Kruschenske v. Kruschenske, 2018 ONSC 4342

COURT FILE NO.: 15-D733

DATE: 2018/08/16

ONTARIO

SUPERIOR COURT OF JUSTICE

BETWEEN:

Steven Kruschenske

Applicant

– and –

Lauren Kruschenske

Respondent

Caroline Kelly, counsel for the plaintiff

Hunter Phillips, counsel for the defendants

HEARD: May 16, 17, 18, 22 and 23 2018 (at Pembroke)

AMENDED PROPERTY EQUALIZATION DECISION

The text of the original Property Equalization Decision of July 13, 2018 was amended on August 16, 2018, and the description of the amendment is appended

KANE, J.

[1] This decision is determination of the equalization of property issues between the parties as a result of their marriage, subsequent separation and divorce.

[2] The applicant in this proceeding commenced in November, 2015 seeks an unequal division of the parties’ Net Family Property (“NFP”) given the short length of the marriage and because he brought almost all of his present assets into the marriage and particularly the matrimonial home at 727 Rapid Rd., Wesmeath, ON. (“727”).

[3] The applicant pleads and relies upon s. 5(6)(e) of the Family Law Act (the “Act”). The applicant alleges that being forced to share the value of 727 with the respondent is unconscionable.

[4] The respondent seeks an equal division of the parties’ NFP and alleges there are no unconscionable grounds in such equal division pursuant to s. 5(6) of the Act.

Background

[5] The parties:

(a) met one another at work in 2002;

(b) commenced dating and first became intimate in 2005 or 2009. The commencement thereof is disputed with the applicant testifying that such intimacy commenced in 2009 or 2010 whereas the respondent alleges they began dating and commenced intimacy together in 2005;

(d) have two children together, namely Andrew Kruschenske, born February 13, 2013 and Alexander Kruschenske, born April 16, 2015, and

(e) separated after 4 years and 2 months on May 2, 2015 when the respondent departed with the children who have since resided with her with very limited contact with the applicant since separation.

[6] The applicant is now 55 years old. He was previously employed as a firefighter with the Ministry of Natural Resources. Since April of 2015, he has been employed as a Wildland Fire Coordinator for the Department of National Defence at its military grounds in Petawawa, Ontario.

[7] The applicant’s prior firefighting employment with MNR was seasonal, from April to October. He was unemployed from approximately November until April each year during which time he received unemployment insurance and actively pursued his interests in fishing, hunting and trapping of wildlife. He has been employed full-time with the Department of National Defence since 2015. He lives in Westmeath east of Pembroke in the home he owned prior to and since marriage, from which he commutes to his employment in Petawawa.

[8] The respondent is 41 years old. She is a biologist and employed full-time as a Management Biologist with the Ontario Ministry of Natural Resources in Pembroke. She lives in a home in Petawawa that she purchased following separation.

[9] The respondent took 12-month maternity leave from work following the birth of each of her two sons.

[10] Robertson J. on October 12, 2017 granted the applicant’s motion to adjourn the trial, to remove his solicitor and retain new counsel on terms which obligated him to pay an equalization payment of $216,000 to the respondent as well as costs in the amount of $10,000.

[11] On March 8, 2018, MacLeod J. ordered release of the transcript to the parties of the attendance before Robertson J. MacLeod J. noted the order to pay $216,000 equalization was a judgment. Notwithstanding that conclusion, the parties in this trial argued equalization of NFP as unresolved and asked that the issues in relation to that be determined by this court. Relying upon that joint position, this court will determine the property issues presented and argued.

Disputed Family Law Property Issues

[12] There are several property issues to be decided which impact the value of property owned by each party prior to determination of the central issue whether it would be unconscionable pursuant to s. 5(6)(e) of the Act to include the full value of the matrimonial residence upon separation.

[13] The staged approach in determining the issues in this proceeding pursuant to s. 4 and s. 5 of the Act are as follows:

(a) Step 1: the court must first determine the NFP of each party by determining and valuing the property owned by them, including any deductions and exemptions pursuant to s. 4;

(b) Step 2: the court must then perform the equalization calculations which determines the amount the spouse with the larger property ownership value is to pay to the spouse with the smaller property value; and

(c) Step 3: if the parties’ period of cohabitation is less than five years and if claimed, the court must then determine whether equalization would be unconscionable under s. 5(6): Rawluk v. Rawluk 1990 CanLII 152 (SCC), [1990] S.C. J. No. 4 (S.C.C.).

[14] The conclusions at Steps 1 and 2 are set forth in Schedule A.

[15] Pursuant to Stage I, s. 4 requires identification of all relevant property and then the ownership thereof. Ownership includes registered ownership and consideration of trust principles. The court must then determine the relevant deductions and exclusions under ss. 4(1) and (2). The court under Stage 2 then calculates each spouse’s NFP, thus determining the equalization payment owed by one party to the other: Hamilton v. Hamilton, 1996 CanLII 599 (ON CA), [1996] O.J. No. 2634, 92 O.A.C. 103(Ont. C.A.).

[16] The issues at Stage 1 to determine the NFP of each party are:

(a) what is the value as of the dates of marriage and separation of a Quebec island bush lot property owned by the applicant (the “Bush Lot”);

(b) what is the appropriate capital gains tax payable by the applicant upon his sale of the Bush Lot;

(c) determination of the disposition costs upon the applicant’s anticipated sale of the Bush Lot in order to pay his outstanding legal fees;

(d) calculation of the applicant’s disposition costs to be included in calculation of his NFP upon the sale of his 727 property which will be necessary he alleges if full equalization is ordered;

(e) what is the appropriate notional tax rate to be applied to the RRSPs and pension owned by the respondent upon her retirement;

(f) whether the applicant is entitled to deduct $13,000 as the value of accumulated building supplies as of the date of marriage;

(g) what was the fair market value of the applicant’s 2010 Chevrolet Silverado as the date of marriage; and

(h) whether the applicant’s contingent equitable interest in lands owned by his aunt Judith Hadley is quantifiable on marriage or separation and if so whether its value on marriage should therefore be deducted as an asset of the applicant on marriage.

