Supreme Court of Canada -Family law - Divorce - Family assets - Division of contingent liability

Stein v. Stein. 2008 SCC 35 was released this morning. Though arising in BC its reasoning has relevance in Ontario.

The husband and wife separated in 2003 after 12 years of marriage during which the wife remained home to care for the parties' two children. In the ensuing divorce action, family assets worth $1.7 million were divided equally, and the wife was awarded support based on the husband's income of over $200,000 per annum. The trial judge also ordered that the husband's contingent tax liabilities associated with his tax shelters, the extent and timing of which are unknown, should be shared equally by the spouses on an if and when basis, since they both benefited from them. The Court of Appeal set aside this order on the ground that the British Columbia Family Relations Act (FRA) precluded the creation of a freestanding order apportioning debt between the spouses, and ordered that the husband would be solely responsible for the contingent liability.

Held (Abella J. dissenting): The appeal should be allowed.

Per McLachlin C.J. and Bastarache, LeBel, Deschamps, Fish and Rothstein JJ.: The fact that a reapportionment will occur at some stage in the future, after the liability has crystallized, does not necessarily involve the creation of a freestanding order, nor does it violate a plain reading of the FRA. Nothing in the FRA precludes an order dividing between spouses a contingent liability which can not be valued at the time of trial. Although it is clear that debt is not to be divided between spouses, the FRA places no temporal limits on a division of assets, and once subject to an initial division, s. 66 allows a court to make orders requiring a spouse to pay compensation to the other spouse for the purpose of adjusting the division of assets at any time. Further, while s. 65 permits a court to vary the presumptive fifty percent asset division where it would be unfair, having regard to the factors enumerated in s. 65(1), including the liabilities of a spouse, none of the other factors militate in this case in favour of requiring only one of these parties to bear responsibility for those liabilities. Moreover, fairness requires that both assets and debts, even those that cannot be precisely valued at the time of separation, be considered upon the breakdown of a marriage, in recognition that spouses jointly contribute to not only the accumulation of assets, but also to debts incurred for familyrelated costs. Since the trial judge found that both parties obtained significant assets and were financially stable after the division of assets, and that the wife would soon be selfsufficient, fairness requires both spouses to assume responsibility for contingent liabilities associated with tax shelters from which they have each derived benefit, notwithstanding that the husband may be better positioned to remain economically independent in the event that the taxes become payable. However, in the event that the impact of the future liability on one of the parties results in an unfairness, that individual may to apply to the court for adjustments.

Per Abella J. (dissenting): The trial judge's order is a freestanding obligation, if and when it becomes due, inappropriately made outside and subsequent to the division of assets. It is manifestly unfair to the wife within the meaning of s. 65 of the FRA, since it disregards the dramatic disparity in the financial circumstances, sophistication, and experience of the spouse. The trial judge failed to take account of the economic consequences of the division of labour in the parties' household, including the wife's absence from the paid workforce for 12 years, as required by the FRA. Further, he failed to recognize that despite having retrained as a film animator following separation, her prospects were far from certain. In contrast, the husband's ample earnings, financial capacity, and business experience placed him in a far better position than the wife to accommodate a potential tax liability. Courts should strive to avoid undermining the goal of attempting to preserve an economic equilibrium between the resulting household. Here, the equal application of a potentially substantial contingent tax burden creates a genuine risk that the wife's and the children's standard of living will be significantly lower than that of the husband and unfairly interferes with her ability to make personal and financial decisions for herself and the children with a sufficient degree of certainty and security.
James Morton
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