Court File and Parties

DATE: 20031002 DOCKET: C37112

COURT OF APPEAL FOR ONTARIO

FELDMAN, CRONK and ARMSTRONG JJ.A.

B E T W E E N:

ANA-MARIE SYDOR Plaintiff (Appellant)

• and -

LEON PAUL SYDOR Defendant (Respondent)

Counsel: Warren S. Fullerton and Jennifer Dietrich Suzor for the appellant Deborah-Lynn Gibson for the respondent

HEARD: February 7, 2003

On appeal from the judgment of Justice B. Thomas Granger of the Superior Court of Justice dated September 13, 2001.

Reasons for Decision

FELDMAN J.A.:

[1] While married, the parties separated twice. Following their first separation, they entered into a separation agreement and carried out the property arrangements it mandated. However, for three years thereafter, they continued a relationship with each other, the nature of which is the subject of dispute in this action, before they decided to terminate that relationship and obtain a divorce. Unfortunately, they were not able to come to a resolution of their financial affairs and obligations to each other following the divorce.

[2] There were two issues for trial: whether the parties had reconciled in June 1996 after their first separation in October 1995; and, if so, what was the effect of that reconciliation on the separation agreement of February 1996, and on whether there should be an equalization payment under the Family Law Act, R.S.O. 1990, c. F.3. For the purpose of trial, the parties agreed on a joint Net Family Property Statement (“NFPS”), subject to disagreement on the ownership and proper treatment of the following three pieces of property:

(1) the husband sought to exclude support payments to his first wife out of his pension;

(2) the wife claimed that mutual funds registered in her name and her daughter’s were in fact solely her daughter’s property and thus should not be included in her assets; and

(3) the husband wanted to exclude his 1998 Toyota motor vehicle with a value of $45,000 on the basis that he purchased it with money given to him as a gift from his mother.

[3] The trial judge found that the parties had reconciled in February 1998, not in June 1996. He found that the reconciliation vitiated the separation agreement from the date of reconciliation onwards, but did not have the effect of setting aside the releases or the transactions carried out under the agreement. He went on to hold that because the parties did not acquire any assets after the reconciliation date, there was nothing to equalize, and consequently, he ordered no equalization payment. The wife appeals from that order.

FACTS

[4] The appellant wife and the respondent husband were married on July 2, 1992. It was the wife’s third marriage and the husband’s second. They entered into a marriage contract on July 10, 1992, in anticipation of the purchase of their home at 2199 Edgemore Avenue in Windsor on July 24, 1992. The marriage contract acknowledged that the home was being purchased for $229,000, that the wife was contributing $106,000 and that the husband was providing $73,000 and was taking sole responsibility for a $50,000 mortgage. They agreed that if the marriage broke down, they would each be entitled to their respective financial contributions and that they would split equally any equity in the house created by the partial or full retirement of any mortgage or any increase in the market value of the property. They made the same agreement in respect of any new matrimonial home they might buy, and provided that the cash contributions to the home purchase(s) would not be considered as part of their net family property.

[5] The parties separated on October 29, 1995, but continued to live in the same house together. On February 29, 1996, they entered into a separation agreement that provided for the disposition of their respective interests in the Edgemore house and its contents, and for no support of the wife by the husband. Under the agreement, the husband paid the wife $115,000 for her interest in the Edgemore house and they divided the furniture between them. Paragraph 2 deals with the agreement regarding the Edgemore matrimonial home:

The parties agree that upon execution of this agreement the wife shall forthwith transfer to her husband all of her right, title and interest in the matrimonial home at 2199 Edgemore Avenue, La Salle, Ontario upon receiving the sum of $115,000.00 (One Hundred and Fifteen Thousand Dollars and no cents) from the said Husband. Such transfer shall be subject to all encumbrances. From and after the date of such transfer, the Wife shall have no further interest in the matrimonial home under the provisions of The Family Law Act.

