Is that Property Properly Excluded?

division_of_property

Generally, following a separation, each spouse is required to account for his/her net family property (i.e. assets, debts, liabilities) with certain property being excluded from the calculation. The courts then equalize the parties’ net family properties, with the spouse who has a lower net family property being entitled to one-half of the difference between the two net family properties.

In the 2015, Ontario Court of Appeal case of Cortina v. Cortina (2015 ONCA 750), the husband and wife were involved in a dispute over custody and access of their children, child support, and equalization of family property.

The trial judge had ordered that certain property be excluded from the husband’s net family property for the purpose of calculating the equalization payment on the basis that it fit within subsection 4(2) of the of the Family Law Act. That section reads:

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:

Excluded property

 

(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:

 

1. Property, other than a matrimonial home, that was acquired by gift or inheritance from a third person after the date of the marriage.

 

 

5. Property, other than a matrimonial home, into which property referred to in paragraphs 1 to 4 can be traced.

 

Onus of proof re deductions and exclusions

 

(3) The onus of proving a deduction under the definition of “net family property” or an exclusion under subsection (2) is on the person claiming it.

This husband in this case was holding $122,762 in his investment account. The funds had been gifted by the husband’s mother. The issue on appeal was whether they were properly excluded from the husband’s net family property – disentitling the wife to any benefit of these monies.

It was undisputed that the monies were deposited first into a joint account in the names of the husband and wife jointly, and then were transferred to the husband’s investment account, where they continued to grow for a period of about five years before the separation. This begged the issue of tracing.

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Section 14 of the Family Law Act states that “the fact that property is held in the name of spouses as joint tenants is proof, in the absence of evidence to the contrary, that the spouses are intended to own the property as joint tenants”.

On a plain reading, sections 4(2) and 14 of the Family Law Act contradict in these circumstances. Should the monies be excluded once they are joint or can they be traced?

The wife, in her appeal, argued that the funds were intended as a gift to both parties, or in the alternative that the monies once deposited into the parties’ joint bank account lost their character as a gift/inheritance (i.e. with comingling of assets they could not be traced).

The Ontario Court of Appeal noted there was ample evidence to support the finding that the husband’s mother intended the monies to go to the husband alone (as well as other amounts to his siblings). The appeal court was then left to grapple with the tracing issue. Could the exclusion still apply if the monies were co-mingled with joint funds? With respect to this issue, the appeal court accepted the trial court’s finding that there was sufficient evidence in this case to rebut the presumption that the property held in the name of both spouses was intended to be joint.

Ultimately, the exclusion was not lost simply because the respondent had “parked” the monies in the parties’ joint account prior to transferring them to his investment account.

If the husband in this case had left the monies in the account, had used them to pay debts or fund family assets, the exclusion would be lost. What is clear is whether an exclusion will or will not apply is fact-specific, and the law is always evolving to the changing circumstances of each case.

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