THE NEED TO REFORM THE DIVISION OF

PROPERTY PROVISIONS IN THE FAMILY LAW ACT

Alexandra S. Raphael*
1. Introduction
The first Canadian divorce legislation was enacted by the federal
legislature in 1968.' In 1986, the Divorce Act was amended to provide for no fault divorce.'
Because of constitutional considerations, federal legislation on
divorce encompasses only dissolution of marriage, spousal and
child support. Division of property consequent on divorce or legal
separation is dealt with in provincial legislation. The first provincial
legislation dealing with division of property in the family law context was the Family Law Reform Act (S.O. 1975, c. 41), enacted in
1975. Revisions to this legislation were made in 1978,1 and again in
1986. 4 The distinction made in the 1978 legislation between family
and non-family assets was dropped in the 1986 revisions.
Accordingly, since 1986, all property owned by either spouse is subject to division on divorce or separation.
In the 13 years of experience that Ontario courts have had with
this legislation, certain deficiencies have become apparent. This
article identifies some of these deficiencies.
Ms Raphael practices in the Office of Legal Services, Ontario Ministry of Finance,
where she works primarily in the area of government finance. Prior to joining the
Ministry of Finance in 1993, Ms Raphael practiced with the Ontario Securities
Commission and as a partner in the Toronto firm of Shibley, Righton. This article
evaluates the division of property provisions in the Family Law Act against other
creditor protection statutes and concludes that the Family Law Act provisions fall
short.
The views expressed in this article are personal and do not reflect the views of the
Ontario Ministry of Finance or the views of the Ontario Ministry of the Attorney
General.
1. Divorce Act, S.C. 1967-68, c. 24, s. I.
2. Divorce Act, S.C. 1986, c. 4.
3. Family Law Reform Act, 1978, S.O. 1978, c. 2.
4. Family Law Act, 1986, S.O. 1986, c. 4.
*

380

1999]

Division of Property in the Family Law Act 381

2.

Thesis

It is the thesis of this article that separating spouses are in effect

creditors of one another in respect of the settlement of their financial affairs at the date of their separation. In this respect, separation
is an event similar to bankruptcy. (In this context, separation refers
to the time at which the spouses cease to live together, whether or
not this physical separation is preceded or followed by a divorce.)
If separating spouses do in fact stand in the relationship of creditors vis-4-vis one another, then it follows that the Family Law Act
should be amended to recognize the principle that separating
spouses must conduct themselves in such a way, in the period
immediately preceding and following separation, that the value of
their respective property is maintained until a division is actually
made either by agreement or court order. It is not enough that the
statute stipulates, as it currently does, that the value of the property
be determined as of the date of separation.
Because the Family Law Act does not currently contain any provisions imposing a duty on spouses to preserve and protect the value
of their respective property interests until a legal determination of
their property rights is made, the legal process often follows the separation at such a distance in time that the rights of one of the parties
has been irreversibly impaired. For instance, since separating
spouses have no duty to protect their respective property interests in
the matrimonial home, the spouse who leaves the marriage can
cease paying the mortgage on the matrimonial home, thereby making it financially impossible for the spouse remaining in the home to
maintain the mortgage payments.' In this type of situation, the
spouse remaining in the home is under severe financial pressure
and, therefore, in a poor position to insist on full disclosure and a
complete valuation of the other spouse's property interests. In fact,
a spouse in such a position may agree to a sale of the matrimonial
home on the basis of an equal division of the equity in the home,
without ever considering if an equal division of the equity in the
home is equivalent to an equal division of all of the property owned
by both spouses.' This type of settlement is, at the very least, ill5. See Knudsen v. Knudsen (1998), 37 O.R. (3d) 676 (Ont. Ct. (Gen. Div.)), a case
involving foreclosure proceedings in this type of situation.
6. See the recent Ontario Court of Appeal decision in Francis v. Baker (1998), 157
D.L.R. (4th) 1, 38 O.R. (3d) 481, 107 O.A.C. 161 (C.A.), released by the court on
March 10, 1998 for an example of this type of situation. Notwithstanding that the