[6] Paragraph 7 of the separation agreement is entitled “Agreement Conclusive” and provides:

This Agreement shall be final and conclusive with respect to all issues arising from the marital status of the parties. If either party shall take legal proceedings against the other with respect to the property rights of either party, or the alimony, support or maintenance obligations between the parties, except as expressly provided for in this Agreement or to enforce its terms, this Agreement may be pleaded as full estoppel and defence to any such claim made by the Husband or the Wife against the other, and, without limiting the generality of the foregoing, this provision shall apply to any claims made pursuant to the Divorce Act, the Family Relations Act/Family Law Act or any other statute which exists or may exist in the future relating to property rights or alimony and maintenance obligations.

[7] The wife used the funds she received to purchase another house at 1391 Ramblewood Drive in the spring of 1996. The husband maintained ownership of 2199 Edgemore until he sold it in February 1998. He lived at both addresses from 1996 until February 1998, when he began to live exclusively at Ramblewood, where he remained until November 1998. He later bought a house on Northwood Street.

[8] The wife commenced divorce proceedings in October 1999, claiming November 1998 as the date of separation. The divorce was undefended by the husband and was granted in December 1999. The trial in this action was held to determine the wife’s claim for equalization.

[9] The underlying issue at the trial was whether the parties had ever reconciled following their first separation in October 1995. The wife’s position was that they reconciled in June 1996, from which time they travelled together, had sexual relations and lived as a couple at her Ramblewood residence, even though the husband also maintained the Edgemore home. The husband’s position was that they remained friends but never reconciled into a full husband and wife commitment.

[10] The trial judge found that until the husband sold Edgemore and moved fully into Ramblewood in February 1998, they had not reconciled in accordance with the tests set out in the case law: Cooper v. Cooper (1972), 10 R.F.L. 184 (Ont. H.C.); Re Buller and Buller (1979), 26 O.R. (2d) 92 (Co. Ct.). However, once the husband sold his property and moved into the wife’s residence, they then had the mutual intention to reconcile and resume their marriage.

[11] Unfortunately, from that point in time the reconciliation period was brief. The wife began a relationship with another man in June 1998, causing the trial judge to conclude that from that date, she was no longer committed to the reconciliation, although she did not tell the husband that the relationship was over until the following October, when she asked him to move out. As a result, the trial judge determined that “the parties reconciled as of the end of February, 1998 and separated as of October, 1998”.

THE TRIAL JUDGE’S FINDINGS ON EQUALIZATION

[12] The trial judge found that upon reconciliation, the separation agreement was no longer in effect in respect of the undertaking to live separate and apart; however, the division of property and the mutual release of claims against such property had no temporal limitation and remained valid and binding. With respect to Ramblewood, the trial judge added that the parties knew when they entered into the separation agreement that the wife intended to use the funds she received from her share of Edgemore to acquire Ramblewood; therefore they must have intended that it would be her sole property and would not be subject to equalization even though it became the matrimonial home. He went on to conclude:

Accordingly, the only property which is to be included in the net family property of the parties is the value of any property acquired between the end of February, 1998 and the end of September 1998…There was no evidence adduced by either party that they had accumulated any additional property or wealth during this period of time.

Consequently, he awarded no equalization payment.

ISSUES

[13] The appellant wife submits the trial judge made the following errors:

(i) The trial judge erred in finding that the date of reconciliation was in February 1998 rather than in the spring of 1996;

(ii) The trial judge erred in finding that the division of property under the separation agreement survived the reconciliation of the parties;

(iii) No matter what the date of reconciliation, once a finding was made that the parties had reconciled, the trial judge was obliged to order equalization based on the parties’ agreed Net Family Property Statement, to make the three factual determinations that the parties had left unresolved, and to order an equalization payment to the wife based on the resulting figure.