Bush Lot Value on Marriage and Separation

[17] The applicant purchased the 28.5 acre vacant water front Bush Lot on an island in the Ottawa River located in Quebec for $20,000 in December 2010, several months prior to the parties’ marriage.

[18] The conflicting values of the Bush Lot on the date of valuation are $50,000 according to the applicant versus $86,000 according to the respondent. They agree the value thereof in 2011 upon marriage was $20,000.

[19] The applicant obtained opinion reports as to the value of the Bush Lot from Mr. Schroeder, an appraiser, and Mr. Ryan, a real estate agent. The parties agreed to the filing of these two reports into evidence.

[20] The respondent filed no opinion evidence and called no witness as to the value of the Bush Lot.

[21] Mr. Schroeder refused the applicant’s request to attend to testify in support of his opinions that the Bush Lot value:

(a) was $63,000 as of the date of marriage; and

(b) was $86,000 on the valuation date.

[22] The court made an order for service of a subpoena but is unaware whether that was served or of the response thereto. Mr. Schroeder did not testify.

[23] The respondent supports Mr. Schroeder’s $86,000 value on separation but rejects his $63,000 value upon marriage.

April 16, 2011 Bush Lot Value

[24] Mr. Schroeder’s report as to the 2011 value at the time of marriage states there was no market data to substantiate the low $20,000 December 2010 purchase price the applicant paid to buy the 28.5 acre Bush Lot, which equates to approximately $702 per acre.

[25] The applicant told Mr. Schroeder that the low purchase price of the Bush Lot he paid supported his opinion that the vendor was under financial pressure to sell. Mr. Schroeder agreed and concluded the $20,000 purchase price paid was below its then fair market value. The applicant’s opinion to Mr. Schroeder is speculation and not supported by evidence. The vendor did not testify. The original asking price was $50,000. The applicant submitted an offer of $19,000 which was not accepted. The vendor later asked the applicant if he was still interested. The applicant and vendor agreed upon $20,000 for the purchase of the Bush Lot.

[26] The Schroeder’s report opinion that the Bush Lot market value as of April 16, 2011 was $63,000, or $2,189 per acre, is based on three comparable sales he relied on. Those comparables are problematic and, as confirmed by Mr. Ryan, undermine his conclusions.

[27] Mr. Schroeder does not indicate whether the comparables relied upon had buildings on them.

[28] Two of the three comparables relied upon by Mr. Schroeder are some 11 km away from the Bush Lot, are more than one half the size of the Bush Lot and had an average price per acre of $1,875 and $1,906/acre respectively.

[29] The third comparable is almost twice as large as the Bush Lot. It is on a lake and had an average per acre sale price of $2,783. It is 123 km from the Bush Lot towards the larger population of the City of Ottawa which logically impacts value but that is not commented upon. Mr. Schroeder, without explanation, simply multiplies the average price per acre of these three sales to the Bush Lot to determine his stated value thereof of $63,000 in 2011.

[30] I do not accept the third comparable as an appropriate comparable and the averaging of the three as appropriate to determine value. This is an obvious discrepancy and perhaps why Mr. Schroeder refused to testify.

[31] The 2011 municipal tax assessment of the Bush Lot at $8,400 is typically below market value and, if anything, supports the $20,000 purchase price paid and contradicts Mr. Schroeder’s April 2011 opinion of a $63,000 value which equates to $2,210 per acre.

[32] The applicant, as reflected in the comparative NFP statement, accepts the value of the Bush Lot upon marriage was $20,000 if the court accepts Mr. Ryan’s separation date value of $50,000, as compared to the $86,000 the applicant alleges based on the report of Mr. Schroeder.

[33] The $20,000 value so conditionally accepted by the applicant contradicts Mr. Schroeder’s reported opinion that the Bush Lot value upon marriage was $63,000.

[34] Mr. Ryan’s opinion in his report and during his testimony was that the market value of the Bush Lot:

(a) upon marriage in 2011 was $20,000, which the respondent does not dispute: and

(b) was $50,000 upon separation, as compared to the respondent’s assertion relying on Mr. Schroeder that its then value was $86,000.

Mr. Schroeder’s May 1, 2015 Bush Lot Value

[35] Mr. Schroeder again relies upon three comparable sales to support his conclusion that the 2015 Bush Lot value was $86,000. He uses their average sale price per acre of $3,036 to conclude, without reason, that $3,000 per acre is the appropriate value/acre for the Bush Lot, resulting in his conclusion that its May 1, 2015 value was $86,000.

[36] The attached Plot Map to his report incorrectly identifies the location of the comparisons. The acreage of two of the comparisons with much larger value per acre do not identify their size nor whether they include a cottage building like that on the Bush Lot. These two comparison properties with higher values double that of the third comparison and are both on the same Marcott Island, versus the third comparison sale two years earlier on a different island. The two comparisons on Marcott Island in 2014 in addition were sold to a land conservatory for $53,000 and $33,000, for which the purchaser received a tax deduction in the same amount. Sales to such a conservatory tend to increase value and ability to sell, as testified by Mr Ryan.

