Stone v. Stone et al.

[Indexed as: Stone v. Stone]

55 O.R. (3d) 491

[2001] O.J. No. 3282

Docket No. C32856

Court of Appeal for Ontario

Catzman, Feldman and Sharpe JJ.A.

August 10, 2001

Family law -- Property -- Fraudulent conveyances -- Spouse qualifies as "creditor or other" for purposes of Fraudulent Conveyances Act if she has existing claim against spouse at time of impugned conveyance which she could have asserted in action -- Husband made inter vivos transfer of bulk of his estate to his children when he knew his death was imminent -- Wife could have brought application under s. 5(3) of Family Law Act but did not have opportunity to do so because husband and his children kept transfer secret from her -- Wife was "creditor or other" at time of inter vivos transfers -- Wife entitled to have transfers set aside under s. 2 of Fraudulent Conveyances Act -- Family Law Act does not oust operation of Fraudulent Conveyances Act as part of process to determine net family property of each spouse as of valuation date in appropriate circumstances -- Family Law Act, R.S.O. 1990, c. F.3, s. 5(3) -- Fraudulent Conveyances Act, R.S.O. 1990, c. F.29, s. 2.

The plaintiff and the deceased were married for 24 years. They each had children from their first marriages. The deceased did not want any of his assets to go to the plaintiff's children. To that end, no property was held by the plaintiff in her own name. In March 1995, the deceased learned that he had lung cancer and had a short time to live. On his instructions, a will was prepared and signed leaving the plaintiff $250,000 together with a life tenancy in the matrimonial home if it was owned by the deceased at the time of his death. The deceased made inter vivos gifts of all of his business assets to his two children. He also transferred the matrimonial home to them without complying with s. 21 of the Family Law Act, R.S.O. 1990, c. F.3. When he died, there was virtually nothing in his estate. The plaintiff elected under s. 6 of the Family Law Act not to take her legacy under the deceased's will but instead to take her entitlement to equalization under s. 5 of the Act. She moved successfully to set aside the transfer of the matrimonial home and brought an action for equalization under s. 7 of the Family Law Act. The trial judge held that the Fraudulent Conveyances Act, R.S.O. 1990, c. F.29 could be applied in conjunction with the Family Law Act and that the inter vivos transfers by the deceased to his children were void as against the plaintiff. He ordered that those assets be returned to the estate and that an equalization payment of $861,937.74 be made to the plaintiff. He also ordered costs in her favour on a solicitor and client basis. He reduced the prejudgment interest rate to 2.5 per cent instead of 5 per cent in light of the fact that the plaintiff was being paid support to the time of trial and occupied the matrimonial home. The defendants appealed. The plaintiff cross-appealed on the prejudgment interest rate and the failure of the trial judge to award punitive damages.

Held, the appeal and cross-appeal should be dismissed.

In order for a spouse to qualify under the Fraudulent Conveyances Act as a person who is intended to be protected from conveyances of property made with intent to defeat her interest, she must have had an existing claim against her husband at the time of the impugned conveyances; that is, a right which she could have asserted in an action. In this case, the deceased and the plaintiff were not separated at the time the deceased transferred his assets to his children, but the deceased knew his death was imminent, he knew that the value of the plaintiff's assets was significantly less than the value of his, he had been specifically advised that his wife could elect not to take under his will but instead to take an equalization payment based on the difference between their respective net family properties and he anticipated litigation over the will and transfers. Because the deceased's death was known to be imminent, the plaintiff's claim to a right to equalization was also imminent and would have been triggered by his death. Had the plaintiff commenced an application under s. 5(3) of the Family Law Act, she would have been a "creditor or other" of the deceased within the meaning of s. 2 of the Fraudulent Conveyances Act. She did not have an opportunity to do so because the transfers were kept secret from her. The deceased and his children could not, by deliberate non-disclosure, deprive the plaintiff of her ability to establish the legal status of "creditor or other". Because she had the right to apply for equalization at the time of the transfers, but was deprived of her ability to exercise that right by the actions of the deceased and his children, the parties to the transfers, she was a "creditor or other" within the meaning of the Fraudulent Conveyances Act.

The trial judge's statement that the Family Law Act creates a creditor-debtor relationship which takes the form of an open or running account which becomes a settled account on separation or death is not an accurate reflection of the law. Nothing in the Act suggests that spouses are in a constant debtor-creditor relationship. To the contrary, the provision of the five alternative triggering events for the valuation date and the right of equalization only on one of those dates indicates that the debtor-creditor relationship arises only on the valuation date. It was unnecessary in this case to determine how far the concept of "creditor or other" may extend in the family law context, apart from s. 5(3) of the Family Law Act.