382 Advocates Quarterly

[Vol. 21

advised for a lower income-earning spouse with little capital, and it

is not in the interests of any minor children of the marriage since it
is likely the custodial parent who is forced out of the matrimonial
home as a result of this hastily reached agreement.
In order to ensure that the children of separating spouses are not
thrust into this type of situation, the Family Law Act should be
amended to provide that separating spouses have a duty to preserve
their respective property interests in the period between separation
and the signing of a separation agreement or the granting of a
divorce. Furthermore, in order to ensure that separating spouses are
able to fulfil their financial responsibilities to one another and to
their children, the Act should be amended to provide that neither
parent can assume new financial obligations or divert income to
non-family purposes if the result would be to impair the ability of
that parent to maintain the matrimonial home pending a legal resolution of the spouses' financial affairs.'
3.

Discussion: Comparison of Creditor Protection Provisions

under the Family Law Act and the Bankruptcy Act

(1)

Definition of Property

Family Law Act, s. 4(l):

"property" means any interest, present or future, vested or contingent, in real or personal property and includes,
(a) property over which a spouse has, alone or in conjunction
with another person, a power of appointment exercisable in
favour of himself or herself;
(b) property disposed of by a spouse but over which the spouse
has, alone or in conjunction with another person, a power to
husband had a net worth of $78 million while the wife's only asset was the commuted value of her teacher's pension (both figures provided at the date of trial), the
wife had entered into a separation agreement which provided that she would receive
$30,000 as her share of the matrimonial home as well as ownership of her car, in
settlement of her property claims. The separation agreement was signed in
December, 1985, six months after the husband left his wife and their two children,
then aged 18 months and 5 days. The parties divorced in 1987. The Court of Appeal
decision followed a lengthy course of litigation, commencing with the wife's application in 1988 to have the separation agreement set aside on the basis of duress and
lack of financial disclosure by the husband.
7. See the author's submission to the Joint Senate Commons Committee on Access
and Custody presented on April 1, 1998.
8. R.S.C. 1985, c. B-3, as amended.

1999]

Division of Property in the Family Law Act 383

revoke the disposition or a power to consume or dispose of

the property, and
(c) in the case of a spouse's rights under a pension plan that
have vested, the spouse's interest in the plan including contributions made by other persons;
Bankruptcy Act, s. 2:
"property" includes money, goods, things in action, land and every
description of property whether real or personal, legal or equitable, and whether situated in Canada or elsewhere, and includes
obligations, easements and every description of estate, interest
and profit, present or future, vested or contingent, in, arising out
of or incident to property;
These definitions of property are similar, although the
Bankruptcy Act definition is possibly a little broader. However, the
more significant difference in the comprehensiveness of "property"
under the Family Law Act and the Bankruptcy Act can be found later
in the Bankruptcy Act under Part IV, Property of the Bankrupt.
Section 67(1) provides certain exclusions to the property of a bankrupt divisible among his or her creditors. Among these exclusions is
property which would be exempt from execution or seizure, which
presumably includes salary and wages. However, s. 68(1) then provides that notwithstanding s. 67(1), a trustee may make application
to a court for an order directing payment to the trustee of salary,
wages or other remuneration, having regard to the family responsibilities and personal situation of the bankrupt.
Accordingly, the salary, wages or other remuneration due a bankrupt may be included in his or her estate if the trustee obtains a
direction to that effect from the court. No similar provision is found
in the Family Law Act and, accordingly, the respective income of
separating spouses is not subject to inclusion as "property". This
means that in contrast to a bankruptcy situation where the trustee
may apply the income of the bankrupt to the maintenance of the
bankrupt's business and property9 pending division of the estate
among the bankrupt's creditors, the Family Law Act does not specifically recognize that the income of separating spouses should be
used for this purpose. Although a support order which requires one
spouse to pay part of his or her income for the support of the other

9. Bankruptcy Act, s. 30(!)(c), (h), (i).

384

Advocates Quarterly

[Vol. 21

spouse and the children of the marriage may in effect accomplish a

similar result, the legal basis for a support order is not the same as
the legal basis for an order directing that income be used for the
preservation of property. Absent a specific provision in the Family
Law Act recognizing that the respective incomes of separating
spouses should be used to preserve and maintain their property until
it can be divided, it is difficult to maintain that separating spouses
have a responsibility to one another to maintain their property and
protect its value. Clearly, this is an oversight in the statute. If the
property of separating or divorcing spouses is to be equally divided,
its value must be preserved until it is divided.
(2)