ANALYSIS

(i) Whether the trial judge erred in his finding as to the date of reconciliation

[14] The appellant submits that the trial judge made findings of fact that supported the position of the appellant that reconciliation had occurred in the spring of 1996: the parties occupied the same bedroom in the Ramblewood home; they had sexual relations from time to time; they had daily communications; they performed domestic services for each other, in her case, cooking, laundry, house cleaning and sick care; they ate together on a regular basis; and, together they both attended and hosted numerous social functions. Consequently, the appellant’s position is that the finding that they had not made a mutual commitment to reconcile until the husband was able to sell his house and move in with the wife in February 1998 was not based on any relevant change of circumstances.

[15] However, in assessing all of the evidence, the trial judge also considered as relevant the fact that the husband showed his Edgemore address on his driver’s licence until February 1998 and that both parties described themselves as separated in their tax returns for 1996 and 1997. The trial judge also referred to the fact that the husband sold Edgemore without any participation by the wife, on the basis that the parties continued to be bound by their separation agreement and to live separate and apart, and that two secretaries from the husband’s workplace indicated that they would contact him in 1996 and 1997 at the Edgemore house.

[16] An appellate court’s role is not to reweigh or reassess the evidence, but to defer to the trial judge on findings of fact or mixed fact and law, subject to palpable and overriding error or errors of law: Housen v. Nikolaisen, 2002 SCC 33, [2002] 2 S.C.R. 235.

[17] The trial judge was faced with an unusual and equivocal fact situation. He considered the evidence in the context of the proper legal tests. Although there was evidence that could indicate that the parties had reconciled as of an earlier point in their post-separation relationship, the trial judge made no palpable and overriding error in his finding that they did not reconcile until February 1998. I would not give effect to this ground of appeal.

(ii) The effect of the parties’ reconciliation on the separation agreement

[18] Having found that the parties did reconcile, the trial judge had to determine the effect of their reconciliation on the separation agreement. He further had to decide, if an equalization payment were to be ordered, what property would be included in the parties’ net family property. For the purposes of trial the parties had filed an agreed NFPS, which included all property they owned on valuation day (November 1998) including the Ramblewood home that the wife purchased using her proceeds from her interest in Edgemore, and the husband’s Northwood property that he purchased with his proceeds from the Edgemore home. The NFPS deducted from each side the parties’ original contributions to the Edgemore home in accordance with the terms of their marriage contract. The NFPS also contained many assets, including the husband’s pension, that were not referred to in the separation agreement. Both at trial and on appeal, counsel disagreed on the effect and intent of their agreed NFPS.

[19] The trial judge first considered some case law pertaining to the effect of reconciliation on a separation agreement. He referred to two cases decided by this court under the original Family Law Reform Act 1978 (Ont.), c. 2: Bebenek v. Bebenek (1979), 24 O.R. (2d) 385 (C.A.), and Bailey v. Bailey (1982), 37 O.R. (2d) 117 (C.A.). In Bebenek, the court restated the common law rule that “[t]he resumption of cohabitation terminates a separation agreement but does not necessarily affect conveyances made pursuant to the agreement prior to the reconciliation.” The court is to discern the intention of the parties from the language of the separation agreement according to Bebenek. In Bailey, the court held that where the agreement does not contain a clause that addresses the effect of reconciliation on the separation agreement, the issue whether the parties intended that they would be precluded from “attracting the operation of the Family Law Reform Act just because the parties entered into a separation agreement during the crisis period without contemplating the possibility of reconciliation” was a triable issue. The trial judge also referred to Smart v. Wiewior (1990), 28 R.F.L. (3d) 225 (B.C.C.A.), where the British Columbia Court of Appeal stated that the court is to determine whether the parties reached either an express or implied agreement when they reconciled as to whether their separation agreement was to survive or be considered void. The Manitoba Queen’s Bench case of Baron v. Baron (1990), 29 R.F.L. (3d) 37, is to a similar effect.