The Family Law Act does not exclude other applicable statutory or common law remedies which deal with the ownership of property at law and in equity, including the Fraudulent Conveyances Act. Where, on the facts, the Fraudulent Conveyances Act can apply, there is nothing in the Family Law Act which ousts the operation of the Fraudulent Conveyances Act as part of the process to determine the net family property of each spouse as of the applicable valuation date. The trial judge did not err by applying the Fraudulent Conveyances Act in conjunction with the equalization procedure under the Family Law Act or in his conclusion that s. 5(6) of the Family Law Act had no application in this case as a remedy for the plaintiff.

The trial judge did not make a reversible error on any of the issues raised on the cross-appeal.

APPEAL and CROSS-APPEAL from a judgment of Hockin J. (1999), 1999 ONSC 15094, 46 O.R. (3d) 31 (S.C.J.) allowing an action for equalization under s. 7 of the Family Law Act, R.S.O. 1990, c. F.3.

Berdette v. Berdette (1991), 1991 ONCA 7061, 3 O.R. (3d) 513, 47 O.A.C. 345, 81 D.L.R. (4th) 194, 41 E.T.R. 126, 33 R.F.L. (3d) 113 (C.A.), affg (1988), 1988 ONSC 4605, 66 O.R. (2d) 410, 29 E.T.R. 303, 14 R.F.L. (3d) 398 (H.C.J.), supp. reasons (1988), 1988 ONSC 8617, 66 O.R. (2d) 428, 16 R.F.L. (3d) 360 (H.C.J.), apld Other cases referred to Bell v. Williamson, 1945 ONCA 95, [1945] O.R. 844, [1946] 1 D.L.R. 372 (C.A.), affg 1945 ONSC 93, [1945] O.R. 484, [1945] 4 D.L.R. 253 (H.C.J.); Chan v. Chan, [1993] B.C.J. No. 442 (S.C.); Ferguson v. Lastewka, 1946 ONSC 96, [1946] O.R. 577, [1946] 4 D.L.R. 531 (H.C.J.); Hopkinson v. Westerman (1919), 1919 ONCA 466, 45 O.L.R. 208, 48 D.L.R. 597 (C.A.); Lepore v. Lepore, [1998] O.J. No. 733 (Dist. Ct.); Murdoch v. Murdoch (1976), 1976 AB SCTD 260, 1 Alta. L.R. (2d) 135, [1977] 1 W.W.R. 16, 1 A.R. 378, 26 R.F.L. 1 (T.D.); Oliver v. McLaughlin (1893), 24 O.R. 41 (Q.B.); Rawluk v. Rawluk, 1990 SCC 152, [1990] 1 S.C.R. 70, 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; Shephard v. Shephard (1925), 1925 ONCA 409, 56 O.L.R. 556, [1925] 2 D.L.R. 897 (C.A.), affg 1924 ONSC 376, [1924] 3 D.L.R. 566 (Ont. H.C.J.) Statutes referred to Family Law Act, R.S.O. 1990, c. F.3, ss. 4, 5, 6, 7, 21 Fraudulent Conveyances Act, R.S.O. 1990, c. F.29, s. 2 Authorities referred to Ontario Law Reform Commission, Report of Family Property Law (Ontario: Ontario Law Reform Commission, 1993)

Barry Fick, for respondent (appellant by cross-appeal). Harvey Strosberg, Q.C., and David Robins, for appellants (respondents by cross-appeal)

The judgment of the court was delivered by

[1] FELDMAN J.A.: -- The issue in this case is whether a husband who learns that he is terminally ill, is entitled to dispose of his property by inter vivos gifts to his grown children in order to frustrate the equalization of his net family property by his wife upon his death. The trial judge held that he could not, and set aside the inter vivos conveyances to the children. They appealed. For the reasons which follow, I would dismiss the appeal.

Facts

[2] The marriage of Mr. and Mrs. Stone was the second for each of them following the deaths of their respective spouses, and they each had children from their first marriages. They lived a very comfortable life together over 24 years of marriage, which included a nice home, a condominium in Florida and travel, until Mr. Stone's death in 1995.