[37] Mr. Schroeder’s report contains no comment on these factors and simply applies the average of these three sales to the Bush Lot on a different island.

[38] Mr. Schroeder states the cost approach to determine value was not considered because “the subject is a vacant land”. That is incorrect as the applicant had by then built a cottage on the Bush Lot.

[39] Mr. Schroeder’s reports are not reliable evidence. The costs thereof are not relevant.

Mr. Ryan’s Assessment of Market Value

[40] Although not an appraiser, Mr. Ryan has lengthy experience as a real estate agent for sellers and buyers of properties along the Ottawa River near Pembroke. Like Mr. Schroeder, Mr. Ryan used three comparative sales in support of his conclusions as to value.

[41] No objection was raised as to Mr. Ryan providing expert opinion evidence.

[42] Mr. Ryan testified that the Bush Lot, consisting of barren land in 2011 and improved by construction of a small cabin after marriage and before separation, had values of:

(a) $20,000, or likely less, at the time of marriage in April 2011; and

(b) $50,000 at the time of separation which had been improved by construction of the cabin.

[43] Mr. Ryan in support of his conclusions as to value presented issues not mentioned by Mr. Schroeder, including:

(a) the Bush Lot has no legal parking and boat dock access from Ontario or Quebec, which he believes negatively impacts its value;

(b) rapids and rocky foundation of the river makes water access to the Bush Lot challenging and negatively impacts its value;

(c) other smaller lots without buildings on this same island as the Bush Lot have not increased in value over the last 30 years. Some sales thereof for arrears of taxes have sold for one third of their asking price;

(d) the water pond on the Bush Lot negatively affects its value;

(e) the applicant’s clearing of trees over half an acre at most increased its value by $1,000; and

(f) the small cabin built by the applicant on the Bush Lot has added value but has no water source, no septic system, no kitchen and no hydro other than solar power.

[44] Mr. Ryan points to the larger size of the cottages sold in the comparables he relies upon and believes that most of the value in those sales above the static land costs are attributable to their buildings with kitchens, bedrooms, septic systems, etc.

[45] The evidence as to value supports the opinion of Mr. Ryan which the court accepts that the market value of the Bush Lot unimproved at the time of marriage and with the small cabin at the time separation, was $20,000 and $50,000 respectively.

Bush Lot Disposition Costs and Capital Gains Tax Deductions Upon 2018 Sale

[46] The applicant has decided to sell the Bush Lot and contacted a real estate agent to list the same for which 8% sales commission will be charged upon a sale price of $50,000, namely $4,000.

[47] The capital gains tax is $2,000 as per exhibit 39, based on a $50,000 sale price, a $20,000 purchase price, $1,511 purchase notary fees and some $15,000 construction material costs for the cabin.

[48] I have no evidence as to the anticipated notary fees upon sale.

[49] The above capital gains tax and disposition costs upon a current sale of the Bush Lot may be less if the applicant transfers title thereof to a land conservatory except the applicant testified he needs the proceeds from the Bush Lot sale to pay his legal fees.

727 Property Disposition Costs

[50] Whether the applicant has to pay this category of costs remains hypothetical. The proven quantity of such disposition costs, if incurred, are as follows:

(a) a 5% real estate sales commission based upon 727’s agreed-upon valuation date market value of $373,000, namely $18,650;

(b) $1,128 for vendor’s legal fees upon such sale; and

[51] The applicant submits that he will be forced to sell 727 if he is ordered to pay full equalization to the respondent in which case, all disposition costs of 727 should be included in the calculation of his NFP. This allegation has not been proven.

[52] It is unclear what is meant by “full equalization”, namely what lesser amount of equalization if ordered will enable him to retain ownership of 727.

[53] The applicant testified his preference would be to not sell either property. He has already paid the respondent a partial equalization payment of $54,000, plus $10,000 costs, as ordered by Robertson J., without the necessity to sell the matrimonial home or the Bush Lot.

[54] The applicant has other assets such as $123,213 of RRSPs and had some $77,119 of liquid funds which theoretically are available to satisfy some or all of an equalization payment obligation if ordered, without the need to sell 727.

Notional Taxes on the Respondent’s RRSP and Pension

[55] The issue is whether the notional tax liability as to the respondent’s RRSP and pension should be deducted at the rate of 19% as she claims or at the lower rate of 17.3% as submitted by the applicant, a difference of some $370.

[56] Mr. Martel in his report dated April 16, 2018 states the average tax rate attributed to the respondent upon her retirement:

(a) at age 57.07 on June 30, 2034, being the earliest time she will qualify for an unreduced pension of $46,159, which will reduce by $11,027 to $35,132 at age 65, is 17.3%;

(b) at age 61, with an annual pension of $51,668, which reduced by $11,719 to $39,949 at age 65, is 19%; and

[57] The respondent’s annual pension accordingly will:

(a) be almost $5,000 higher between ages 61 and 65 if she retires at 61 instead of retiring at 57.07 years of age; and

(b) if she works beyond 57.07 years of age to age 65, will thereafter be $10,432 higher than if she retires at age 57.01.

[58] The above increased amounts weigh in favour of the respondent delaying her retirement to age 61 or 65 as does her higher annual salary which was $77,800 in 2017.

[59] At her ages of 57, 61 and 65, the children will be 21 and 19, 25 and 23 and 29 and 27 years of age. Chances of the children remaining financially dependent normally decreases in their early 20’s.

[60] The applicant is currently 56, will be 65 years of age in 2027 and will have a reduction in annual income which was $83,693 in 2017 when he retires. Reduction in his income upon retirement will result in reduced child support payable to the respondent.

