986, and in contrast to its predecessor, the Family Law Reform Act, R.S.O. 1980, c. 152, writing for the majority, Cory J. said at para. 32: "Instead, the statute provided that all property should be equalized upon separation through the transfer of money from the title-holding or owning spouse to the non-owning spouse." [page24 ]

76The issue in Rawluk was whether the use of the remedy of a constructive trust was permissable to achieve a just and equitable division of family property under the FLA. In concluding that it was, Cory J. undertook an analysis of the property provisions of the FLA, in particular ss. 4 and 5. At paras. 39 and 40, Cory J. stated:

Sections 4 and 5 of the Family Law Act, 1986 create a two- step property division process that emphasizes the distinction between the determination of legal and equitable ownership and the equalization of net family property. These sections require a court first to determine individual "ownership piles" and then to equalize the spouses' assets by ordering the spouse with the larger ownership pile to pay money to the spouse with the smaller pile.

Before property can be equalized under s. 5 of the Family Law Act, 1986, a court is required by s. 4 to determine the "net family property" of each spouse. Under section 4(1) this is defined as "the value of all property . . . that a spouse owns on the valuation date". "Property" is defined in the same subsection as "any interest, present or future, vested or contingent, in real or personal property". This all-encompassing definition is wide enough to include not only legal but beneficial ownership.

(Emphasis added)

77Cory J. continued at para. 44:

The distinction between a share in ownership and a share in property value through an equalizing transfer of money is more than an exercise in judicial formalism. This distinction not only follows the two-step structure of the Family Law Act, 1986 but reflects conceptual and practical differences between ownership and equalization. Ownership encompasses far more than a mere share in the value of property. It includes additional legal rights, elements of control and increased legal responsibilities. In addition, it may well provide psychological benefits derived from pride of ownership. Where the property at issue is one to which only one spouse has contributed, it is appropriate that the other spouse receive only an equalizing transfer of money. But where both spouses have contributed to the acquisition or maintenance of the property, the spouse who does not hold legal title should be able to claim an interest in that property by way of a constructive trust and realize the benefits that ownership may provide. The imposition of a constructive trust recognizes that the titled spouse is holding property that has been acquired, at least in part, through the money or effort of another. The non-titled spouse's constructive trust interest in this property is distinct from the right to an equalizing share of property value that is derived not from an independent property right but from the status as a married person.

(Emphasis added)

78In concluding his discussion on an unequal division of family property under s. 5(6) of the FLA, at para. 46 Cory J. stated:

Under the Act a court is, as a first step, required to determine the ownership interests of the spouses. It is at that stage that the court must deal with and determine the constructive trust claims. The second step that must be taken [page25 ]is to perform the equalization calculations. Once this is done, a court must assess whether, given the facts of the particular case, equalization is unconscionable. The section 5(6) analysis, even if it could be considered, would be a third step -- a last avenue of judicial discretion which might be used in order to bring a measure of flexibility to the equalization process. This step in the process, if it could be used, would have to be kept distinct from the preliminary determinations of ownership.

(Emphasis added)

79In concluding his analysis, Cory J. referred to s. 10 of the FLA, in respect to which he said at para. 47:

Section 10 of the Family Law Act, 1986 reinforces the Act's emphasis on the importance of individual ownership, even within a regime of deferred sharing. This section allows a spouse to apply to a court to determine a question of ownership or possession prior to equalization, and thus to assert some degree of control over matrimonial property during cohabitation.

(Emphasis added)

See, also, Berdette v. Berdette (1991), 1991 7061 (ON CA), 3 O.R. (3d) 513, [1991] O.J. No. 788 (C.A.).

80It follows from Rawluk that a determination of the ownership rights of each spouse on the valuation date is the first step to any equalization of the net family property of the spouses. The next step is to determine whether property owned by each spouse on the valuation date is "property" within the meaning of s. 4(1) of the FLA. After this is determined, the next step is to value the property owned by each spouse on the valuation date for the purpose of determining the value of the "net family property" of each spouse. The final step is to equalize the net family property of the spouses as provided by s. 5.