Definition of Debt or Liability

The definition of the terms "debt" and "liability" are important

under both the Family Law Act and the Bankruptcy Act. These definitions are important under the Family Law Act since the legislation
provides that it is a spouse's "net family property", meaning the
value of all property less the value of all debts and liabilities,"0 which
is to be divided. Likewise, the definitions are important under the
Bankruptcy Act because the bankrupt's estate is reduced by the
value of debts and liabilities that must be settled by the estate. In
other words, to the extent that both statutes deal with the division of
an estate, either the estate of a spouse or that of a bankrupt, the value
of the estate to be divided is reduced by the debts and liabilities
payable by the estate. It is therefore not surprising that under both
statutes the onus of proving that a debt or liability is properly
payable by the estate from which it is claimed is on the party claiming the deduction."
Given the importance of the determination of what constitutes a
"debt" or "liability" under the Family Law Act, the absence of a definition of either term in the statute is problematic. This difficulty is
compounded by the lack of case law describing in generic terms the
types of debts and liabilities that may properly be claimed in reduction of the value of a spouse's estate. The case law that does exist
deals primarily with the issue of whether the taxes payable on the
disposition of assets should be taken into account in valuing such

10. Family Law Act, s. 4(1).

11. Family Law Act, s. 4(3); Bankruptcy Act, s. 124.

1999]

Division of Property in the Family Law Act 385

assets. This case law is not particularly helpful since the decisions
generally turn on valuation and accounting issues.
In contrast, s. 121(1) of the Bankruptcy Act, while it does not
define the terms "debt" and "liability", contains some guidance as to
the types of claims that will be allowed against the bankrupt's
estate:
(1) All debts and liabilities, present or future, to which the bankrupt is subject on the day on which the bankrupt becomes a bankrupt or to which the bankrupt may become subject before the bankrupt's discharge by reason of any
obligation incurred before the day on which the bankrupt becomes bankrupt
shall be deemed to be claims provable in proceedings under this Act.

This statutory language has been interpreted in a large and varied

case law. A succinct statement of the legal principles applicable to
the question is contained in Farm Credit Corp. v. Holowach
(Trustee oft:'"
In our view a provable claim must be one recoverable by legal process. In
Reference re Debt Adjustment Act, 1937 (Alberta), 1943 2 D.L.R. 1 at p. 11,
[1943] 1 W.W.R. 378, the Privy Council said:
In England it has always been held that, subject to the statutory exceptions as
to debts payable at some certain future time, the petitioning creditor's debt
and the debts provable must be debts recoverable by legal process. For example a debt barred by the Statute of Limitations is not a debt on which a bankruptcy petition can be presented, nor is it one provable in bankruptcy... The
Dominion Act is very similar to the English Bankruptcy Acts so far as those
matters are concerned and there appears to be no reason for thinking that a
similar principle would not be applied in Canada to the words 'debt due'.

The lack of case law that would constitute jurisprudence on the

types of debts and liabilities that may be claimed in reduction of a
spouse's estate is regrettable, given the importance of this issue. The
lack of precedents in this area is probably due to two circumstances.
First, the determination of the value of a spouse's estate for the
purposes of division in matrimonial proceedings is an inter partes
12. McPherson v. McPherson (1988), 13 R.F.L. (3d) 1 (C.A.); Kelly v. Kelly (1986), 2
R.F.L. (3d) 1 (Ont. H.C.); Dibbley v. Dibble)' (1986), 5 R.F.L. (3d) 381 (Ont.
H.C.J.); Heon v. Heon (1989), 22 R.F.L. (3d) 273, 69 O.R. (2d) 758, 34 E.T.R. 252
(Ont. H.C.J.), supp. reasons 70 O.R. (2d) 781, 23 R.F.L. (3d) 408; Starkman v.
Starkman (1990), 28 R.F.L. (3d) 208, 73 D.L.R. (4th) 746, 75 O.R. (2d) 19 (C.A.);
Sengmueller v. Sengmueller (1994), 2 R.F.L. (4th) 232, 111 D.L.R. (4th) 19, 17
O.R. (3d) 208 (C.A.).
13. 51 D.L.R. (4th) 501, at p. 504, [1998] 5 W.W.R. 87, 59 Alta. L.R. (2d) 279 (C.A.),
leave to appeal to S.C.C. refused 60 D.L.R. (4th) vii, [1989] 1 S.C.R. viii.

