Court File and Parties

Court: COURT OF APPEAL FOR ONTARIO Date: 20211007 Docket: C69063

Before: Feldman, Paciocco and Nordheimer JJ.A.

Between:

Randal Allan Knight, Applicant (Appellant)

And:

Mary Lynne Isobel Louise Knight-Kerr, Respondent (Respondent)

Counsel: Lorrie Stojni-Kassik and Emily F. Metcalfe, for the appellant Mary Lynne Isobel Louise Knight-Kerr, acting in person

Heard: September 2, 2021 by video conference

On appeal from the order of Justice Russell M. Raikes of the Superior Court of Justice, dated January 4, 2021, with reasons reported at 2021 ONSC 55.

Feldman J.A.:

A. Background

[1] The parties married on March 14, 2009, after signing a domestic contract, the “Family Agreement”, that the wife prepared. Neither party had the assistance of a lawyer. They separated in July 2017.

[2] The wife brought the original matrimonial home into the marriage. The parties lived in that home for a few years, then sold it and purchased a second home, where they lived at the date of separation. The Family Agreement contains the following provision regarding the treatment of the matrimonial home on marriage break-up:

Louise will receive the first $45,000 (repayment of the original house deposit). This continues forward should they move to another location. Randy and Louise shall benefit equally from the remainder of house profits.

[3] In this action to determine equalization of net family property (“NFP”), the husband denied that he had signed the Family Agreement and claimed that the wife forged his signature. That claim was rejected by the trial judge. The other issue that took significant time at trial was custody of the family dog, which was awarded to the husband. Neither of those findings is challenged on the appeal.

[4] The sole issue raised by the husband on the appeal is the calculation of the NFP in respect of the treatment of the two homes, and the interpretation and application of the Family Agreement provision regarding the $45,000.

B. The Trial Judge’s Decision

[5] The trial judge found that the husband did sign the Family Agreement, and that it was a valid and binding domestic contract. The trial judge then dealt with equalization, including the wife’s entitlement to the $45,000 pursuant to the Family Agreement. He did so by reference to the form of the NFP statement and what should be included in each Part of the form.

[6] With respect to the value of assets owned on the valuation date, under “Part 4(a): Land”, the trial judge found that the second home, known as the Jackson property, was purchased in 2012 for $250,000 and sold in 2018 for $572,000. At paras. 87-88, he stated:

[87] The first $45,000 should be deducted pursuant to the terms of the Family Agreement. Those funds belong to the Respondent [wife] and come off the top of the sale proceeds. The net amount is $527,000. That amount is divided equally: $263,500 each.

[88] For equalization purposes, Part 4(a) should show the following: Applicant [husband] $263,500, Respondent [wife] $308,500. In order to ensure that the $45,000 is neutral and not counted in her net family property, a corresponding exclusion is necessary in Part 7 (see below) pursuant to s. 4(2) item 6 of the Family Law Act.

[7] In other words, because the parties agreed that the wife was entitled to $45,000 more than the husband out of the valuation-date value of the matrimonial home, his share of the value of the Jackson property is $263,500, while hers is $308,500. At the same time, the $45,000 is shown as an exclusion from the wife’s NFP because, pursuant to the Family Agreement, the $45,000 deposit belongs exclusively to her and is not shared with the husband. The wife receives that amount over and above any equalization payment. That is the correct way to account for an exclusion on an NFP statement.

[8] The next relevant section of the NFP form is “Part 6: Property, Debts, and Other Liabilities on Date of Marriage”. On the wife’s side of the ledger, the trial judge included the value of the first home, known as the Kroeger property, of $250,000, and deducted the mortgage of $157,715, noting there was no dispute regarding these figures. He thereby included the full amount of the equity in the Kroeger property at the date of marriage, namely $92,285, as a deduction on the wife’s side of the ledger.