81"Own" is not a defined term in the FLA. The parties did not refer to any cases in which the terms "own" or "ownership" have been defined or interpreted for the purpose of s. 4 of the FLA, nor have I been able to find any judicial consideration of these terms other than that of Cory J. in Rawluk. The absence of any judicial consideration of these terms suggests that it is usually obvious whether a spouse is the owner of specific property on the valuation date.

82In addition to Cory J.'s discussion of ownership in Rawluk, it is helpful to consider the definitions of the related terms "own""owner""ownership" and "title" in B.A. Garner, ed., Black's Law Dictionary, 7th ed. (St. Paul: West Group, 1999). At p. 1130 "own" and "owner" are defined as follows:

own, vb. To have or possess as property, to have legal title to.

owner. One who has the right to possess, use, and convey something; a proprietor. [page26 ]

At p. 1131 "ownership" is defined:

ownership. The collection of rights allowing one to use and enjoy property, including the right to convey it to others. Ownership implies the right to possess a thing, regardless of any actual or constructive control. Ownership rights are general, permanent, and inheritable.

And at p. 1493 "title" is defined:

title. 1. The union of all elements (as ownership, possession, and custody) constituting the legal right to control and dispose of property; the legal link between a person who owns property and the property itself. 2. Legal evidence of a person's ownership rights in property; an instrument (such as a deed) that constitutes such evidence.

IV

83It is common ground that the date on which the parties separated, August 31, 2001, is the valuation date and that on that date the appellant owned 175,000 options to purchase the stock of his employer, IAMGOLD, that had been issued to him between March 8, 1996 and February 22, 2000, but which did not vest until after the valuation date. It is also common ground that on December 12, 2001, three and one-half months after the valuation date, 245,000 IAMGOLD employee stock options were issued to the appellant. It was not until April, 2005, that the appellant exercised all 420,000 options. The appellant's position is that since he did not own the 245,000 stock options on the valuation date, the trial judge erred in including them within his net family property. In the alternative, the appellant submits that if the trial judge was correct in including the December 2001 options within his net family property, she erred in her valuation of them. Finally, the appellant submits that the trial judge also erred in her valuation of the 175,000 stock options that he owned on [the] valuation date.

84The evidence surrounding the granting of the 245,000 options was sparse. The corporate counsel of IAMGOLD, Larry Phillips, testified that the appellant's compensation consisted of a combination of a base salary, a bonus and a grant of stock options. However, a grant of employee stock options was within the discretion of the board of directors of IAMGOLD and options were not granted every year. During the appellant's employment at IAMGOLD, options were granted to him in five out of seven years.

85The following is the trial judge's summary of the evidence pertaining to the 245,000 options [at paras. 21 and 22]:

In January, 2000, the husband was appointed CFO of IAMGOLD. Larry Phillips, corporate counsel and corporate secretary at IAMGOLD, testified [page27 ]that options were not issued every year, were discretionary and were based on the prior year's performance. He testified that each year, the compensation committee would review whether options should be granted and, that generally, the senior executives would be considered as a group. He testified that there might have been a single grant of options to the husband when he was promoted to CFO.

On December 12, 2001, the husband was granted 245,000 stock options at $3.90 per share. The letter from the CEO of

IAMGOLD to the husband which advised of the grant referred to

the past year's significant progress towards increased value for the shareholders and the company's sincere appreciation of the husband's efforts. The husband testified that these options were to bring him into line with the other senior executives in the company upon his appointment as CFO. There was no evidence as to what amount of stock options other senior executives received in December, 2001.

(Emphasis added)

I am satisfied that this is an accurate summary of the evidence.

86As I understand the trial judge's reasons, the following would appear to be her net family property analysis and her finding that the 245,000 stock options were part of the appellant's net family property [at paras. 59-61]:

I do not accept the wife's constructive trust claim for one-half of the stock options issued to the husband. The wife is entitled to have included in net family property the stock options received or earned by the husband by the date of separation.