[61] These facts create an incentive that the respondent will maintain her employment income and therefore work beyond age 57.

[62] The above factors lead the court to conclude that the appropriate tax liability rate to be applied is 19%.

Deductibility of Accumulated Building Supplies

[63] The applicant claims a $13,000 expense as the value of building supplies he owned upon marriage and used subsequently to construct the cabin on the Bush Lot.

[64] The applicant produced $1,932 of construction material invoices dated in May and June, 2011, which do not identify what property they were used for but which he testified were used in construction of the Bush Lot cabin.

[65] The applicant in 2011 provided his insurer with an estimated replacement value of $15,000 in the event of loss to the Bush Lot building without any allocation between labour and materials. Replacement insurance value in the event of a loss would normally include the cost of labour and materials. He claims $13,000 as his estimated material cost as a credit.

[66] The respondent concedes no value for such building material asset owned by the applicant upon marriage but had no direct evidence thereon and was not involved in the assembly of materials and construction of that Bush Lot building.

[67] The court is left with the applicant’s global estimate of $13,000 material costs, excluding labour.

[68] There are material costs incurred to construct the Bush Lot building. Factoring in something for labour costs as compared to the insured total replacement value of $15,000 in 2011, the best estimate permitted by the evidence is $9,000 as the material costs incurred to construct the Bush Lot building.

Market Value of the 2010 Chevrolet Silverado

[69] The applicant testified he paid $35,800 for the purchase of this then new vehicle in November 2009, which was below its $37,910 list price, that he put some 20K miles on it and in his opinion, its depreciated market value on marriage in April 2011 was $32,000.

[70] The respondent without evidence on that point submits the value on the date of marriage was $25,000. Her position is closer to reality.

[71] Anyone familiar with automobiles and their depreciation is familiar with the common adage that a new vehicle depreciates in value by one third upon sale and being driven away from the dealership. Even with a $37,000 list price, that standard rate of depreciation in year 1 reduces market value to some $24,600.

[72] Twenty thousand miles over 16 months is significant mileage. Significant mileage negatively impacts market value.

[73] The limited evidence presented and the above observations lead to the conclusion that the market value of this vehicle upon marriage and 17 months after purchase was $25,000 and not $32,000.

Contingent Value of Equitable Interest in Ms. Hadley’s Land

[74] Ms. Hadley is the aunt of the applicant. In 2000, she purchased the 3 acre property abutting the 2.9 acre 727 property, which the applicant purchased in 1997 for $50K. 727 required and has an access right-of-way over the aunt’s property. The aunt’s property provides 727 with the only boat access to the Ottawa River which the applicant needed to moor, to boat to the Bush Lot, fish, etc.

[75] Ms. Hadley apparently lived in British Columbia and had no children. The applicant testified he and his aunt had an understanding that she ultimately would give her property to him and that in the interim he could treat her property as his own. He accordingly cleared sufficient of her land and then bought, planted and maintained 80 apple trees on her property, supplementing the 200 plus apple trees he planted on 727. His plan was that the resulting apple crop sales would supplement his income upon retirement.

[76] The applicant’s belief that his aunt would ultimately gift her property to him was not shared by the aunt. She placed her property for sale in 2014 to which the applicant objected.

[77] The applicant’s position upon his aunt listing her property for sale, contrary to his alleged belief she had agreed to ultimately gift her land to him, was that he acknowledge she could not simply “give” him her land, however, she should accept his offer to buy the part of her land constituting his right-of-way over her lot with river access. His offer was not accept. He registered a notice of an interest or right he claimed in her land in June 2014.

[78] In February 2016, almost 1 year post separation, the applicant articulated this claim as a constructive trust for the apple tree plantings and associated work enhancements to the aunt’s land which he offered to settle on the basis that the land constituting his original easement and water access be conveyed to him, failing which he demanded $35,000 compensation for his 80 apple trees and associated yard work.

[79] The aunt did not agree to transfer the casement and access land to the applicant.

[80] The applicant’s claim against his aunt was settled in March 2016 for a $27,500 payment to him, of which he netted $25,468 after payment of associated legal fees.

[81] The respondent submits the applicant has failed under s. 4(3) of the Act to prove the value of his contingent interest in the aunt’s property as of the valuation date. She submits this settlement payment was a debt asset owned by the applicant as of separation and must therefore be included in his then assets. The applicant disagrees and submits this was a contested issue as to a contingent interest which was not quantifiable on marriage, at the time he registered his notice against title or at the time of separation.

[82] The claim in any of its forms was not the subject of an articulated and quantified legal proceeding as to ownership or compensation. The aunt refused to accept any entitlement until settlement for compensation some 11 months post separation.

[83] The applicant’s demands changed over time even following separation, from the original request of a beneficial interest in the aunt’s full lot. That changed in February 2016 to title to part thereof which was not agreed to or to compensation for value added to her property. It was only resolved at that point on the basis of this alternate but reduced compensation claim.

[84] “Property” pursuant to s. 4(1) of the Act consists of an interest, present or future, vested or contingent, in the real or personal property. The applicant registered a caution on title of the aunt’s property as he claimed an interest, namely future ownership of that property upon his aunt’s death pursuant to an understanding he believed he had with that aunt and therefore contingent upon him surviving his aunt. He and the aunt after the date of separation negotiated a monetary payment to him for his labour and services, or his claim to ownership of the property upon her death, for which he released his future contingent interest as to the ownership of that land.