386 Advocates Quarterly

[Vol. 21

proceeding." As it determines the rights as between the separating

spouses and very rarely has any impact on the rights of other creditors, there is not as much at stake in these proceedings in terms of
different interests as is the case in bankruptcy and insolvency litigation. If a commercial creditor's rights might be prejudiced in favour
of the interests of a spouse,'5 there might be lengthier and more complex litigation leading to more reported decisions determining
which claims by creditors could be claimed in reduction of the value
of a spouse's estate.
Second, matrimonial litigation is costly and the absence of commercial litigants reduces the likelihood that the litigation will proceed to trial. In addition, where property is involved, it is generally
owned by one rather than both spouses, leading to an imbalance of
power between the litigants and a short unequal contest leading to
settlement rather than trial.
The lack of jurisprudence on the issue of what debts and liabilities may properly be claimed as deductions to the value of a
spouse's esiate has important practical consequences. Put simply,
the easiest way for a propertied spouse to escape a marriage financially unscathed is to claim that the value of the property owned is
fully offset by debts and liabilities. The desirability of this situation
from the financial perspective of the propertied spouse and the lack
of any jurisprudence to control the inclination of propertied spouses
to reduce their net family property to nil is an unfortunate combination of incentives for bad matrimonial accounting practice.
For instance, it is apparently not uncommon for a spouse who
draws income from a professional practice to claim as a deduction
from the value of his or her property at the date of separation the
income tax payable at a date subsequent to separation because the
spouse's professional practice has a deferred year end. This practice
would appear to be questionable for two reasons. First, income tax
is an expense to be set off against income rather than a liability to
14. See the case comment of James G.McLeod that precedes the reported decision in
Nevarc Holdings Ltd. v. Orchid Communications Inc. (1990), 28 R.F.L. (3d) 330
(Ont. Ct. (Gen. Div.)): "Matrimonial problems are private in nature and creditors
may have no knowledge of any proceedings until it is too late to protect themselves. Nevarc accepts that unless the legislation otherwise directs, the orders and
proceedings should be treated as in personam so as not to defeat bona fide third
party rights .. ".
15. See Pirnerv. Pirner(1997), 34 O.R. (3d) 387 (Ont. Ct. (Gen. Div.)) for a situation
involving an attempt by a wife to register notice of her interest against property
conveyed to third parties by her husband subsequent to their separation.

1999]

Division of Property in the Family Law Act 387

be claimed against assets, unless it was payable for a prior period

and was not paid. Secondly, there is no reason that the spouse in the
professional practice is required to collapse his or her deferred year
end for the purposes of division of assets, on separation. 6 Although
deferred year ends for professionals are gradually being phased out,
a deferral will still be available to some professionals for another
seven years."
(3)

Preservation of Property Provisions

Under s. 7(1) of the Family Law Act, a spouse or former spouse

may apply to the court for a determination of his or her property
rights under the statute. The application cannot be brought until
after the earliest of two years after the marriage is terminated by
divorce or six years after the spouses separate." s In connection with
this application, s. 12 provides as follows:
In an application under section 7 or 10, if the court considers it necessary for
the protection of the other spouse's interests under this Part, the court may make
an interim or final order,
(a) restraining the depletion of a spouse's property; and
(b) for the possession, delivering up, safekeeping and preservation of the
property.