Approximately 4 months after separation, 245,000 stock options were issued to the husband. The letter from the employer announcing the grant of stock options in December, 2001, states that the grant reflected the husband's efforts during the then almost completed year. [See Note 9 below] While both the husband and Larry Philips commented that stock options were issued to the husband to bring him into parity with other senior executives when he was promoted to CFO, there was no evidence as to what portion of the stock options were for this purpose.

On balance, I conclude that the 245,000 stock options were given for work done by the husband for the prior year. As the separation occurred after 8 months of 2001, 8/12 of 245,000 stock options issued in December, 2001 should be included in net family property.

(Emphasis added)

87Thus, it would seem that the trial judge concluded that the December 2001 options were the appellant's net family property because he had "earned" them by the valuation date, and because [page28 ]they were "given for work done" by the appellant during the marriage. However, the trial judge failed to make a finding that the appellant owned the options on the valuation date.

88From my review of the record of this six day trial, it is noteworthy that exceedingly little attention was devoted to the 245,000 employee stock options granted to the appellant after valuation date. Both Mr. Phillips and the appellant barely touched on this subject in their testimony. The appellant's valuator, Melanie Russell, did not value these options. She valued only the 175,000 options that the appellant owned on valuation day. And even in respect to this valuation, her testimony was brief. It is likely that the appellant did not consider the 245,000 options to be part of his net family property as he did not own them on valuation day, and his case was litigated on this premise.

V

89The appellant's position is that on the valuation date he did not own the 245,000 employee stock options that were granted to him by his employer, IAMGOLD, some four months thereafter. Consequently, he submits, the trial judge erred in her finding that the options formed part of his net family property.

90The appellant's submission is based on a plain reading of s. 4 of the FLA. As "net family property" is defined as "the value of all property . . . that a spouse owns on the valuation date", and as he did not own the stock options until they were granted to him subsequent to the valuation date, he submits that he did not, and could not, have owned them on that date. He concedes that had he owned the 245,000 options on the valuation date, even though they may have been unvested and subject to a number of conditions, including a condition that he could not exercise them for a number of years, like the 175,000 employee stock options that he owned on the valuation date, they would have constituted "property" within the broad meaning of that term in s. 4(1). As they would have formed part of his net family property, the court would be required to assign a value to the options as of the valuation date.

91However, the appellant emphasizes the fact that even though the 245,000 options would have constituted property within the meaning of s. 4(1), this could not establish his ownership of them because they were not given to him until several months later. Under the FLA, a spouse's ownership of property on the valuation date is central to the equalization analysis. In other words, although the 245,000 stock options would constitute "property" within the meaning of s. 4(1) of the FLA, this fact is [page29 ]not capable of establishing his ownership of them on the valuation date if they did not exist on that date. As the options were not owned by the appellant on the valuation date, they were not net family property and their value was not subject to equalization. He submits, and I agree, that the error made by the trial judge in what appears to be her net family property analysis was her finding that the 245,000 phantom stock options were net family property because they were property within the meaning of s. 4(1) of the FLA.

92Thus, the appellant's argument is straight forward. The December 2001 stock options did not exist on the valuation date of August 31, 2001. On that date the appellant did not own them, nor did he have any entitlement to them because their issuance and grant were within the discretion of the board of directors of his employer. The board may not have granted him any options for 2001. As the net family property equalization scheme in the FLA is premised on the determination of what property is owned by a spouse on the valuation date and the value of the property on that date, the trial judge erred in finding that the December 2001 options constituted a portion of his net family property. The appellant adds that the correct principle is that if an asset does not exist on the valuation date, it does not form part of a spouse's net family property even if, when the spouse subsequently acquires the asset, it is connected in some manner to his or her employment or compensation during the marriage.