[3] Mr. Stone had a business and several real estate investment holdings. His son, Ian Stone, managed all of the businesses. Mr. Stone had an estate plan, the purpose and goal of which were that ultimately all of his assets would belong to his two children, Ian Stone and Maxine Ordower. Although during his marriage to Mrs. Stone, Mr. Stone had transferred some properties and shares to his children, he maintained control over the assets through a voting trust and through the retention of the last $1.9 million. He did not want any of his assets to go to Mrs. Stone's children, and to that end, nothing was held by Mrs. Stone in her own name. Mr. Stone was aware that Mrs. Stone's assets would consist of approximately $116,000 in cash at the date of his death. The matrimonial home was held in Mr. Stone's name. The condominium in Florida had been once in both names, but when Mrs. Stone was diagnosed with breast cancer, she agreed to transfer her interest to him in April 1994, although once her health improved, the deed was not registered.

[4] In March 1995, Mr. and Mrs. Stone returned to London early from Florida as Mr. Stone was quite ill. He went straight to hospital where he was diagnosed with lung cancer and told that he only had weeks or months to live and that he should get his affairs in order. Mr. Stone then told his doctor that his children would be receiving everything from him before his will, and that is exactly the plan that he proceeded to implement. In that conversation, Mr. Stone also told the doctor that he expected that some day there would be litigation over what he did.

[5] Before this time, Mr. Stone had made a will dated June 18, 1991 wherein he left life estates in the matrimonial home and the Florida condominium to Mrs. Stone, a specific gift of $25,000 to a stepson and the residue to be split between Mrs. Stone and his two children, Ian Stone and Maxine Ordower. The children were named executors and were given the specific power to settle any dispute with Mrs. Stone in the event that she elected to take an equalization payment under the Family Law Act, R.S.O. 1990, c. F.3 rather than her legacy under the will.

[6] Through his grandson, an articling student, Mr. Stone retained a new lawyer, Mr. Fischer, who did not have any conflict with Mrs. Stone, to assist him in carrying out his intentions with respect to his property.

[7] Mr. Fischer attended on Mr. Stone in the hospital on March 30, 1995. At that time, Mr. Stone indicated that he was unsure whether he or Mrs. Stone would die first. On this issue, the trial judge found that by this time Mrs. Stone's condition had improved after a mastectomy and therapy, that her death was not imminent, and that to everyone's knowledge, she was almost certainly going to survive Mr. Stone. However, Mr. Stone's suggestion to Mr. Fischer was to leave his wife a life estate in the matrimonial home, along with a life interest in the income on $125,000 from which, together with her own funds, she would support herself and keep up the home. Mr. Fischer advised that the figure was too low and suggested $175,000. He also explained that under the Family Law Act, Mrs. Stone could elect an equalization payment rather than take under the will. [See Note 1 at end of document] Mr. Stone responded that "I'm going to do what I'm going to do". They also discussed the concept of using the Florida condominium as a "bargaining chip".

[8] Mr. Stone was discharged from hospital by the end of March, and on April 3 he attended on Mr. Fischer at his office. A will was prepared and signed leaving Mrs. Stone $250,000 together with a life tenancy in the matrimonial home "if it was owned by me at my death". Mrs. Stone was to pay all taxes, insurance and maintenance on the home. After the will was signed, Ian Stone and Maxine Ordower joined their father in the lawyer's office where they discussed the immediate transfer of all of Mr. Stone's business assets to them. The paperwork for the transfers was completed on April 10. On the same date, Mr. Stone signed a deed conveying the Florida condominium to his two children. On April 26, Ian Stone instructed Mr. Fischer to prepare a transfer of the matrimonial home from Mr. Stone to Ian Stone and Maxine Ordower. This was executed by Mr. Stone on May 4, 1995, and registered on May 15, 1995 without compliance with s. 21 of the Family Law Act. [See Note 2 at end of document] The registration was noted as "subject to spousal".

[9] Over this time, there was some discussion with Mrs. Stone about what was going to be left to her. First Mr. Stone told her he would leave her $100,000 plus a one-quarter interest in his antique shop, and a life interest in the matrimonial home. Mrs. Stone told him that was inadequate. He later told her she would receive $250,000. He was told that this was also inadequate. Mrs. Stone was never told that the matrimonial home or the Florida condominium would be conveyed to Ian Stone and Maxine Ordower, nor that the business assets had been conveyed to them by inter vivos transfer.

[10] Mr. Stone died on July 21, 1995, leaving virtually nothing in his estate. Mrs. Stone elected under s. 6 of the Family Law Act not to take her legacy under Mr. Stone's will but instead to take her entitlement to equalization under s. 5 of the Act. She also proceeded with a successful motion for an order setting aside the transfer of the matrimonial home.