[85] If the caution registered against the aunt’s land was to recover damages, s. 4(2)(3) provides that damages or a right to damages excluded in calculating a spouse’s NFP is limited to personal injuries, nervous shock, mental distress, loss of guidance, care and companionship or part of a settlement that represents those damages. The applicant articulated no such damage claim in his testimony which was limited to his belief that his aunt had agreed to bequeath her land to him upon her death or the value of his labour in cutting down trees and planting and maintaining apple trees.

[86] Rights under a contract constitute “property” under s. 4: Poisson v. Poisson, O.J. No. 705 (Ont. Gen. Div.). A contract as to land must be in writing pursuant to the Statute of Frauds. There is no such written contract regarding the aunt’s property in evidence.

[87] The court in the Debora v. Debora, 2006 CanLII 40663 (ON CA), 83 O.R. (3rd) 81 (C.A.) considered a valuator’s use of hindsight or events post separation to determine value. The court held that hindsight information is generally inadmissible and cannot be used as part of the process of establishing the value of an asset, shares in that case, at a particular date in both civil and family law cases. The court recognized an exception to this principle, namely that hindsight or the actual results achieved after the valuation date may be compared against the projected or forecasted results made by the evaluator to test the reasonableness of his or her assumptions: paras. 46 and 47. That exception does not exist in this case.

[88] The respondent on the dates of marriage and separation was aware the applicant had only a changing, unquantified and disputed claim against his aunt. There was no knowledge on the valuation date whether the claim would be successful as to title, compensation and the amount thereof.

[89] The inclusion under s. 4 of the Act of a vested or contingent interest in real property was never agreed to or granted by the aunt. The applicant had no obligation therefore under s. 4(3) to prove the value of an interest in land he never received and the owner never acknowledged. The aunt may have paid some or all of the final amount as the improvement value of tree clearing and apple orchard as nuisance value, or both.

[90] The applicant’s alternate partially successful claim for compensation against his aunt 11 months after the valuation date does not permit its inclusion as a valuation date asset of that subsequently acknowledged liability: Deborah v. Deborah, supra, paragraph 49.

[91] Should this claim in the alternative constitute a valuation date asset, it had the same value as of the date of marriage, effectively eliminating any impact as to the amount of any equalization payment.

Family Law Act

[92] It is agreed pursuant to s. 18(1) of the Act that 727 was the matrimonial home.

[93] Net Family Property (“NFP”) pursuant to ss. 4 (1)(a) and (b) of the Act is the net value of the property after deducting:

(a) a spouse’s debts and “other liabilities” pursuant to s. 4(a); and

(b) the value of property owned by a spouse on the date of marriage, after deducting the spouse’s debts and “other liabilities”, other than debts or liabilities related to the acquisition or significant improvement of the matrimonial home, calculated as of the date of marriage.

[94] Pursuant to s. 4(1.1), “other liabilities” as referred to in ss. 4(1)(a) and (b) includes contingent tax liabilities in respect of the property.

[95] S. 4(2) identifies seven types of properties owned on the valuation date which are excluded in calculating a spouse’s NFP. One category of excluded property is property the spouses have agreed by domestic contract is not to be included in a spouse’s NFP. Two of the excluded categories of property, namely gifted or traceable from a gift, inheritance etc., exempt the matrimonial home from such exclusions.

Stage 2 Net Equalization Payable and Whether Net Equalization is Unconscionable

Parties’ Positions

[96] The respondent is claiming a full equalization payment in the amount of $248,254, subject to the determination as to particular asset values and liabilities, less the $54,000 NFP partial payment she received pursuant to the order of Robertson J.

[97] The applicant submits the maximum equalization payment required is $197,285, which includes one half of the equity in the matrimonial home he owned prior to and during the marriage. He submits that requiring him to pay that full net equalization of $197,282, should not be ordered as that, pursuant to s. 5(6)(e) of the Act, would be unconscionable given their short 4 year and 2 week length of marriage cohabitation until separation.

[98] The applicant agrees the respondent is entitled to 50% of the increased value of assets during the marriage. The applicant submits that such increased value of assets should include only the increased value of 727 during cohabitation. Using the $50,000 separation value for the Bush Lot and excluding any value as for his contingent interest in his aunt’s property, results he submits in the respondent being entitled to an equalization payment of $36,785.

[99] The applicant submits the court having determined full equalization would be unconscionable, should use its discretion and order an equalization payment to the respondent in the amount of $75,000, which would be fair and reasonable.

[100] The applicant submits full equalization, including half of the full value of 727 which the applicant brought into the marriage would be unconscionable based on the following circumstances:

(a) the respondent is seeking a double benefit in that the $60,000 equity in the home she owned and then sold following marriage is excluded property under the Act. Having received that equity, the respondent then seeks ½ of the value of 727 which is not an excluded asset and which the applicant owned upon marriage and became the matrimonial home;

(b) the applicant despite having a low income and working only part of the year together with EI for the balance, was frugal and saved money since age 18 to own his own home which he brought into the marriage at age of 49;

(d) the applicant’s employment has been arduous and involved long hours during fire season;

(e) the $321,000 equity in 727 upon marriage represented, like now, the majority of his then net worth;

(f) the unconscionability in sharing the 727 value is apparent as had that $321,000 equity upon marriage been in the form of a bank account or shares, the Act excludes those assets, unlike 727 which became the matrimonial home and s. 5(6)(e) is intended to prevent the result;

(g) the applicant considered separation in 2013 when she suggested they see a marriage counsellor, however he did not consider that necessary;

(h) the applicant is now 56 years of age, has current health issues which might impair his continuing arduous employment if such conditions worsen;