93In support of his position the appellant relies on the decision of this court in Leckie v. Leckie, 2004 10487 (ON CA), [2004] O.J. No. 1550, 238 D.L.R. (4th) 571 (C.A.), a case that was not considered by the trial judge. In Leckie the appellant had received a severance package from his employer, the amount of which was calculated on his years of employment. It was received after he and his wife separated, which was the valuation date. The trial judge included the value of part of the severance package in the appellant's net family property.

94This court held that the trial judge erred in doing so, stating at paras. 4 and 5:

The severance packages did not exist at the date of separation. Neither party had any entitlement to such a package as at the date of valuation. They are not property as of separation.

As Perkins J. said in Marquardt v. Marquardt, [1996] O.J. No. 4139, 19 O.T.C. 69 (Gen. Div.) [at para. 13]:

I think it is stretching the definition of "property" in s. 4(1) of the Family Law Act to conclude that something that did not exist and to which the husband had no right at the time of separation should be considered his property, as of separation, merely because the method of calculating his [page30 ]entitlement to severance some 16 months later includes time during which the parties were married and living together.

(Emphasis added)

95In Marquardt the issue was whether a severance package that the husband received from his employer 16 months after the parties separated was part of his net family property on the date of separation, which was the valuation date, for the purpose of calculating the equalization payment. Perkins J. approached the issue by determining whether the amount of the severance package was property which is defined in s. 4(1) of the FLA to be "any interest, present or future, vested or contingent, in real or personal property". He concluded that it was not and, therefore, was not part of the husband's net family property.

96It is helpful to set out in full Perkins J.'s reasons, only part of which was reproduced in Leckie [at para. 13]:

I think it is stretching the definition of property in section 4(1) of the Family Law Act to conclude that something that did not exist and to which the husband had no right at the time of separation should be considered his property, as of separation, merely because the method of calculating his entitlement to severance some 16 months later includes time during which the parties were married and living together. Fortunately I am reinforced in my conclusion by the courts' consideration of the issue of severance pay and similar employee entitlements in the Ontario cases of Emond v. Emond (1987), 1987 8362 (ON CA), 10 R.F.L. (3d) 107 (Ont. C.A.) (severance pay received before separation is "property"); Gasparetto v. Gasparetto (1988), 1988 8626 (ON SC), 15 R.F.L. (3d) 401 (Ont. S.C.) (retirement incentive payment entirely discretionary and subject to cancellation by employer not "property"); Melanson v. Melanson (1991), 1991 12810 (ON SC), 34 R.F.L. (3d) 323 (Ont. Ct. Gen. Div.) (Canadian Forces severance pay from a retirement "shortly" after separation is "property" -- no discussion of when severance pay entitlement arose, leading me to conclude that there must have been no issue made about its existence at separation); Cliche v. Cliche (1991), 1991 12909 (ON CA), 36 R.F.L. (3d) 297 (Ont. C.A.) (accumulated sick leave credits as of separation are "property"); Blais v. Blais (1992), 38 R.F.L. (3d) 256 (Ont. Ct. Gen. Div.) (retirement incentive payment similar to the package involved in this case, with no evidence that payment was offered before separation, not "property"); see also Purcell v. Purcell (1995), 11 R.F.L. (4th) 181 (Ont. Ct. Gen. Div.) (retroactive pay under pay equity legislation is akin to severance pay and is "property", even though the employer announced implementation of pay equity four months after separation and the employees' union accepted the employer's offer of a package nine months after separation). It may be that the Purcell case is distinguishable because the payment there involved the implementation of a statutory scheme that was in existence, even though the form and amount of the benefit had not been put in place at the time of separation; or it may be that Purcell is out of step with the other cases. In any event, Blais is directly on point, and the court in that decision adopted the reasoning of Gasparetto that the issue is whether there was a present or future right to, or a vested or contingent interest in, a payment. There being no such right here to the Bell severance package as of June, 1994, the severance package is not "property" within the meaning of section 4(1) of the Family Law Act. [page31 ]

97Neither Perkins J. nor the court in Leckie approached the net family property analysis by deciding whether the property in issue was owned by the spouse on the valuation date as required by Rawluk. However, they effectively did so by employing the definition of property in s. 4(1) of the FLA, deciding whether the property in issue was property within the meaning of s. 4(1) and then finding, as the property did not exist on the valuation date, that it was not part of the spouse's net family property. Clearly, had the Leckie and the Marquardt courts first considered whether the severance packages were owned on the valuation date, they would have concluded that they were not, as the severance packages neither existed on the valuation date, nor did the spouses have an entitlement to them. The same result would, of course, have been reached -- the severance packages were not part of the net family property of the respective spouses as they were not owned on the valuation date.

