Court File and Parties
Newmarket Court File No.: FC-16-50654-00 Date: 20200722 Ontario Superior Court of Justice
Between: Lakmini Udeshika Liyange Jayawickrema, Applicant And: Aravinda Liyanage Jayawickrema, Respondent
Counsel: J. Wijesundera, Counsel for the Applicant E. Moaveni, Counsel for the Respondent
Heard: In writing
Reasons for Decision (2)
JARVIS J.
[1] On May 1, 2020 Reasons for Decision were released: [1] an Addendum was issued on May 6, 2020 correcting a modest asset and value entry. [2] The wife was found to owe the husband $66,200 as an equalization payment. The evidentiary part of the trial was completed on November 28, 2019 and delivery of written submissions was completed by January 15, 2020. Between receipt of those submissions and release of the judgment the COVID-19 pandemic intervened.
[2] As noted in the judgment, I was not prepared to order that the equalization payment be made without hearing further evidence from the parties on the issue of unconscionability, a trial issue to which neither party paid much attention and whose determination could potentially be impacted by the pandemic. The parties were directed to consider whether the Court of Appeal decision in Serra v. Serra [3] applied: directions were given.
Parties' Positions
[3] The wife submits that no equalization payment should be ordered because that would be unconscionable for several reasons, principally:
(a) The duration of the marriage was three years; (b) The economic contributions she made to LL and the household; (c) The absence of any contribution, directly or indirectly, by either party to the increase in value of the wife’s realty in Sri Lanka, much of which increase is reflected in the calculation of the equalization payment; and (d) The impact of COVID-19 on the value of her assets, which are directly traceable to the Sri Lankan realty, and the wife’s ability to fund the equalization payment and support herself and the parties’ child.
[4] In particular, the wife submitted that her net worth was $726,127 when the parties separated and $374,051 on May 21, 2020. About $340,000 of the decrease in the wife’s net worth is attributable to the mortgage on her commercial unit purchased after separation, the overpayment of spousal support that she agreed during the trial to repay the husband and legal expenses associated with the parties’ litigation as appears from the financial statement she filed with her submissions. The wife said that she had closed her school (“SSA”) indefinitely as a result of the pandemic but was conducting some on-line courses at a reduced rate to keep the business afloat. The business had no value. The wife was not entitled to the Government of Canada small business loan of $40,000. Her total monthly income was $2,854, comprising $1,000 from some rental income from her commercial unit, a $854 child tax benefit and $1,000 from the government CERB program (although she also said elsewhere in her submissions that the amount was $2,000 monthly). Her monthly expenses were $3,430, excluding her mortgage deferral of $1,550.
[5] The husband submits that as the issue of unequal division was raised by the court after conclusion of the trial evidence it would be prejudicial to him for the court to consider that claim. That submission ignores both the fact that unconscionability was identified by the parties and the court as a trial issue well before start of the trial and the fact that, after closing submissions were filed, the Chief’s Notice restricted in-court matters effective March 15, 2020 such that the court had no ability to recall the parties when it became clear from the parties’ submissions that they had not directed their minds to that issue adequately. In any event, each party has been given an opportunity to address the court’s concern.
[6] The husband has also complained, disingenuously in my view, that the scope of the court’s consideration of the unconscionability issue should be confined to the wife’s claim for a lesser equalization payment from him because she single-mindedly pursued her claim that he owned more property in Sri Lanka than he admitted even though he resisted her disclosure efforts in that regard. There is no compelling reason why the court cannot deal with the issue of unconscionability as a matter of law. There is nothing of relevance about the parties’ assets that can be added to their trial evidence.
[7] The husband acknowledged that the increase in the value of the parties’ assets was “a natural appreciation of value due to inflation (in the wife’s properties)…” and by the funding of the gift of JLI shares to him by his father and had nothing to do with the parties’ efforts. He submitted that it would be prejudicial to consider an unequal division for reasons not explored by either party at trial. He disputed the wife’s evidence that her business had suffered from the COVID-19 pandemic and that the value of her Ontario realty had decreased in value.
Analysis
[8] Section 5(6) of the Family Law Act [4] (“the Act”) permits the court to adjust a presumptive equalization of spouses’ net family properties in exceptional circumstances.
5(6) The court may award a spouse an amount that is more or less than half the difference between the net family properties if the court is of the opinion that equalizing the net family properties would be unconscionable, having regard to,
(a) a spouse’s failure to disclose to the other spouse debts or other liabilities existing at the date of the marriage;
(b) the fact that debts or other liabilities claimed in reduction of a spouse’s net family property were incurred recklessly or in bad faith;
(c) the part of a spouse’s net family property that consists of gifts made by the other spouse;
(d) a spouse’s intentional or reckless depletion of his or her net family property;
(e) the fact that the amount a spouse would otherwise receive under subsection (1), (2) or (3) is disproportionately large in relation to a period of cohabitation that is less than five years;
(f) the fact that one spouse has incurred a disproportionately larger amount of debts or other liabilities than the other spouse for the support of the family;
(g) a written agreement between the spouses that is not a domestic contract; or
(h) any other circumstance relating to the acquisition, disposition, preservation, maintenance or improvement of property. R.S.O. 1990, c. F.3, s. 5 (6).