[9] The last part of the NFP form is “Part 7: Value of Property Excluded under Subs. 4(2) of ‘Family Law Act’”. With respect to exclusions, the trial judge stated:

The Family Agreement applies at this stage. First, the Respondent [wife] is entitled to exclude $45,000 representing her deposit from the Kroeger Crescent home.

[10] By applying the inclusions, deductions, and the exclusion as part of the overall calculation, the trial judge found that the husband owed the wife an equalization payment of $43,547. He concluded, at para. 149, that from the sale proceeds of the Jackson property that were (and still are) being held in trust:

Based on my findings above, the Respondent [wife] is entitled to $45,000 from the sale of the home per the Family Agreement less $19,000 already received ($26,000), $43,547 for equalization, and prejudgment interest on both amounts. Those amounts should be paid to her from funds held in trust. The balance of any monies held in trust, regardless where and by whom held, should be divided equally between the parties.

[11] The trial judge added at the conclusion of his reasons that, if there was an arithmetic error, the parties should notify the trial coordinator to schedule a remote hearing with the trial judge to deal with it.

C. Issue

[12] The appellant’s position on this appeal is that the trial judge erred in his approach to the equalization payment by double counting the respondent wife’s $45,000 deposit in the Kroeger property. Specifically, he argues that the trial judge gave the wife the benefit of the $45,000 both as part of the equity she brought into the marriage that entitled her to a marriage-date deduction, and then again in satisfaction of the Family Agreement, and possibly yet again in the overall effect of the final order. He submits this constituted an error by the trial judge in interpreting the Family Agreement and/or in applying it to the equalization of net family properties under the Family Law Act, R.S.O. 1990, c. F.3 (the “FLA”).

D. Analysis

[13] The Family Agreement must be interpreted in the legislative context of Part I of the FLA, which deals with family property on marriage breakdown.

(1) Division of Family Property under the FLA

[14] Under s. 4(1) of the FLA, “net family property” is defined as:

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, other than debts or liabilities related directly to the acquisition or significant improvement of a matrimonial home, calculated as of the date of marriage.

[15] Section 5(1) then provides that on marriage breakdown, the spouse whose net family property is the lesser of the two net family properties is entitled to one-half the difference between them. This is also referred to as the “equalization” of net family properties.

[16] The matrimonial home is given special treatment under the FLA in the calculation of net family property. In accordance with the definition of “net family property” in s. 4(1)(b), while a spouse can ordinarily deduct the value of property that they brought into the marriage in calculating the NFP, deductions connected to the matrimonial home are not allowed.

[17] Section 18 defines the matrimonial home as:

18(1) Every property in which a person has an interest and that is or, if the spouses have separated, was at the time of separation ordinarily occupied by the person and his or her spouse as their family residence is their matrimonial home.

[18] The effect of these sections, read together, is that where a person brings a property into the marriage that becomes and remains the couple’s matrimonial home on the date of separation, the spouse who brought the property into the marriage may not deduct the marriage-date value of that property from their net family property to be equalized. But if the original property is no longer a matrimonial home within the definition in s. 18 at the date of separation – for example, if it was sold during the marriage – then the value of the original property on the date of marriage is a deduction for the spouse who brought it into the marriage.

[19] However, s. 2(10) of the FLA allows the parties to agree to different arrangements, subject to ss. 52(1) and (2), by entering into a marriage contract.

[20] In this case, by their Family Agreement, the parties agreed to specific treatment of $45,000 representing the deposit that the wife paid to purchase the Kroeger property, which became the parties’ matrimonial home. The Family Agreement specified that the wife would preserve her entitlement to this $45,000 from the sale proceeds of whatever home they were living in in the event of marriage breakdown, whether the parties still lived in the Kroeger property or had moved to another home.

(2) Application to this Case

[21] The issue raised by the appellant husband is whether the trial judge erred in his interpretation of the Family Agreement and/or in applying it to the equalization of net family properties under the FLA.