98Helpful as well is Gasparetto v. Gasparetto, 1988 8626 (ON SC), [1988] O.J. No. 860, 15 R.F.L. (3d) 401 (H.C.J.) where one issue was whether the benefits available under an early retirement plan were to be included in the husband's net family property. The benefits were completely discretionary on the part of the Department of National Defence. Campbell J. characterized the benefits as "a possible discretionary payment and not as an entitlement" and found that the husband had no present or future right to receive them. Consequently, they were not included in the husband's net family property. See, also, Slack v. Slack, 2001 28170 (ON SC), [2001] O.J. No. 5115, 23 R.F.L. (5th) 207 (S.C.J.), at para. 91 and Swanson v. Swanson, [2004] O.J. No. 5266, [2004] O.T.C. 1149 (S.C.J.), at paras. 139 and 140.

VI

99In my view, the evidence did not establish that on the valuation date, August 31, 2001, the appellant owned the 245,000 employee stock options in IAMGOLD that its board of directors, in the exercise of its discretion, issued to him in December 2001. Clearly, the evidence proved that on the valuation date the appellant did not own the options. Although in five of the previous seven years the board had issued stock options to the appellant, it always did so in the exercise of its discretion. Therefore, it cannot be said that on the valuation date the appellant had an entitlement, or the right, to receive any stock options from his employer in respect to 2001. At the highest, he may have had the expectation that in December 2001 the board would in its discretion vote to give him an unspecified number of stock options that, [page32 ]at least in part, would represent compensation for his efforts for the company throughout 2001. [See Note 10 below]

100Earlier, in para. 7, I quoted from Cory J.'s discussion of ownership in Rawluk where he stated: "Ownership encompasses far more than a mere share in the value of property. It includes additional legal rights, elements of control and increased legal responsibilities." And, in para. 12, I reproduced dictionary definitions of "own""owner""ownership" and "title". Based on the comments of Cory J. and on these definitions, it cannot be said that the appellant's expectation that the board of directors would exercise its discretion and vote to give him an unspecified number of stock options in December constituted ownership of 245,000 stock options on August 31, 2001. On August 31, 2001, the appellant had none of the usual incidents of ownership in the stock options such as title, possession, use, control, risk and the power to convey.

101It follows that the trial judge was in error in implicitly finding that the appellant owned the 245,000 employee stock options on the valuation date when she included the options in his net family property. She made a finding unsupported by the evidence. At para. 16 I reproduced the trial judge's brief net family property analysis. She made no finding that the 245,000 options were owned by the appellant on the valuation date. Indeed, she made no mention of ownership of the options. As a threshold issue, the trial judge was required to determine ownership. Nor did she determine whether the options were "property" within the meaning of s. 4(1) of the FLA. As I understand her reasons, she proceeded directly to determining whether the 245,000 options were subject to equalization and held that they were because they "reflected the husband's efforts during the then almost completed year". Moreover, the trial judge ignored the undisputed facts that the options did not exist on the valuation date, and that there was no entitlement to the options on that date as it was within the discretion of IAMGOLD's board of directors whether or not it would grant any options to the appellant. With respect, I am unable to agree with Rouleau J.A.'s similar net family property analysis.

102Consequently, it follows that on the valuation date the appellant owned only the 175,000 stock options that he had received before that date. There is no dispute that even though [page33 ]the options were subject to many conditions in respect to their future exercise, they constituted property within the meaning of s. 4(1) of the FLA and were properly part of the appellant's net family property.