[11] The action for equalization was brought under s. 7 of the Family Law Act. [See Note 3 at end of document] For the purpose of determining the value of Mr. Stone's net family property at the day before his death and Mrs. Stone's entitlement to an effective order for the amount she was entitled to receive, Mrs. Stone claimed that the inter vivos transfers to Ian Stone and Maxine Ordower since March 1995 were made with intent to defeat her entitlement to the equalization payment and were therefore void as against her under s. 2 of the Fraudulent Conveyances Act, R.S.O. 1990, c. F.29.

[12] The trial judge held that the Fraudulent Conveyances Act could be applied in conjunction with the Family Law Act and that the inter vivos transfers by Mr. Stone to his children were void as against Mrs. Stone. He ordered that those assets therefore be returned to the estate, and that an equalization payment of $851,937.74 be made to Mrs. Stone. He also ordered costs in her favour on a solicitor and client basis. He reduced the prejudgment interest rate to 2.5 per cent, instead of 5 per cent, in light of the fact that Mrs. Stone was being paid support to the time of trial and she occupied the matrimonial home.

[13] The appellants appeal from the judgment and award of costs. The respondent cross-appeals on inter alia, the prejudgment interest rate and the failure of the trial judge to award punitive damages.

Issues

[14] On the main appeal, Mr. Strosberg posed three issues for the court:

(1) Did the trial judge err in concluding that the Family Law Act creates a debtor/creditor relationship between spouses as a running account which becomes settled on the date of separation or the date before death?

(2) Did the trial judge err in failing to apply ss. 5(6) of the Family Law Act? (an unequal division based on unconscionability)

(3) Does the Fraudulent Conveyances Act apply in the context of the Family Law Act, and if so, in what way?

[15] In his argument, Mr. Strosberg made the following submission with respect to the issues and the operation of the two Acts: Spouses do not have a debtor/creditor relationship on an ongoing basis during co-habitation based on a running account between them. If they did, no spouse would be able to transfer his or her own property during co-habitation free of the claims of the other. During co-habitation, unless an order has been made under s. 5(3), one spouse is not the creditor of the other. Until there is a debtor/creditor relationship, there can be no order under the Fraudulent Conveyances Act to set aside any conveyance as void against a spouse.

[16] The appellants submit that improvident or fraudulent transfers are intended to be taken into account under ss. 5(6) (d) of the Family Law Act. Under that section, the court may order an "unequal" equalization amount if it would be unconscionable to merely equalize, having regard to a spouse's intentional or reckless depletion of his or her net family property. The court must weigh all of the circumstances surrounding the transfers in order to determine whether it would be unconscionable to make an equal division between Mr. and Mrs. Stone. In this case, one such factor is the legitimate objective of Mr. Stone to see his children and not Mrs. Stone's children end up with his assets and businesses.

[17] If the trial judge concluded that an unequal division was appropriate and ordered an equalization amount that was more than the estate had available to pay based on the fact that Mrs. Stone would then have become a judgment creditor of the estate, she could at that time seek to set aside the conveyances.

[18] The essence of the appellants' submission is that the Family Law Act is a self-contained code intended to regulate financial relations between spouses and that there is no room for the Fraudulent Conveyances Act to operate on the rights of the spouses in respect of each other's property, i.e., the right to a one-half interest in the difference between their net family property amounts that arises on separation. [See Note 4 at end of document]

[19] The appellants therefore say that the trial judge erred in applying the Fraudulent Conveyances Act to bring back into his net family property calculation, the assets Mr. Stone transferred to his children; and the trial judge further erred in failing to deal with the issue of those transfers under s. 5(6) of the Family Law Act as a factor in determining whether there should be an unequal division of the difference between the net family property amounts of the two spouses.

Analysis

[20] In spite of the able argument of Mr. Strosberg, I am unable to accept this analysis.

[21] The relevant section of the Fraudulent Conveyances Act is s. 2, which provides:

2. Every conveyance of real property or personal property and every bond, suit, judgment and execution heretofore or hereafter made with intent to defeat, hinder, delay or defraud creditors or others of their just and lawful actions, suits, debts, accounts, damages, penalties or forfeitures are void as against such persons and their assigns.

Section 5 is the relevant section of the Family Law Act. It provides:

5(1) When a divorce is granted or a marriage is declared a nullity, or when the spouses are separated and there is no reasonable prospect that they will resume cohabitation, the spouse whose net family property is the lesser of the two net family properties is entitled to one-half the difference between them.