[20] The trial judge then referred to the clauses of the parties’ separation agreement, which did not include a specific clause addressing the effect of reconciliation. He stated:

In this case, the parties did not include a clause or term in the Separation Agreement setting out the effect that a reconciliation would have on the terms of the Separation Agreement. Absent such a paragraph, the covenants that they will, as husband and wife, live separate and apart will ordinarily terminate as of the date of reconciliation, but such reconciliation does not necessarily affect rights and obligations that have already accrued as expressed in the agreement. In this case, the parties acknowledged in the Separation Agreement that they had agreed upon a division of their property and that such division was to be final and binding. The Separation Agreement did not state that upon reconciliation or a resumption of cohabitation the agreement would be null and void and that the division of their property as set out in the Separation Agreement would no longer be effective. There was no temporal limitation on the division of property and the mutual release of claims against such property or value. As I have previously stated, there is no attack upon the validity of the Separation Agreement dated February 29, 1996.

[21] He concluded that, “[t]he parties, by executing the agreement on February 29, 1996, forever released any claim they had to relief under the Family Law Act against the property they had on that date” (emphasis added).[^1] I note, however, that the general release clause, article 7, of the separation agreement quoted in para. 6, supra, does not limit the release to property the parties had on the date of the agreement. In contrast, article 2, which deals with the transfer of the Edgemore matrimonial home, provides that the wife shall have no further interest in that property under the provisions of the Family Law Act. The trial judge’s finding that the parties intended Ramblewood to be the sole property of the wife and not be subject to equalization under the Family Law Act, as it was purchased with her share of the value of Edgemore, is consistent with his interpretation of the effect of the release regarding Edgemore contained in clause 2 of the separation agreement. The trial judge also referred to the fact that the parties did not unwind the Edgemore transfer upon reconciliation as evidence of their intent that the separation agreement was final and precluded any equalization of property held at that time.

[22] In my respectful view, the trial judge erred in law in his approach to this issue. The trial judge effectively required the parties to a separation agreement to provide for what happens on reconciliation, failing which the finality of the agreement would be taken as continuing. However, the common law rule is to the opposite effect: the separation agreement is void upon reconciliation, subject to a specific clause in the agreement that would override the common law or a clause that would be implied from the agreement that the intent of the parties was that transactions carried out under the agreement will remain in place.

[23] The trial judge used the general release clause to find that the intent of the parties was that the property provisions of the separation agreement, which were not limited to property the parties had on that date, would survive reconciliation. However, I believe it would be fair to say that such a clause would be found in virtually every professionally drawn separation agreement. It does not, without more, indicate that the parties turned their minds to what would occur if they were to reconcile. If the general release clause had that effect, then the property provisions of virtually every separation agreement would survive reconciliation without the need for a specific clause addressing that eventuality.

[24] However, a specific release of all rights to a particular property can be viewed as evidence that the parties considered the disposition of that property final and binding, regardless of what may occur in the future. For example, in Watson v. Watson (1988), 16 R.F.L. (3d) 457 (O.U.F.C.), a decision of Wallace J., as in this case, the parties separated, entered into a separation agreement, later reconciled, then eventually separated and divorced. Under the separation agreement, the husband transferred the matrimonial home to the wife in exchange for $8,000 in accordance with the following clause in the agreement:

Matrimonial Property

The husband hereby conveys to the wife all his right, title and interest in the lands and premises known municipally as 219 East 44th Street, Hamilton, Ontario and quit claims any interest he may have therein, and in particular under the provisions of the Family Law Act, provided that the wife shall pay to the husband the sum of $8,000.00, immediately.

[25] Again, as in this case, the agreement contained no clause dealing expressly with reconciliation. The trial judge, however, was able to conclude from the property clause, together with the severability clause of the agreement, that it was the intent of the parties that the transfer of the Hamilton property would survive any reconciliation and, in that event, the husband would make no claim for equalization of that property under the Family Law Act. Consequently, she found that the Hamilton property was excluded property under s. 4(2)6 of the Act, which excludes from net family property:

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

[26] Following the Watson analysis, the trial judge in this case was entitled to find that the transfer of the Edgemore matrimonial home to the husband and the compensation paid to the wife for her share, were intended by the parties to be final and binding, no matter what happened in the future, and no further claim for equalization under the Family Law Act would be made in respect of that property, as specifically provided in clause 2 of the agreement. The trial judge found corroboration of the parties’ intent from the fact that they never attempted to set aside or reverse that transaction; rather, the husband maintained Edgemore as his own property and used the proceeds to purchase Northwood, while the wife used her proceeds to purchase Ramblewood.