Under s. 71(2) of the Bankruptcy Act, on the making of a receiving order or the filing of an assignment, the property of the bankrupt
is automatically vested in the trustee in bankruptcy, thereby effectively preventing the bankrupt from depleting the property:
On a receiving order being made or an assignment being filed with an official receiver, a bankrupt ceases to have any capacity to dispose of or otherwise
deal with his property, which shall, subject to this Act and to the rights of
secured creditors, forthwith pass to and vest in the trustee named in the receiving order or assignment, and in any case of change of trustee the property shall
pass from trustee to trustee without any conveyance, assignment or transfer.
16. See Chapter 13 "Partnership and Professional Income" in Scace and Ewens, The
Income Tax Law of Canada, 5th ed. (Scarborough, Ont.: Carswell Legal
Publications, 1983), p. 330.
17. The 1995 Federal Budget announced changes to the Income Tax Act (Canada) that
eliminated the ability of professionals and other unincorporated business owners
from using an off-calendar year to achieve the tax deferral of income. Individuals
are allowed to stagger the payment of taxes which became payable as a result of
this amendment, over the period 1995 to 2004. See KPMG Canadian Tax Letter
for November, 1995 and Carswell Tax Partner, Release 15 for November, 1995.
18. Family Law Act, s. 7(3).

388 Advocates Quarterly

[Vol. 21

Clearly, the protection afforded property under the Bankruptcy

Act is much broader than that provided under the Family Law Act.
In the first place, no protection is available under the Family Law
Act except on application. Further, its protection restrains only
"depletion of property". It is not clear whether depletion encompasses only the disposition of property or whether it would include
the granting of encumbrances against the property or even the creation of unsecured debt that might ultimately expose the property to
seizure by creditors.
The little case law that exists on the interpretation of this section
shows that it has been interpreted narrowly. In Lasch v. Lasch,'9 the
court held that a restraining order issued under s. 12 did not prevent
a husband from selling a piece of real estate, the acquisition of
which was financed by a line of credit registered against the matrimonial home. The wife contended that the order should have prevented the sale and that the sale having been made, the husband
should be required to use the proceeds of the sale to pay off the line
of credit registered against the matrimonial home. The husband
wished to use the proceeds of the sale to purchase another home.
The order was worded broadly and provided that the assets owned
by both spouses should be "preserved". Granger J. based his decision
on the jurisdiction of the master to issue the order and accordingly
read into the order the limitations he found necessary given the master's jurisdiction. Granger J. reasoned that as the master did not have
the jurisdiction to issue an injunctive order, the order should be interpreted as requiring both spouses to account for their assets at trial. He
then went on to say that, given the history of the litigants, such an
order was of little utility because the assets might be disposed of in
the interim. Accordingly, Granger J. ordered that the husband be
allowed to purchase another home with the disputed proceeds of the
sale but that he be required to place a mortgage on his new home in
an amount equivalent to the line of credit on the matrimonial home.
The practical result of this decision was therefore that the line of credit
registered against the matrimonial home was replaced by a mortgage
in the same amount on the husband's new home.
Although this decision was ultimately favourable to the wife, it
raises a number of questions about whether her interests were adequately served in this judgment. First, as the restraining order was
issued in 1988 at a time when all assets owned by spouses were sub19. (1988), 13 R.F.L. (3d) 434, 64 O.R. (2d) 464 (H.C.J.).

1999]

Division of Property in the Family Law Act

389

ject to equalization, it is not clear why the litigation was restricted

to the wife's interests in the matrimonial home. Was she not entitled
to an interest in the real estate that the husband sold, quite apart from
the financing for this real estate which was secured by an encumbrance on the matrimonial home? Second, because Granger J. determined that the master had no jurisdiction to provide injunctive
relief, the restraining order was found to provide no protection to the
wife's property interests.
Setting aside those parts of the decision dealing with a master's
jurisdiction, Granger J. indicated that restraining orders should be
used only in a limited range of circumstances and, even then, should
be confined to particular assets:20
I would be reluctant, in any case, to make an all-encompassing preservation
order as it would prevent a spouse from dealing with his or her assets, and could
prevent a spouse from paying support from his or her savings or dealing with
his or her assets despite the fact that he or she would be the recipient of an
equalization payment.
A restraining order should be restricted to specific assets and there should be
an onus on the party seeking the restraining order to prima facie show that he
or she is likely to receive an equalization payment equal to the value of the specific assets.