(2) When a spouse dies, if the net family property of the deceased spouse exceeds the net family property of the surviving spouse, the surviving spouse is entitled to one- half the difference between them.

(3) When spouses are cohabiting, if there is a serious danger that one spouse may improvidently deplete his or her net family property, the other spouse may on an application under section 7 have the difference between the net family properties divided as if the spouses were separated and there were no reasonable prospect that they would resume cohabitation.

(6) The court may award a spouse an amount that is more or less than half the difference between the net family properties if the court is of the opinion that equalizing the net family properties would be unconscionable, having regard to,

(d) a spouse's intentional or reckless depletion of his or her net family property;

(h) any other circumstance relating to the acquisition, disposition, preservation, maintenance or improvement of property.

[22] The first issue to be determined is whether, and if so, when is a spouse a "creditor or other" of the other spouse in respect of the right to an interest in the net family property of the other spouse, within the meaning of s. 2 of the Fraudulent Conveyances Act.

The Fraudulent Conveyances Act

[23] Longstanding case law decided under the Fraudulent Conveyances Act has addressed the issue of who is a "creditor or other" for the purpose of s. 2. In Hopkinson v. Westerman (1919), 1919 ONCA 466, 45 O.L.R. 208 at p. 211, 48 D.L.R. 597 (C.A.), the court held that "others" extended to persons who, though not judgment creditors, had pending actions in which they were sure to recover damages. In that case, the person who transferred the land was a defendant in a tort action. In Bell v. Williamson, 1945 ONCA 95, [1945] O.R. 844, [1946] 1 D.L.R. 372 (C.A.), the court similarly held that the claimant need not be a judgment creditor at the time of the conveyance, but a person may fall within the words "or others" even if the person has, at the time of the impugned transaction, only a claim for unliquidated damages in contract or in tort. Robertson C.J.O. stated at p. 848 O.R.:

I do not doubt for a moment that a transaction may be null and void within s. 2 of The Fraudulent Conveyances Act, although the plaintiff who brings the action attacking it may, at the time of the transaction, and even when action is brought attacking it, have had nothing more than a claim for unliquidated damages in contract or in tort. The effect of the words "or others" following the word "creditors" is to give to such persons a right of action to have a transaction set aside as null and void as against them, if made with the required intent. . . .

[24] This interpretation of the phrase "creditors or others" has been applied many times including in the family law context: See for example: Shephard v. Shephard (1925), 1925 ONCA 409, 56 O.L.R. 556, [1925] 2 D.L.R. 897 (C.A.); Ferguson v. Lastewka, 1946 ONSC 96, [1946] O.R. 577, [1946] 4 D.L.R. 531 (H.C.J.); Oliver v. McLaughlin (1893), 24 O.R. 41 (Q.B.); Murdoch v. Murdoch (1976), 1976 AB SCTD 260, 26 R.F.L. 1, 1 A.R. 378 (T.D.); Chan v. Chan, [1993] B.C.J. No. 442 (S.C.); and Lepore v. Lepore, [1998] O.J. No. 733 (Dist. Ct.), affd by Ontario Court of Appeal (October 22, 1990).

[25] Therefore, in order for a spouse to qualify as a person who is intended to be protected from conveyances of property made with intent to defeat her interest, she must have had an existing claim against her husband at the time of the impugned conveyances, that is a right which she could have asserted in an action.

The Family Law Act

[26] The nature of the property regime established as between spouses under the Family Law Act was clearly described by Cory J. in Rawluk v. Rawluk, 1990 SCC 152, [1990] 1 S.C.R. 70, 65 D.L.R. (4th) 161 and by Galligan J.A. in Berdette v. Berdette (1991), 1991 ONCA 7061, 3 O.R. (3d) 513, 33 R.F.L. (3d) 113 (C.A.). Spouses each own their separate property throughout the marriage. However, upon the happening of one of the five triggering events, there is a valuation date. If, at that date the net family property of one spouse is less than that of the other, then the spouse with the lesser net family property is "entitled to one-half the difference between them": (s. 5(1)). The five events are outlined in s. 4(1): (1) the date of separation with no reasonable prospect of resuming co-habitation; (2) the date of divorce; (3) the date of declaration of nullity; (4) the date one of the spouses commences an application under s. 5(3) for improvident depletion of net family property, if the application is granted; and (5) the date before the death of the spouse with the greater net family property.

