Can the Equalization of Net Family Property be found to be unconscionable?

Pursuant to ss. 5(1) of the Family Law Act (FLA), the spouse whose Net Family Property (NFP) (fixed as at date of separation) is the lesser of the two NFPs is entitled to one-half the difference between them. This formula is the equalization of the spouses' net family properties.

It is often argued that equalization of the parties’ NFP is unconscionable in the circumstances of the case. Reliance is based upon sub-section 5(6)(h) of the FLA and the decision of Serra v. Serra.

The applicable provision in the statute permits an award that is more or less than half the difference between the parties' NFPs, "if the court is of the opinion that equalizing the net family properties would be unconscionable having regard to, (h) a circumstance relating to the acquisition, disposition, preservation, maintenance or improvement of property."

A court may take into account a post-separation date change in the value of a spouse's assets, and the circumstances surrounding such a change, for purposes of determining under s. 5(6) of the Family Law Act whether equalizing net family properties would be unconscionable.

The court in Serra emphasised that the threshold of unconscionability under s. 5(6) is "exceptionally high", and that, circumstances which are "unfair", "harsh" or "unjust" alone do not meet the test. The circumstances must "shock the conscience of the court".

In Serra the circumstances included a significant market-driven downturn in the textile industry, the steep decline of the value of the payor’s shares from V-day (date of separation) to trial, the high interim payments the payor was required to make to the recipient pending trial and the resultant NFP equalization which required a payment that exceeded the payor’s total net worth - arguably by as much as twice the payor’s total net worth. In these circumstances, where the payor had "absolutely no control over the decline" and was required to keep the business running despite the downturn in the face of recipient’s trust claims against the business, the court held that equalization would be unconscionable and adjusted the equalization for the parties’ NFP accordingly.

April 2015