[27] In my view, therefore, based on the terms of the separation agreement and corroborated by the subsequent conduct of the parties, the trial judge was entitled to find that they intended the disposition of the Edgemore home under the separation agreement, which divided the value between them as of the separation date, to be final and to survive reconciliation. However, there was no basis in the agreement or the evidence to go further and find that the entire agreement was intended to survive a reconciliation and continuation of the marriage.

[28] Based on his finding that the separation agreement was intended to survive reconciliation with respect to then existing property, the trial judge held that the only property to be included in the net family property of the parties for equalization under the Family Law Act was property held on valuation day and acquired after reconciliation. As a result, he gave no effect to the NFPS that had been agreed to by the parties, nor did he include for the purpose of equalization any property acquired between the date of the separation agreement (February 1996) and the date of reconciliation (February 1998) and held on valuation day.

(iii) The effect of the agreed upon NFPS

[29] On the appeal, counsel diverged on the effect of the agreed NFPS that they filed in the proceedings before the trial judge. As a result, this court asked for copies of the opening statements and the written submissions of counsel to the trial judge, and counsel were good enough to provide those following the hearing.

[30] From a review of all those submissions, it appears that both counsel intended and understood that the NFPS would be used for the purpose of calculating the equalization payment in the event that the trial judge found that the parties reconciled and that the effect of the reconciliation was to set aside the separation agreement in its entirety. In the NFPS, the parties agreed on the assets and the values for the assets, subject to disagreement on the treatment of three assets outlined in para. 2 supra.

[31] The wife’s approach was that once reconciliation was found, there would be equalization in accordance with the agreed NFPS.

[32] The husband’s approach was that if the trial judge found reconciliation, there remained the issue of the status of the separation agreement. He submitted that he should have a credit in the agreed NFPS to reflect the Edgemore transaction carried out under the separation agreement. This submission confirms that it was not the husband’s intention that the entire property division under the separation agreement would survive reconciliation, but only that the division of Edgemore represented a final division of the parties’ investment in their original matrimonial home.

[33] Because of my conclusion that the parties’ interests in the Edgemore property cannot be the subject of further equalization, but that any other property they owned on valuation day is to be included, I agree with the theory of the husband’s submission to the trial judge, although not with his suggested revision to the agreed NFPS.

[34] In my view, the best way to use the agreed NFPS is to remove both the inclusion of the Ramblewood and Northwood properties as well as the deductions for the parties’ original contributions to purchase Edgemore. That effectively removes from both sides their respective investments in Edgemore.

[35] The trial judge made a finding that the husband’s new vehicle was substantially purchased with a gift of funds from his mother. That was the third of the outstanding issues. However, he did not determine the other two issues. Therefore, in order to complete the NFPS and determine a figure to be paid for equalization, unless the parties can agree, a new trial on those narrow issues will be required.

RESULT

[36] I would allow the appeal, set aside the order of the trial judge, and substitute an order that there will be an equalization payment based on the agreed NFPS, as modified by removing all reference to the parties’ investments in Edgemore, as explained in these reasons, and as modified after a trial on the two issues left to be determined.

[37] Costs of the appeal shall be to the wife on the partial indemnity scale, fixed at $10,000, inclusive of disbursements and G.S.T.

“K. Feldman J.A.”

“I agree E.A. Cronk J.A.”

“I agree Robert P. Armstrong J.A.”

RELEASED: “KNF” OCTOBER 2, 2003

[^1]: The effect of this finding is that not only the value of the property on the date of the agreement, but the property itself, including any future increase (or decrease) in value is excluded from any future equalization following reconciliation. See s. 4(2)(6) of the Family Law Act.