[27] In this case, Mr. and Mrs. Stone were not separated at the time Mr. Stone transferred his assets to his children. However, Mr. Stone knew his death was imminent. He also knew that the value of his wife's assets was significantly less than the value of his. He had been specifically advised that on his death his wife could elect not to take under his will but instead, to take an equalization payment based on the difference between their respective net family properties. Furthermore, Mr. Stone anticipated litigation over his will and transfers and Mrs. Stone specifically told him that she would contest a legacy that was not sufficient for her, such as the amount he told her he was leaving her.

[28] Mrs. Stone did not initiate an application under s. 5(3) of the Act which provides:

5(3) When spouses are cohabiting, if there is a serious danger that one spouse may improvidently deplete his or her net family property, the other spouse may on an application under section 7 have the difference between the net family properties divided as if the spouses were separated and there was no reasonable prospect that they would resume cohabitation.

[29] Mrs. Stone did not have an opportunity to initiate an application because the transfers were kept secret from her. She had no knowledge of the transfer of any of the assets including the business assets, the matrimonial home and the Florida condominium. The secret was such that she was permitted to believe she still had an ownership interest in the Florida condominium. She even continued to pay the associated expenses until she learned some months later that the property had been transferred.

[30] Because Mr. Stone's death was known by all to be imminent, Mrs. Stone's claim to a right to equalization was also imminent and would have been triggered by his death. One of the effects of s. 5(3) of the Act is to provide a remedy to a spouse in those circumstances where the other spouse seeks to divest himself or herself of his or her property in anticipation of death and in order to defeat the spouse's claim to equalization. Had Mrs. Stone exercised that remedy by commencing an application, she would have been a "creditor or other" of Mr. Stone within the meaning of s. 2 of the Fraudulent Conveyances Act on the date she commenced the application.

[31] The trial judge made the following finding on the issue:

It is clear to me that Mrs. Stone may well have resorted to this provision and was at least entitled to the chance but of course Mr. Stone kept the full extent and nature of his dealings a secret from her.

(Stone v. Stone (1999), 1999 ONSC 15094, 46 O.R. (3d) 31 at p. 59 (S.C.J.))

[32] That finding is fully supported by the evidence including Mrs. Stone's stated intention to contest the will and, of course, by this litigation. I agree with the trial judge that Mr. Stone and his children could not, by deliberate non-disclosure, deprive Mrs. Stone of her ability to establish the legal status of "creditor or other". Because she had the right to apply for equalization at the time of the transfers, but was deprived of her ability to exercise that right by the actions of Mr. Stone and his children, the parties to the transfers, she was a "creditor or other" within the meaning of the Fraudulent Conveyances Act.

[33] The trial judge also based his conclusion that Mrs. Stone was a "creditor" of Mr. Stone at the time of the transfers on the following statement of law [at p. 53 O.R.]:

. . . the [Family Law] Act creates a creditor-debtor relationship which takes the form of an open or running account which becomes a settled account on separation or death.

With respect to the trial judge, I do not agree that that statement is an accurate reflection of the law. To characterize spouses as being in a constant debtor-creditor relationship would require clear legislative expression. There is nothing in the Act which suggests such a relationship. To the contrary, the provision of the five alternative triggering events for the valuation date and the right to equalization only on one of those dates indicates that the debtor-creditor relationship arises only on the valuation date.

[34] Having said that, it is unnecessary in this case to decide how far the concept of "creditor or other" may extend in the family law context, apart from s. 5(3) of the Family Law Act.

[35] In this case, for the reasons set out, I find that Mrs. Stone was a "creditor or other" of Mr. Stone at the time of his inter vivos transfers and therefore entitled to set those transfers aside under s. 2 of the Fraudulent Conveyances Act.

Section 5(6) of the Family Law Act

[36] The second branch of the appellants' argument is that the trial judge erred by applying the Fraudulent Conveyances Act in conjunction with the equalization procedure under the Family Law Act. The appellant submits that the Family Law Act is a code unto itself and to the extent that it contains anti-avoidance provisions, [See Note 5 at end of document] the legislature intended only those provisions to apply to the family law context. Therefore, the trial judge should have first determined the equalization amount based on the net family property of each spouse on the day before Mr. Stone's death (i.e. without setting aside the inter vivos transfers) and then considered whether Mr. Stone's conduct in transferring his assets to his children to avoid the equalization process was unconscionable and warranted an unequal division. In that regard, ss. 5(6)(d) and (h) are set out again:

5(6) The court may award a spouse an amount that is more or less than half the difference between the net family properties if the court is of the opinion that equalizing the net family properties would be unconscionable, having regard to,

(d) a spouse's intentional or reckless depletion of his or her net family property;

(h) any other circumstance relating to the acquisition, disposition, preservation, maintenance or improvement of property.

