WestlawNext Canada insight Blog

Digest of the Week — Family Law: Valuation of Debt Discharged in Bankruptcy

Zavarella v. Zavarella 
2013 CarswellOnt 16187  
Ontario Court of Appeal


Family law | Division of family property | Factors affecting equal or unequal division | Debts | Debts brought into marriage

Parties married August 21, 1994, separated on July 30, 2009 and divorced August 5, 2011 — Two weeks before marriage wife made assignment into bankruptcy with husband's knowledge and consent — Wife received discharge without having made any payment on debt — Trial judge held that wife had to include debt as her date of marriage debt — Before trial parties entered into agreement that settled number of matters, including vehicle wife drove at time of marriage — It became apparent at trial that wife was leasing car and did not own it and that parties were operating under misapprehension that wife owned car and that common mistake as to fundamental fact made agreement voidable — Trial judge removed value of $10,000 parties had attributed to car from wife's date of marriage assets — Trial judge found that husband's pre-marriage debt was $30,000 — Trial judge found that wife had withdrawn $27,662 more than what was needed for family expenses from line of credit and amount had been used for business expenses — Wife appealed — Appeal allowed in part — Court had to make meaningful determination of value to attribute to date of marriage debt and debt was to be valued based on reasonable likelihood that debt would be paid — Debt here had been extinguished without any payments ever having been made and trial judge erred in attributing any value to wife's date of marriage debt — Wife's date of marriage debt should be fixed at $0 for purposes of net family property calculation — Trial judge erred in going behind parties' agreement in respect of car — Trial judge failed to respect important policy reasons for enforcing pre-trial settlements — Husband could not have successfully invoked doctrine of common mistake, as mistake about car did not go to root of agreement — Husband would not be able to discharge burden on him to show that mistake as to ownership of car was not his fault, as both parties bore responsibility for mistaken assumption — Wife was permitted to maintain $10,000 in respect of car in date of marriage assets — Trial judge did not make palpable and overriding error in valuing husband's date of marriage debt — Trial judge did not make palpable and overriding error in finding of fact that wife used $27,662 to pay for business expenses.


Held: The appeal was allowed in part.

Per Gillese J.A. (Strathy J.A. concurring): Valuation of the debt related to equalization, which was mandated by s. 5 of the Family Law Act. Section 5 provided that spouses were to share equally in any increase in the value of family property between marriage and separation. When the marriage ended, the spouse with the lesser net family property was entitled to an equalization payment. In order to determine the amount of the equalization payment, the court must consider each spouse's net family property. A debt a spouse brought into the marriage would affect their entitlement in the calculation of the equalization payment based on the assumption that the spouses paid off the debt during the marriage and the family assets were accordingly diminished. However, if the evidence did not support that assumption then the court could not insert the face value of the debt into the net family property calculation, as that would undermine the objective of equalization. The court had to make a meaningful determination of the value to attribute to the date of marriage debt. The debt was to be valued based on the reasonable likelihood that the debt would be paid.

The evidence showed that the debt had been extinguished without any payments ever having been made on it. The trial judge erred in attributing any value to the wife's date of marriage debt. The wife's date of marriage debt should be fixed at $0 for the purposes of the net family property calculation. The trial judge erred in going behind the parties' agreement in respect of the car. The trial judge had to consider the agreement as a whole in ruling on the car and he erred in only considering the part of the agreement that related to the car. It was not open to the husband to withdraw his consent to a single term of the agreement. If the husband wanted to challenge the validity of the concession he made about the car then he had to challenge the validity of the agreement as a whole. The trial judge failed to respect the important policy reasons for enforcing pre-trial settlements. Considerations of fairness and finality and the need to encourage parties to settle their affairs with confidence that their settlement would not lightly be interfered with favoured enforcing the agreement.

In any event, the husband could not have successfully invoked the doctrine of common mistake. The mistake about the car did not go to the root of the agreement. The mistaken assumption about the car did not change the subject matter of the agreement so that it became something essentially different from what it was believed to be. The essential nature of the agreement remained the same. The husband would not be able to discharge the burden on him to show that the mistake as to ownership of the car was not his fault. It was inadvertence that caused the matter to be missed. The husband's concession was made within the context of full disclosure that showed the true state of affairs in respect of the car and good faith negotiations. Both parties bore responsibility for the mistaken assumption. The wife was permitted to maintain $10,000 in respect of the car in her date of marriage assets.

The trial judge did not err in valuing the husband's date of marriage debt. The trial judge was faced with conflicting evidence and accepted the husband's testimony. The trial judge was alive to the principle that each party bore the onus of proving his or her assets and debts at the date of the marriage. The trial judge did not impermissibly shift the burden to the wife to disprove the husband's proposed figure of his date of marriage debt. The trial judge did not make a palpable and overriding error.

The trial judge's finding of fact that the wife used $27,662 from the line of credit to pay for her business expenses was owed deference. The wife had not demonstrated that the trial judge made a palpable and overriding error.

Per Juriansz J.A. (dissenting): The Family Law Act (Act) created a rigid formula for dividing property on marriage breakdown. The legislature chose the formulaic approach over the judicial discretion approach and that choice necessarily entailed that the strict application of the rules might lead to a different result from what a court might order.

There was no suggestion in the Act formula that certain debts would not be included in the net family property calculation. Section 4 of the Act did not contemplate characterizing particular liquidated debts as real or illusory and it did not mention the possibility of discounting them. The principle that the court had the discretion to determine, for the purposes of net family property, a liquidated debt's true value while disregarding its face value, could apply to many kinds of debts. That would lead to uncertainty and unpredictability and would undermine the certainty and predictability of the statutory equalization formula.

The correct approach was to apply the computations set out in s. 4(1) of the Act and let the chips fall where they may. The definition of net family property in s. 4(1) clearly provided that the spouse's debts calculated as of the date of the marriage must be deducted. As of the date of the marriage the wife had debts of $49,838.70, which were actual, liquidated debts. The wife's application for an assignment in bankruptcy prior to the marriage did not change the legal character of her debts. The discharge was granted during the marriage and should be treated like any other financial benefit that was received by one spouse during the marriage to be shared equally. No significance was attached to the fact that the wife eventually received a discharge without making any payment on the debt. The trial judge correctly included the debts the wife owed at the date of the marriage in her date of marriage debts. The result did not shock the conscience of the court. The appeal with respect to the car should be dismissed due to the state of the record. The wife did not file in the appeal record any settlement agreement that she relied upon.


For further discussion of this case, see Epstein's This Week in Family Law 2014-06 on WestlawNext Canada  or  Westlaw Canada

© Copyright WestlawNext Canada, Thomson Reuters Canada Limited. All rights reserved.