[9] Only sections 5(6)(e) and (h) are relevant to this matter.
Cohabitation less than five years (s. 5(6)(e))
[10] Three findings are needed before the court may exercise its discretion under this provision:
(a) That the parties cohabited for less than five years; (b) That the presumptive amount to be paid is disproportionately large in relation to the period of cohabitation; (c) That equalizing the net family property would be unconscionable.
[11] There is no factual dispute that the parties cohabited for less than five years and slightly more than three years: there was no evidence that they cohabited before marriage.
[12] As for whether an equalization payment is disproportionately large, there is no formulaic consensus in the case law. Typically, proportionality under this provision is co-related to the nature of the property giving rise to the equalization payment as in the case of a matrimonial home brought by one party to the marriage and for which no deduction is allowed if owned on the valuation date (Gomez v. McHale) [5] and, more broadly, financial contributions to the marriage by each party. Spousal misconduct should not be relevant.
[13] There is no “bright line” separating the findings needed for (b) and (c). The analysis is holistic and the question, in this case, is whether ordering the wife to make a $66,200 equalization payment to the husband would shock the conscience of the court. In my opinion it would, for these reasons:
(a) Most of the value of the wife’s net family property relates to the increase in value of her properties in Sri Lanka which (as already noted) the husband acknowledged in his submissions “was not in any way shaped by the parties’ individual efforts but it was a natural appreciation of value due to inflation”. [6] The wife’s net family property was $258,079 of which $179,331 (or almost seventy per cent) is attributable to property-value appreciation in the Sri Lanka realty market during cohabitation; (b) On a comparative basis, the increase in each party’s net worth on the valuation date ($179,331 for the wife’s realty and $110,400 for the JLI shares gifted to the husband but excluded from his net family property calculation) had nothing to do with childcare responsibilities, household management or financial provision inherent in the parties’ marital relationship, the foundational purposes for equalization as set out in s. 5(7) of the Act; [7] (c) The wife was a recent immigrant. The sacrifices made by a party in coming to Canada are a relevant consideration. [8] The wife in this case left her employment in the United States, worked for the husband’s family company and, when the parties separated, had no readily marketable skills without retraining (which she diligently undertook). She was, in a very real sense of the word, abandoned to her own resources. She had no extended family or support network in Canada; (d) The wife left the marriage with nothing in the sense that none of her contributions to LL was acknowledged or monetized. The husband claimed that he earned nothing, was unable to support her and their child and even pursued spousal support from the wife.
[14] In Karkulowski v. Karkulowski [9] the court considered a wife’s immigration from Poland in circumstances where the period of cohabitation was two years. The husband claimed that it would be unconscionable to equalize the parties’ net family properties. In denying that claim, the court observed that the amount of the payment was not disproportionately large given the wife’s physical contributions to the parties’ relationship; she “pulled her weight”, assuming household care and management. In the case at bar, the wife’s contributions to LL and to managing the parties’ household and childcare were significant.
Any other property-related circumstance (s. 5(6)(h))
[15] The court in Serra observed that a distinction had to be drawn between the fact of a significant market-driven decline in the value of a party’s most significant asset subject to equalization and whether that fact would be sufficient by itself to constitute “unconscionability”. [10] All of the parties’ circumstances had to be considered. In concluding that equalizing the parties’ net family properties would be unconscionable the court took into consideration not only the fact that the equalization payment exceeded Mr. Serra’s total net worth post-separation but also factors such as Mr. Serra’s lack of control over market conditions, the impact of an asset-preservation Order and Mr. Serra’s need to continue funding his support obligations. The court also considered the wife’s financial circumstances and commented that the trial judge found that Mrs. Serra had been very well compensated for her contributions to the business during the marriage. [11]
[16] In Kean v. Clausi [12] one of the trial issues involved a wife’s claim that it would be unconscionable to equalize the parties’ net family properties. The parties had refinanced, and increased, a mortgage on the matrimonial home and opened an investment account in the wife’s name alone at the husband’s instigation to invest in high-risk investments. The husband worked as an investment banker and legal counsel for investment firms and planned to use the mortgage proceeds to invest in dividend-paying stocks to fund the mortgage and tax-deduct the interest costs. The husband made all the investment decisions with respect to the account and wholly controlled it before the parties separated. Post-separation, the value of the account declined due to market-driven reasons. Following Serra, Mossip J. held that the nature of the account and the manner in which it was managed led her to conclude that since it was for the benefit of the family then the parties should equally share the decrease in value. [13]
[17] The difference between Serra and Kean and this case is that the impact of the market-driven declines in asset values post-separation was tested at trial and did not involve, as here, post-trial events, the temporary or long-term consequences of which cannot be reliably predicted at this time. In their submissions the parties renewed, among other things, their trial complaints about the other’s life style, the wealth of the other’s parents and they disputed whether there had been any decline in the value of the wife’s Ontario realty. The husband tendered an Opinion of Value for the wife’s condominium prepared by a local realtor: the wife countered with a single-sheet critique of the comparable properties upon which the husband’s opinion was based that had been prepared by another realtor. Given this court’s observations about each of the party’s credibility on financial matters, few of the parties’ submissions were of assistance. The court’s direction to the parties to consider the issue of unequal division was not an opportunity for the parties after judgment on the other trial issues to reargue their case.