(i) he would like to work to age 60 and therefore has little employment time remaining to financially recover from a NFP obligation. The respondent in comparison is 41, has secure government employment and has no present medical condition impairing her future employment;

(j) the respondent’s net worth grew during the marriage, partially due to her limited financial obligations related to and during cohabitation;

(k) the applicant performed physical work at the home of the respondent prior to their marriage. The applicant states that without being paid, he stripped her kitchen cabinet doors, disconnected and removed a wall heater, cleaned her chimney, installed a mailbox, sanded the floor of a bedroom, removed a cement walkway and garage floor, installed one or more doors, helped her to pile wood, shoveled her driveway on occasion, worked with others over a weekend to replace the roof shingles on her home, trimmed her trees on her property and mowed her lawn occasion. The respondent then sold her home after they married and retained all equity realized in that sale; and

(l) the parties during cohabitation kept separate finances and asset ownership which is reflected in her email to the applicant following separation, stating prior to obtaining legal advice, that she anticipated their agreement to terms of separation should be simple as they were “not dividing up/selling a house, cars or property”.

[101] The submission in above paragraph (f) is a collateral attack of the Act’s requirement to equalize property following separation and the Ontario regime as to the special treatment of the matrimonial home. This is an invalid argument.

[102] The parties agree the market value of 727 was:

(a) $321,000 at the time of marriage; and

(b) $373,000 at the time separation.

[103] The respondent points to assets acquired by the parties during cohabitation including household goods and furniture, vehicles, electronic equipment, sports and hobby equipment, bank accounts, RRSP balances and pension accounts through their respective employment as well as life insurance policies. She alleges she financially contributed towards the parties’ regular expenses during marriage including her purchase of the vast majority of food as well as monthly internet and cable charges.

[104] The respondent emphasizes that the applicant had no existing debt upon separation, compared to her then liabilities which included:

(a) an $18,000 vehicle loan;

(b) her $3,000 pension buyback liability during her maternity leave; and

[105] The respondent submits an equal division of NFP would not result in her receiving a disproportionately large or unconscionable payment given the period of their cohabitation.

[106] She alleges the applicant overstates the work he did at her home before marriage. She states several of the jobs he referred to occurred on 2 occasions, some of which others joined him in performing.

[107] The respondent testified she participated in some of the yard work at 727 including installing guards around the trunk of the newly planted apple trees, helped picking the apples and planting a flower garden.

Observations as To Circumstances

[108] The respondent points to the parties’ intimate, exclusive and continuous relationship with many indicia of a permanent conjugal relationship for seven years between 2005 and their 2011 marriage, but is not arguing that they were cohabiting prior to their marriage.

[109] According to the comparative NFP statement filed, the gross value of the applicant’s assets, excluding 727, also increased during the four year cohabitation from $208,439 to $325,569, compared to the respondent’s increase in a gross asset value from $80,091 to $171,412 upon separation.

[110] The applicant had term employment with the Ministry of Natural Resources between 1986 until 2013, initially working between 4 to 5 months per year which later increased to 7 to 8 months per year and would then receive Unemployment Insurance. He only worked during one winter with that Ministry. There is no evidence whether the applicant sought alternate term employment during these years or whether he simply was content to hunt, fish and trap during these unemployment periods and thereby have a lower income during those years.

[111] The applicant commenced working for the Department of National Defence with a 3-month contract in 2014. He obtained permanent year-round employment with that department in 2015.

[112] The parties’ income tax returns and Financial Statements indicate the following annual employment incomes, including EI:

Year Applicant Respondent

2009 $58,778 [includes $4,023 EI] unknown

2010 $63,743 [includes $4,917 EI] unknown

2011 $62,033 [includes $6,398 EI] $65,746

2012 $63,202 [includes $8,892 EI] $70,814

2013 $51,140 [includes $11,221 EI] $62,459 [includes $21,543 EI]

2014 $55,163 [includes $16,035 EI and $67,928 [includes $3,507 EI] $15,430 severance pay]

2015 $53,546 $41,111 [includes $27,656 maternity leave and $2,270 EI]

2017 $83,693 $77,902

[113] The respondent during cohabitation paid:

(a) one half of the approximate $3,200 annual municipal taxes for 727;

(b) one half of the $775 annual cost to insure that property;

(d) the monthly Internet and satellite charges; and

(e) the water softening equipment.

[114] The applicant during cohabitation paid 727 costs for Hydro, telephone, yard and maintenance costs.

[115] The applicant purchased 727 for $50,000 in 1997. The original building was described as a cottage. It was insured and burnt down in 2004. The applicant purchased a $60,000 Viceroy package home. Contractors for the most part built the present home in 2005. The applicant later rebuilt an old boathouse and a shed for the 235 apple trees he planted on his property and the 80 apple trees on his aunt’s adjoining property. He built a garage on the property in 2010.

[116] The 2014 renovation was a large addition to 727 including a poured concrete basement and cost $60,000. Within $5,000, the parties agree each paid half of these renovation costs. The respondent alleges she paid $25,000 to $30,000 of this cost. The applicant acknowledges the respondent paid $25,000 but states he has not been shown any credit card debt evidence to substantiate her allegation as to paying more.

[117] The respondent accordingly did not as alleged retain the full $60,000 equity she received upon the sale of her home after their marriage. She used approximately half of that equity to enhance the building size and value of 727. That $60,000 addition logically contributed towards the $52,000 increase in value during marriage and the current $373,000 market value of 727.