VII

103The trial judge valued the 175,000 stock options on an "if and when" basis. Rouleau J.A. holds, and I agree, that she erred in doing so. The trial judge had before her, through the testimony of the appellant's expert, Ms. Russell, a valuation of $492,000 which she calculated by using the widely accepted Black-Scholes model. However, the trial judge rejected Ms. Russell's evidence in its entirety and went on to value the options, using her own method, at $424,313. As I will explain, in my view the trial judge erred in rejecting Ms. Russell's evidence.

104With respect, I believe that the trial judge rejected the expert's evidence because she misapprehended the Black- Scholes model of valuing stock options. However, in fairness to her, I am bound to say that Ms. Russell's evidence was poorly presented. The trial judge rejected Ms. Russell's evidence for these brief reasons contained in para. 62:

[Ms. Russell] made a number of assumptions in making her calculation [of the value of the 175,000 options]. She did not explain her other assumptions or why she considered them appropriate. I did not find her evidence helpful or persuasive.

105Because of the nature of employee stock options, which I will discuss, their valuation is not a simple task. The most common valuation method in marital division cases is the Black- Scholes model. [See Note 11 below] The Black-Scholes model was designed by Fisher Black and Myron Scholes [See Note 12 below] in the 1970s. It has been used ever since by professionals and investors for stock option valuations. Although it was developed to value tradable options, it is also used to value options where the shares of the company are traded but the options themselves are not, as in this case. While it is beyond the scope of these reasons to explain the model in detail, it is important to recognize that it is a complex method that reflects the interrelationship between market value and exercisability by taking into account 11 different variables. The [page34 ]model accounts for the five factors affecting market value of an option, including an option's intrinsic value, an option's time to execution, the value of the underlying security, market interest rates and dividends. The model also integrates six variables affecting the exercise of an option, including the price of the option, the market price of the underlying security, the expiration date of the option, the underlying security's volatility, current interest rates and the dividends of the underlying security. Moreover, in considering only the information available on the valuation date, the Black-Scholes model conforms with the valuation approach in the FLA. Cf. Best v. Best, 1999 700 (SCC), [1999] 2 S.C.R. 868, [1999] S.C.J. No. 40, at paras. 49 and 62. See Lynn Curtis"Valuation of Stock Options in Dividing Marital Property Upon Dissolution" (1998) 15 J. Am. Acad. Matrim. Law 411 at p. 440.

106The "assumptions" which the trial judge said were made by the appellant's expert in valuing the 175,000 stock options at $49,200 by using the Black-Scholes model included the five factors and six variables inherent in the application of the model. These factors and variables, which are integral to the Black-Scholes model, troubled the trial judge and resulted in her rejection of Ms. Russell's opinion. They formed part of Exhibit 75, which contains the supporting documentation for her valuation calculations. Thus, it would appear that the trial judge misapprehended the expert's evidence when she found it to be unhelpful and unpersuasive. This constituted an error in law and permits this court to act on the expert's valuation.

107I would add, in determining the value of any property forming part of a spouse's net family property, that it is important to recognize that it is the value of the property on the valuation date that must be determined. Invariably, this will require the opinion of an expert. In the case of valuing employee stock options, I would agree with Rouleau J.A.'s endorsement of the Black-Scholes model, which has become the widely accepted model for this purpose.

108As I have stated, the FLA clearly requires that there be ownership of property on the valuation date. The Act clearly fixes the valuation date for ownership, valuation and distribution purposes. I appreciate that in cases involving employee stock options granted to a spouse after the valuation date, wholly or partly, in recognition of the spouse's work performance during the period of the marriage, an apparent inequity may arise from the Act's requirement that all property for distributive purposes must be owned on the valuation date. This is because on equalization the other spouse would be denied the benefit of the options granted in recognition of the owning spouse's efforts during the marriage. [page35 ]However, in such cases, this inequity may be ameliorated where the former husband is paying spousal support. Where the exercise of the options results in a significant financial advantage, the former wife can rely on this should she apply to vary the amount of support.