[37] The appellants submit further that in assessing the issue of unconscionability, the court would also consider the long-standing estate plan of Mr. Stone and the legitimacy of wanting to see his assets end up in the hands of his children, as well as all of the other circumstances.

[38] Counsel suggested that only after judgment was awarded, could the Fraudulent Conveyances Act be used to set aside any transfer, if necessary to give effect to the judgment.

[39] I cannot accept this argument for the following reasons: First, this court in Berdette, supra, clearly set out the correct method for determining net family property and the application of s. 5(6). The first step is to establish the net family property of each spouse under s. 4 of the Act by determining and valuing the property each owned on the valuation date. The next step is to apply s. 5(1) and determine whether one spouse's net family property is greater than the other's, and what the equalization payment would be. Then the court decides whether it would be unconscionable to equalize the net family property. If so, the court will order a payment of more or less than one-half the difference. Otherwise the court will order equalization by payment of one-half. Galligan J.A. clearly rejected the approach suggested by counsel in the following conclusion [at p. 526 O.R.]:

In the above-quoted extract from Rawluk, Cory J. held that the third step [application of s. 5(6)] is to be kept distinct from the determination of ownership of property. Ownership of property is determined in the first step. It is therefore my opinion that the considerations set out in subparagraphs (a) through (h) of s. 5(6) are irrelevant to determining the net family properties of each spouse. This opinion, I think, is additionally supported by reference to the structure of Part I. The provisions of s. 5 are all founded upon the concept of net family property, and assume that net family property has been established. There is nothing in s. 4 which incorporates consideration of elements of s. 5(6) into the determination of which spouse owned what property on valuation day. Moreover, my reading of the judgments in Rawluk v. Rawluk at trial ((1986), 1986 ONSC 2792, 55 O.R. (2d) 704, 3 R.F.L. (3d) 113 (H.C.J.)) and in this court ((1987), 1987 ONCA 4115, 61 O.R. (2d) 637, 10 R.F.L. (3d) 113)) is that it was assumed that the provisions of s. 5(6) had no bearing upon the ownership issues essential to the determination of the net family properties under s. 4(1).

[40] Second, in this case, had the fraudulent conveyances not been set aside as of the valuation date in order to calculate the net family property of Mr. Stone, then without those assets Mrs. Stone's net family property would have been greater than Mr. Stone's. There would therefore have been no basis for Mrs. Stone to claim entitlement to equalization under s. 5(1), and therefore no opportunity for the court to consider the unconscionability provisions. The same conclusion was reached by Galligan J.A. in Berdette, supra, where, without the finding sought by the wife of a constructive trust of gifts made by her to her husband during the marriage, the wife could not have applied for equalization, as her net family property was equal to his.

[41] Third, as discussed above, it is not necessary to be a judgment creditor in order to qualify as a "creditor or other" under s. 2 of the Fraudulent Conveyances Act. Therefore, there is no need to wait until an equalization payment has been ordered before applying the Act. In any event, the timing of such an order, being well after the date of the impugned transfers, would not relate back to the date of the transfers and therefore would not provide a basis for setting them aside.

[42] Fourth, section 5(6) of the Family Law Act only empowers the court to order an unequal division of the difference in value of net family property. It is not a provision which can be used to set aside previous dispositions of property to third parties. Consequently, any order must be based on the net family property amounts of the spouses as determined under s. 4. The order cannot reflect the value of any property which is not part of that net family property value. As a result, although the reckless depletion of assets by one spouse can be used by the court as a factor in assessing unconscionable conduct and making an unequal distribution, the section will only be useful if the spouse who made the transfers of property has sufficient property left on the valuation date to make an order for an unequal sharing an effective remedy for the wronged spouse.

[43] Finally, in Rawluk v. Rawluk, supra, Cory J. made the following statement [at p. 97 S.C.R.] regarding how ownership of property is to be determined under the Family Law Act:

The Family Law Act, 1986 does not constitute an exclusive code for determining the ownership of matrimonial property. The legislators must have been aware of the existence and effect of the constructive trust remedy in matrimonial cases when the Act was proposed. Yet neither by direct reference nor by necessary implication does the Act prohibit the use of the constructive trust remedy.