[18] While I have every reason to suspect that the current pandemic is having, and may for the foreseeable future have, an impact on the wife’s business and possibly the value of her realty, I am not persuaded that she has met the exceptionally high evidentiary onus for unconscionability required by s. 5(6)(h) of the Act.
Remedy
[19] In Serra the court held that once the “unconscionability” threshold is crossed, a court should exercise its discretion fairly and equitably according to the circumstances of the case. [14] Where s. 5(6)(e) has been found to apply, a mathematical formula, such as prorating the presumptive equalization payment to the period of cohabitation less than five years “may be helpful in some cases” but should not displace a broader consideration of the factors linking the parties’ marital contributions to the property giving rise to the equalization payment. [15]
[20] A common theme in this case has been the family-driven nature of the assets brought by each of the party’s parents to their net worth when they married and the increase in their respective net worth during cohabitation having nothing to do with their marital relationship. Had the wife never owned realty in Sri Lanka or had it not appreciated in value during the period of the parties’ cohabitation (almost 42%) and had there been no increase in the value of the husband’s business interests (regardless of the gifted JLI shares) during the same period of time, the wife would have owed the husband an equalization payment of $31,731.97, mostly as a result of the increase in her savings.
[21] In the Reasons for Decision, reference was made to the wife’s non-financial, physical contributions to LL, which was wholly owned by the husband’s family, for which she was never compensated over a two-year period. To borrow the expression used in Karkulowski, the wife more than “pulled her weight”. This merits consideration too.
[22] Taking into account the factors set out in [13] above, and acknowledging that, in some cases, use of a formula may be helpful, it would be fair and equitable in my view that the wife make an equalization payment to the husband in the amount of $9,500. This represents the actual period of cohabitation (e.g. thirty-six months) as a percentage of the statutory five-year period (i.e. 36/60 = 60%) then divided in half to recognize the wife’s contributions to LL, rounded. So ordered.
Costs
[23] If the parties are unable to resolve the costs of these proceeding by August 7, 2020 the following is ordered:
(a) The wife shall deliver her submissions by August 14, 2020; (b) The husband shall deliver his submissions by August 18, 2020; (c) Reply (if any) from the wife by August 21, 2020; (d) Submissions shall be single page, double-spaced and, in the case of (a) and (b) above, limited to four pages: reply is limited to two pages. They shall form part of the Continuing Record; (e) Counsel are to advise the Judicial Assistant (Meghan.Billings@ontario.ca) when they have filed their submissions; (f) Offers to Settle, Bills of Costs and any authorities upon which a party may wish to rely shall be filed by the deadlines above but not form part of the Continuing Record.
[24] In the circumstances of the COVID-19 emergency, this Order is operative and enforceable immediately without any need for a signed or entered, formal, typed Order. The parties may submit a formal Order for signing and entry once the court re-opens.
Justice David A. Jarvis Date: July 22, 2020
Footnotes
[1] Jayawickrema v. Jayawickrema, 2020 ONSC 2492. [2] Jayawickrema v. Jayawickrema, 2020 ONSC 2848. [3] Serra v. Serra, 2009 ONCA 105. [4] Family Law Act, R.S.O. 1990, c. F.3, as am. [5] Gomez v. McHale, 2016 ONCA 318, 2016 CarswellOnt 6751, 79 R.F.L. (7th) 305 (Ont. C.A.): see also Dovicin v. Dovicin, 2002 ONSC 49522, 2002 CarswellOnt 1745, 29 R.F.L. (5th) 281 (Ont. S.C.J.). [6] Paragraph 1 of the husband’s factum. [7] While the comparison may be viewed as inapt, the point is that each of these asset classes was unrelated to anything to do with the parties’ marital relationship. [8] Moghini v. Dashti, 2016 ONSC 2580, at para. 43; affirmed, Dashti v. Moghini, 2017 ONCA 1018. [9] Karkulowski v. Karkulowski, 2015 ONSC 1057. [10] Supra note 3, at para. 66. [11] Supra note 3, at para. 67. [12] Kean v. Clausi, 2010 ONSC 2583. [13] Ibid, para. 17. [14] Supra note 3, at para. 71. [15] Supra note 5, at para. 12.