109For all of the foregoing reasons it is my view that the trial judge erred in including the 245,000 December 2001 stock options in the appellant's net family property and in placing a value of $424,313 on the 175,000 stock options that formed part of his net family property. In my view, based on Ms. Russell's use of the Black-Scholes model, the proper value of these options on the valuation date was $49,200.

VIII

110Given the frequency that employee stock options feature in the division of matrimonial property in the American cases, it is surprising that there are so very few such cases in Canada. [See Note 13 below] Because it is reasonable to assume that there will be more Canadian cases, I feel that it is appropriate to make a few comments on the subject.

111In her helpful survey article, [See Note 14 below] Prof. Thomas points out that one of the most valuable assets in family law cases is an employee stock option ("ESO"). However, in her opinion the law has failed to keep up with this modern form of employee compensation and has struggled to understand this new form of property in the context of dividing and distributing marital property on dissolution. As ESOs represent potentially huge payoffs for employees, the non-owning spouse naturally wishes to obtain a share of the benefits derived when the options are exercised. Prof. Thomas's thorough analysis of dozens of cases from many states illustrates that American family law courts have not developed a uniform approach on how to treat such contingent, yet potentially valuable, interests in the division of marital property in the context of divorce. Prof. Thomas states that the law has been slow to address the new property of the ESO and instead has tried to conform options to the existing legal parameters of pensions, deferred compensation, fringe benefits, or publicly traded stocks. [page36 ]In her view, these analogies all fail to adequately address the relevant legal questions because ESOs do not fit the characteristics of these other forms of property.

112In most, if not all, of the cases which Prof. Thomas reviews, the issues are similar to those that a Canadian court would likely encounter. These issues are: characterizing ESOs as marital or separate party; determining the value of the option on the equivalent of Ontario's valuation date; and distributing or dividing the option, or its value, between the parties. In my view, there is much to learn from Prof. Thomas's article. It discusses from the American perspective issues emerging from the unique characteristics of ESOs that bear upon the issues in this appeal. I did not incorporate in my analysis any reference to American authorities as we were not referred to them by counsel. As American cases may have a role to play in future cases, I suggest that Prof. Thomas's article should be read by those interested in the subject of ESOs as marital property.

113The following description of an ESO at pp. 501-03 illustrates its unique characteristics and the difficulties which they create in determining whether an ESO is marital property:

Courts have initially struggled with the question of whether the contingent interest represented by the ESO constitutes property that can be distributed in the context of a dissolution. The contingent nature of the option, meaning that the employee may never acquire any actual interest through the option, and the ability of the employee to actually use the option to purchase stocks have been two key factors that have guided the courts in their decisions characterizing ESOs as property or non-property.

A. Characteristics of an Employee Stock Option

In order to characterize the ESO as property for purposes of division upon separation or divorce, a court must first understand the descriptive components that comprise the option. An ESO is a contractual right granted to an employee for past, present, or future services that gives her the right to choose to exercise the option to purchase company stock at a designated time. The option typically is nontransferable and nonassignable and thus can only be utilized by the employee herself. The option generally requires continued employment with the firm in order to take advantage of the option at the designated exercise date. At the time the option is granted, it usually has no value until such time as the employee exercises the option to purchase company stock at a below-market price, which may result in profits upon a subsequent sale of that stock. Courts sometimes discuss employee options in terms of qualified and nonqualified but these are simply designations used by the Internal Revenue Service (IRS) to determine the point in time at which the option will be taxed as income. Of course, as a contractual creature, an ESO can be defined in an individual stock plan in a variety of different forms, and the contract can alter any of these usual characteristics of the option.