[44] I am satisfied that as with the constructive trust, the Family Law Act does not exclude other applicable statutory or common law remedies which deal with the ownership of property at law and in equity, including the Fraudulent Conveyances Act. It is true that the legislature has not proceeded, as suggested by the 1993 Ontario Law Reform Commission Report on Family Law, [See Note 5 at end of document] to extend and codify within the Family Law Act itself, what will constitute a fraudulent disposal of property by a spouse during cohabitation, made in order to defeat the potential interests of the other spouse, and which can therefore be set aside. However, where, on the facts, the Fraudulent Conveyances Act can apply, there is nothing in the Family Law Act which ousts the operation of the Fraudulent Conveyances Act as part of the process to determine the net family property of each spouse as of the applicable valuation date.

[45] For the above reasons, the trial judge did not err by applying the Fraudulent Conveyances Act or in his conclusion that s. 5(6) of the Family Law Act had no application in this case as a remedy for Mrs. Stone.

Other Issues

[46] The appellants raised three other issues on appeal. First, the appellants challenged the trial judge's ruling regarding the late introduction of new appraisal evidence of the value of certain lands. I agree with the respondent that there is no basis to interfere with the trial judge's exercise of discretion in respect of this ruling. The new appraisal was obtained by the appellants after the respondent had closed her case and committed to values for all of the properties. It was sought to be introduced by Canada Trust on behalf of the estate and not by the appellants, and after Canada Trust had also closed its case. The trial judge was entitled to find that admitting the new appraisal at that point in the trial and thereby allowing Canada Trust to re-open its case with a different position would have created prejudice and unfairness to the respondent.

[47] Second, the appellants say that the trial judge erred by failing to have Mrs. Stone properly account for moneys she received as interim support and for the benefit she received by occupying the matrimonial home pending trial. I see no basis to interfere with the trial judge's treatment of these amounts. These matters were reflected in a reduced rate for prejudgment interest.

[48] Finally, the appellants also appeal from the award of solicitor and client costs. Again, I would not interfere with the view of the trial judge that because of the fraudulent conveyances and the intention of the appellants to defeat Mrs. Stone's legitimate interests, the costs award on that scale was justified.

The Cross-Appeal

[49] The cross-appeal involves queries with respect to the valuation treatment of certain assets, an appeal from the denial of a punitive damages award and an appeal from the rate of prejudgment interest. These matters were not pursued in oral argument but left with the court on the basis of the factum alone.

[50] I am not satisfied that the trial judge made a reversible error on any of the issues raised on the cross- appeal. The valuation findings were made by the trial judge based on hearing and weighing all of the relevant evidence. The cross-appellant has not pointed to any misapprehension of the evidence which would warrant the interference of this court.

[51] The trial judge declined to award punitive damages. This was within his prerogative. He expressed his opprobrium of the appellants' conduct by the award of solicitor and client costs.

[52] There is also no basis to interfere with the award of prejudgment interest. The trial judge exercised his discretion and as noted, did take into account other benefits received by Mrs. Stone pending trial as an off-set for some of the prejudgment interest.

Conclusion

[53] In the result, I would dismiss the appeal and cross- appeal, both with costs.

Appeal and cross-appeal dismissed.

Notes

Note 1: Section 6(1) of the Family Law Act provides:

6(1) When a spouse dies leaving a will, the surviving spouse shall elect to take under the will or to receive the entitlement under section 5.

Note 2: Section 21(1) of the Family Law Act provides:

21(1) No spouse shall dispose of or encumber an interest in a matrimonial home unless,

(a) the other spouse joins in the instrument or consents to the transaction;

(b) the other spouse has released all rights under this Part by a separation agreement;

(c) a court order has authorized the transaction or has released the property from the application of this Part; or

(d) the property is not designated by both spouses as a matrimonial home and a designation of another property as a matrimonial home, made by both spouses, is registered and not cancelled.

Note 3: Section 7(1) of the Family Law Act provides:

7(1) The court may, on the application of a spouse, former spouse or deceased spouse's personal representative, determine any matter respecting the spouses' entitlement under section 5.

Note 4: The right to equalization arises on the valuation date which is defined in s. 4(1) of the Family Law Act as the earliest of five triggering events:

"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.

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) (imporvident depletion) that is subsequently granted.

5. The date before the date on which one of the spouses dies leaving the other spouse surviving.

Note 5: For example, s. 21(2):

(2) If a spouse disposes of or encumbers an interest in a matrimonial home in contravention of subsection (1), the transaction may be set aside on an application under section 23, unless the person holding the interest or encumbrance at the time of the application acquired it for value, in good faith and without notice, at the time of acquiring it or making an agreement to acquire it, that the property was a matrimonial home.

Note 6: Report on Family Property Law (Ontario: Ontario Law Reform Commission, 1993).