[118] The construction projects performed by the applicant at 727 and the Bush Lot, the creation of one or more ponds on the 727 property, the bush clearing for these projects, the cutting and preparation of wood for winter heating of these properties, combined with his hunting, fishing and trapping activities are time-consuming tasks. That perhaps explains the absence of evidence of the applicant seeking additional employment to supplement his limited annual term employment over the years with the MNR. His limited income during the years of that employment included a choice of lifestyles rather than financial hardship.

[119] It is not disputed that the respondent prior to separation provided most of the daily care of the infant children. The applicant however frequently did the cooking.

[120] The applicant testified that he never thought of consulting with legal counsel prior to marriage as to shielding his assets against any possible future claim by the respondent pursuant to the Act. The applicant lived with Irene Boldand between 1983 and 1986. They thereafter remained good friends but did not communicate between 2008 and 2017. She is a family law lawyer who the applicant briefly consulted upon the separation of the parties. The applicant did not, despite their difference in age and assets, take any measures to limit his exposure in the event of a separation.

[121] The respondent will have the primary financial responsibility for the children when the applicant retires in 4 to 9 years. The young age and needs of the children may delay his early retirement at age 60. Although that is a child support and not a property issue, it is a financial reality that the parties, given their age difference, knew when they decided shortly after marriage to have children.

Legal Analysis

[122] The issue is whether it would be unconscionable under the circumstances of these parties for the applicant to be required to pay the full net equalization payment based on their marriage of less than five years as per s. 5(6)(e) of the Act and if so, how much should that equalization liability be. The principle argument in support of unconsionability and an unequal division is the applicant’s ownership before marriage of 727 which became the matrimonial home.

[123] A spouse is entitled to one half of the difference between their lower NFP and the higher NFP of the other spouse: s. 5(1).

[124] S. 5(7) states that the purpose of s. 5 is to recognize that child care, household management and financial provisions are the joint responsibilities of the spouses and that inherent in the marital relationship there is equal contributions, whether financial or otherwise, by the spouses to the assumption of these responsibilities, entitling each spouse to the equalization of the net family properties, subject only to the equitable considerations set out in s. 5(6). Financial contribution is not a requirement.

[125] More or less than half the difference between the two NFPs may be awarded if equalizing the NFPs in the court’s opinion would be unconscionable having regard to eight listed factors including:

(a) the fact that the amount the spouse would otherwise receive under s. 5(1), (2) or (3) is disproportionately large in relation to a period of cohabitation that is less than 5 years; and

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

[126] The facts in each case are particular. The case law dealing with marriages less than 5 years and claims for unequal division of NFPs, contain very different outcomes which are hard to reconcile, such as:

(a) Reid v. Reid [2003] O.J. 1458 (Ont. S. J.) – 34 months cohabitation – husband to receive 15% of NFP;

(b) Millward v. Millward, [2003] O.J. No. 1517 – 1 year marriage – no equalization entitlement; and

(c) Rivers-Eshkibok v. Eshkibok, [2003] O.J. No. 2412 (Ont. C.A.) – the wife was awarded only one half the increase in value of the matrimonial home, similar to the sharing of net value increases between the dates of marriage and valuation of other non-matrimonial home assets.

[127] Lack of certainty due to a broad judicial discretion inhibits settlement of issues and encourages litigation.

[128] The discretion to make an unequal division pursuant to s. 5(6) is strictly limited. The intent of this section is not to alleviate every situation that may be viewed as unfair or inequitable, as equal sharing should occur in most cases. The property sharing upon marriage breakdown scheme in the Act is intended to promote predictability and thereby discourage litigation: Ward v. Ward, 2012 ONCA 462, [2012] O.J. No. 3033 (Ont. C. A.).

[129] The unconscionable threshold in s. 5(6) required to justify an unequal division is exceptionally high because the policy underlying the Act encouraging finality, predictability and certainty and minimizing the exercise of judicial discretion to the extent possible: Serra v. Serra, 2009 ONCA 105, [2009] O.J. No. 432 (Ont. C. A.)

[130] Serra v. Serra, supra, contains a number of principles as to the interpretation of the relevant sections in the Act and the application thereof including:

(a) post-separation events impacting value is a relevant consideration but not the only circumstance in determining whether equalization would be unconscionable which include but are not limited to fault-based conduct: paras 38, 42, 44, 45, 54 and 55;

(b) the s. 5(6) threshold of “unconscionability” is exceptionally high and involves circumstances that must shock the conscience of the court. Circumstances that are unfair, harsh or unjust alone do not meet the unconscionability threshold: para 47;

(c) unconscionable circumstances has been interpreted as more than hardship, more than unfair, more than inequitable and includes conduct that is harsh and shocking to the conscience of the court and repugnant to anyone sense of justice: para 48;

(d) the Act establishes equalization as the general rule subject to the s. 56 exception: para 57;

(e) if the circumstances result in equalization being unconscionable, the court should then determine what equalization payment would be fair, just and equitable: paras 69, 70 and 94;

(f) the Act is designed to promote the goals of certainty, predictability and finality in the resolution of property matters following separation, based upon the premise in s. 57 that inherent in the marital relationship there is equal contribution, whether financial or otherwise by the spouses to the assumption of joint responsibilities entitling each spouse to the equalization of the net family properties, subject only to the equitable considerations set out in s. 5(6): para 56, 57 and 71; and

(g) judicial discretion with respect to equalization is severely restricted pursuant to s.s 5(7) and 5(6): para 57.

[131] Kucera v. Kucera, 2005 CanLII 12854 [ONSC] involved whether it would be unconscionable for the wife after a marriage of 10 months to equalization where the amount of thereof was almost all attributable to the value of the matrimonial home the husband brought into marriage due to the Act’s prohibiting deduction of its value at the date of marriage.