There are several important operational characteristics of an ESO. First, the option is granted when the employer gives or awards the option to the employee, that is, usually by contract or upon employment. The option then becomes exercisable at the point in time when the employee can use the [page37 ]option to purchase shares of stock. Typically, the date on which the option becomes exercisable is designated in periodic increments following the initial grant date: for example, a grant of options upon employment might become exercisable beginning eighteen months later and continuing in six-month periods. In addition, some courts also use the pension terminology mature to characterize the time period at which the employee has the right to access the stock option. In the ESO context, however, the label mature connotes the same operative period as exercisable; both are when the employee can access the option to buy corporate stock. The question for the courts is what relevance, if any, these characteristics of the ESO have to the determination of the option as property.

(Footnotes omitted; emphasis in the original)

114Two additional helpful articles are: Diana Richmond"The Challenges of Stock Options" (2001-2002) 35 Fam. L.Q. 251; David S. Rosettenstein"Exploring the Use of the Time Rule in the Distribution of Stock Options on Divorce" (2001-2002) 35 Fam. L.Q. 263.

IX

115Because of the view that I hold of this appeal, I do not have to deal with the appellant's ground of appeal that the trial judge erred in the valuation of the 245,000 employee stock options that he received in December 2001.

X

116In the result, I would allow the appeal. I would set aside para. 4 of the formal judgment and order that there shall be paid an equalization payment in accordance with these reasons. If counsel cannot calculate the amount of the equalization, they may seek directions. The appellant will have his costs fixed at $25,000 inclusive of disbursements and GST.

Appeal allowed in part.

Notes

Note 1: In Schedule A attached to the trial decision, the date of these options is set out as February 22, 2000. Based on the record before this court, the correct date appears to be December 22, 2000. In any event, nothing turns on the precise date these 50,000 options were issued.

Note 2: Although the figure $21,000 appears in the trial judge's reasons and the appellant' factum, the expert testified that it was $21,100.

Note 3: Best v. Best, 1999 700 (SCC), [1999] 2 S.C.R. 868, [1999] S.C.J. No. 40, at para. 87.

Note 4: The expert referred to this figure as being "what Black-Scholes spits out of the model" based on the inputs she outlined. It represents the price at which the appellant could sell the options if you "forget about vesting, forget about restriction of transfer".

Note 5: Included among the expert's assumptions was the assumption that the appellant would, for unvested options, purchase put options to protect against "the risk of the ups and downs".

Note 6: Being 8/12 of the 245,000 options issued to the appellant on December 12, 2001.

Note 7: The exercise price of the December 2001 options is $3.90 and the weighted average exercise price of the 175,000 pre-December 2001 options is $3.87.

Note 8: Equalization Payment Calculation:

$15,178.37 (equalization payment calculated by trial judge) + $5,000 (contents adjustment calculated by trial judge) + $91,478.71 (1/2 of IAMGOLD stock options valued at $182,957.42) - ($92,569.40) (adjustments owed by wife to husband calculated by trial judge) = $19,087.68

Note 9: This letter is not in the record that was provided to this court. Nor is the stock option agreement between the appellant and IAMGold that was entered into on the company's grant of the December 2001 stock options. Presumably it contains terms and conditions respecting the exercise of the options similar to those contained in the stock option agreements that pertained to each of the pre-valuation date grant of options.

Note 10: If the facts were that the appellant had arranged with his employer not to grant him the options until after the valuation date, or if he had caused the separation, and hence the valuation date, to occur before the grant of the options, different considerations would probably apply.

Note 11: Tracy A. Thomas"The New Marital Property of Employee Stock Options" (2001-2002) 35 Fam. L.Q. 497, at p. 518.

Note 12: Fischer Black and Myron Scholes"The Pricing of Options and Corporate Liabilities" (1973) 81 J. Pol. Econ. 637. The revised model won the Nobel Prize for economics in 1997.

Note 13: The cases referred to by the trial judge appear to be the only reported Canadian cases that have dealt with employee stock options in the context of the division of matrimonial property. In virtually all of these cases, as well as the American cases referred to in Prof. Thomas's article, the owning spouse had been granted the options prior to the equivalent of the Ontario valuation date.

Note 14: Thomas, supra, note 11.