[22] The trial judge did not discuss the possible interpretations of the $45,000 provision of the Family Agreement in his reasons. The wife was unrepresented at trial. The NFP statement filed by the husband was based on his main position that he had not signed the Family Agreement, and therefore he did not include any treatment of the $45,000 in his NFP. During closing submissions, counsel for the husband (not appeal counsel) and the trial judge had a brief colloquy regarding the treatment of the $45,000 in the event he found that the husband had in fact signed the Family Agreement, but there was no detailed discussion of alternative treatments to take into account the combined effect of the Family Agreement and the FLA.

[23] In order to give effect to the Family Agreement, the trial judge treated the first $45,000 of the proceeds of sale of the Jackson property as an exclusion from the wife’s net family property under s. 4(2), and ordered that $45,000 be paid to the wife out of those proceeds. Item 6 of s. 4(2) provides:

4(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:

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

[24] I see no error in the trial judge’s approach to the treatment of the $45,000 as agreed by the parties. The proceeds of the Jackson property were jointly owned on the valuation date and the Family Agreement provides that $45,000 of the proceeds of the sale are to be treated as belonging to the wife. The FLA provides that that amount is an exclusion from her net family property.

[25] Because the parties had sold the Kroeger property, it was no longer their matrimonial home at the date of separation, and therefore its marriage date value was deductible by the wife. However, the trial judge allowed the wife to deduct the full marriage-date value of the Kroeger property in the amount of $92,285, which included the value of the $45,000 deposit. In other words, he allowed an excluded property (the $45,000 deposit) to also be deducted. This was an error because the same property cannot be both an exclusion and a marriage-date deduction. The effect of this error was to double count the $45,000 in the wife’s favour.

[26] The appellant has argued, in the alternative, that the trial judge’s error was allowing the wife any deduction for her equity in the Kroeger property. He says the Family Agreement should be interpreted to mean that, while under the FLA the wife would have been entitled to deduct her entire date of marriage equity in the first home as it was no longer the matrimonial home at the valuation date, the effect of the Family Agreement was that she gave up that benefit.

[27] I would not give effect to this argument. While it represents one possible interpretation of the agreement, other reasonable interpretations are that the word “profits” in the clause “benefit equally from the remainder of the house profits” refers to proceeds of the sale of the house over and above the existing equity, or it could be referring only to profits in a subsequent house if they bought one. In addition, there is no language in the Family Agreement that suggests that the parties intended to contract out of the FLA other than preserving for the wife her original deposit of $45,000 on the Kroeger property.

[28] In my view, the only error made by the trial judge occurred at the intersection of the effect of the contract and the operation of the net family property provisions of the FLA. That is, having correctly characterized the agreement between the parties as an agreement to exclude the wife’s $45,000, when considering the appropriate amount to include as the wife’s marriage-date deduction, it was necessary not to again count the same $45,000 deposit that was part of the value of the Kroeger property.

[29] I would allow the appeal to the extent that I would subtract $45,000 from the wife’s date of marriage deduction of $92,285, representing her equity in the Kroeger property, and then recalculate the equalization payment owed by the husband to the wife.

[30] The result is that instead of owing the wife an equalization payment of $43,547, the husband owes the wife an equalization payment of $38,924.

E. Conclusion

[31] I would change para. 4 of the order dated January 4, 2021, to read as follows:

4. The Applicant, Randal Allan Knight, shall pay to the Respondent $38,924 for equalization.

[32] I would dismiss the rest of the appeal, leaving the remainder of the order in full force and effect.

[33] The husband’s success on the appeal has been extremely limited: he has succeeded in reducing his payment to the respondent by $4,623 in total. In addition, the husband could have avoided the appeal process by accepting the invitation of the trial judge to bring any arithmetic errors to his attention for correction. I would therefore not make any order for the costs of the appeal.

Released: October 7, 2021 “K.F.” “K. Feldman J.A.” “I agree. David M. Paciocco J.A.” “I agree. I.V.B. Nordheimer J.A.”