[132] The court referred to the “normal principle of sharing equally the wealth accumulated during the marriage” and then stated that the “… Act potentially becomes unfair …. because the equalization process does not only share wealth accumulated during the marriage, but also shares the value of one specific asset, the matrimonial home, that was accumulated prior to the marriage. In very short marriages, this represents an unjustified windfall to the non-titled spouse” and “s. 5(6) is available to redress that unfairness”: paras 18 and 19. [Emphasis added]

[133] As stated in Serra v. Serra, supra, the threshold is not “unfairness” and is materially higher than that. The Act determines there is no unfairness or unconscionability in sharing the full value of the matrimonial home on five years of marriage.

What Amount Would Be Unconscionable

[134] If a party’s ownership of the matrimonial home before marriage on its own constituted s. 5(6) unconscionability, that determination would undermine the Legislature’s intention in s. 4(1)(b) that the market value of that particular asset upon separation be included, without deduction of its value upon marriage like other assets.

[135] Gomez v. McHale, 2015 ONSC 7584 and 2016 ONCA 318, involved the husband’s ownership of the matrimonial home before marriage and his request for an unequal division of NFP pursuant to s. 5(6)(e) following their 4 year and 5 month marriage. The court determined that it would be unconscionable for the wife to receive full equalization as most of that derived from the value of the matrimonial home which the husband purchased and then improved many years before the commencement of cohabitation and paid most of the bills related to the home including mortgage, utilities, taxes and insurance. There were no children of the marriage and the wife’s child of a previous relationship resided with them during cohabitation.

[136] Having determined s. 5(6)(e) applicable, the court in determining what equalization amount would be fair and just rejected a formula approach based on the length of cohabitation and instead relying upon the court’s discretion determined a monetary amount which was not explained.

[137] While not a legal requirement as determined on appeal in Gomez, use of the length of cohabitation in circumstances which are unconscionable to determine what is a fair and just equalization is logically consistent with the Act’s use of time, namely the 5 year threshold in s. 5(6) after which full equalization is required. The customary use of a time-based formula for cohabitation for less than 5 years provides separated couples with the certainty as articulated as a requirement in Serra v. Serra, supra, which encourages settlement and potentially avoids costly litigation.

[138] The difference in age and value of assets upon marriage is what results in unconscionable circumstances in this case.

[139] The court concludes on the facts that it would be unconscionable for the respondent to receive the full equalization given this marriage of less than five years.

[140] Applying a time based formula of one year less than the five year threshold, the applicant shall pay 80% of the NFP equalization as indicated in Schedule “A”, namely $170,127.08, less the $54,000 paid pursuant to the order of Robertson J.

[141] The balance of $116,127.08 is payable in four equal semi-annual instalments of $29,031.77, commencing September 1, 2018, without interest.

Costs

[142] Any party seeking or replying to a request for costs shall do so in writing and include a fee/service summary as follows:

(a) cost request – 30 days after this decision;

(b) reply – 20 days after (a); and

Mr. Justice Paul Kane

Released: August 16, 2018

Schedule “A”

Net Family Property Statement

Table 1: Value Of Assets Owned on Valuation Date (List in the order of the categories in the financial statement)

PART 4(a): LAND

Nature & Type of Ownership (State percentage interest)

Address of Property

APPLICANT

RESPONDENT

Matrimonial Home

727 Rapid Rd

$373,000.00

Bush Lot with camp

$50,000.00

Contingent Equitable Interest in Aunt’s Property

Totals: Value of Land

$423,000.00

$0.00

PART 4(b): GENERAL HOUSEHOLD ITEMS AND VEHICLES

Item

Description

APPLICANT

RESPONDENT

2014 Dodge Caravan

$24,000.00

2010 Chevy Truck

$15,000.00

Kubota Tractor Mower

$13,000.00

Totals: Value of General Household Items and Vehicles

$28,000.00

$24,000.00

PART 4(c): BANK ACCOUNTS AND SAVINGS, SECURITIES AND PENSIONS

Category (Savings, Checking, GIC, RRSP, Pensions, etc.)

Institution

Account Number

APPLICANT

RESPONDENT

Manulife Chequing Acct

$11,168.69

TFSA – Quadrus

$125.88

TD Canada Trust Chequing Acct

$27,545.07

RRSP – Standard Life

$21,820.94

Pension - OPSEU

$74,916.00

INA Account

$77,119.39

TFSA – Bank of Montreal

$21,782.83

RRSP – Nesbitt Burns

$123,213.00

Pension – OPSEU

$23,504.00

Pension – Public Service (DND)

$950.58

Manulife Advantage Acct (Andrew)

$5,146.21

Totals: Value of Accounts And Savings

$246,569.80

$140,722.79

PART 4(d): LIFE AND DISABILITY INSURANCE

Company, Type & Policy No.

Owner

Beneficiary

Face Amount ($)

APPLICANT

RESPONDENT

London Life Insurance

$6,689.59

Totals: Cash Surrender Value Of Insurance Policies

$0.00

$6,689.59

PART 4(e): BUSINESS INTERESTS

Name of Firm or Company

Interests

APPLICANT

RESPONDENT

nil

Totals: Value Of Business Interests

$0.00

PART 4(f): MONEY OWED TO YOU

Details

APPLICANT

RESPONDENT

nil

Totals: Money Owed To You

$0.00

PART 4(g): OTHER PROPERTY

Kruschenske v. Kruschenske, 2018 ONSC 4342

Case Summary

Judge

Counsel

Parties

Areas of Law

Fact Patterns

Expert Witnesses

Issues

Statutory Provisions 2

Legal Tests 1