The effect of this direction should also be considered carefully. If,

to use a hypothetical, a husband believed that he was entitled to a
$100,000 equalization payment, based largely on the value he reasonably ascribes to his wife's accounting practice, the value of their
respective assets being otherwise roughly equal, should he be
restricted in the preservation order he receives, to the disposition of
the accounting practice? Would he not be equally prejudiced in his
ultimate goal of obtaining a $100,000 equalization order against his
wife, if instead of selling her accounting practice, she were to margin her stock portfolio? If an equalization payment is calculated on
the basis of a spouse's total assets, surely all of the assets should be
subject to the preservation order.
The decision in Nevarc Holdings Ltd. v. Orchid Communications
Inc.2 ("Nevarc Holdings") is another clear statement that restraining orders issued in matrimonial proceedings are not effective
against third parties. In Nevarc Holdings, a restraining order was
issued in May of 1987 which provided that neither spouse could
dispose of or encumber assets in any manner other than in the ordi20. Ibid., at p. 439.
21. Supra, footnote 14.

390 Advocates Quarterly

[Vol. 21

nary course of business with full disclosure to the other. In

November, 1987, the wife, Mrs. Van Bork, executed a guarantee in
favour of Nevarc Holdings for the indebtedness of Orchid
Communications and Bavius Van Bork. The loan went into default
and Nevarc Holdings made a call on the guarantee. Proceedings
were instituted in October, 1988. Soon after, Nevarc wrote to Mrs.
Van Bork's solicitors in her matrimonial proceedings to try to reach
some sort of settlement respecting the moneys owed on the guarantee. Mrs. Van Bork's solicitors informed Nevarc Holdings about the
restraining order issued in the matrimonial proceedings. In March,
1989, Mrs. Van Bork agreed to consent to judgment on the basis that
the judgment would be enforced only by way of execution against
the Van Borks' matrimonial home. A consent judgment was
obtained in April, 1989. The existence of the restraining order was
not made known to the judge who issued the consent order. Upon
learning of the consent order and the pending execution against the
matrimonial home, Mr. Van Bork obtained an order staying the sale.
This order was then appealed.
Granger J. granted the appeal and set aside the order of the trial
judge staying the sale. Granger J. found that the trial judge had erred
in granting the stay on the basis that Mrs. Van Bork had contravened
the restraining order. He said that the issue before the trial judge was
whether Nevarc Holdings had contravened the restraining order. 2
As in the case of Lasch v. Lasch, the effect of Granger J.'s decision in this case is to render the restraining order virtually useless.
Granger J.'s reasoning is that since the restraining order was binding only on the spouses subject to the proceedings, the judgment
creditor should not be prejudiced if one of the spouses contravenes
the order. However straightforward this logic may seem, it should
be noted that it follows from the premise that the restraining order
is binding only on the spouses. Whether this premise is legally correct is not beyond question. The Family Law Act is silent on whether
restraining orders are effective against third parties. Certainly there
are many other areas of the law where similar types of orders are
effective against third parties. For instance, had Mrs. Van Bork
made an assignment in bankruptcy before she executed the guarantee in favour of Nevarc Holdings, the guarantee would have had no
legal effect and Nevarc Holdings would not have been able to institute an action on the basis of the guarantee.
22. Ibid., at p. 335.

1999]

Division of Property in the Family Law Act 391

Although the case of Pirner v. Pirner3 deals largely with the

jurisdiction of arbitrators, the case also contains some interesting
comments by Jarvis J. on the effectiveness of security interests
granted to litigants in matrimonial proceedings against third parties.
It is also a good example of the frustrations experienced by spouses
in trying to protect their property interests against third parties,
given the limited mechanisms available to them under the Family
Law Act.
The case arose out of a situation where an arbitrator endorsed a
settlement offer drafted in the form of a judgment by the wife's
lawyer. The draft judgment provided that the child and spousal support awards should be secured against certain properties registered
in the names of third parties. It was apparently the wife's contention
that the husband had conveyed certain property to these third parties
in an effort to defeat her interests in these properties. The wife's
solicitor contended that if the third parties thought the properties had
been validly conveyed to them by the husband, they should avail
themselves of the mechanisms to assert such claims contained in the
Assignments and Preferences Act." The wife's solicitor argued that
as the wife stood in the shoes of the husband vis-a-vis the third parties, the arbitrator's order had not altered the rights of these third
parties. Jarvis J. rejected the arguments of the wife's lawyer in the
following paragraph:2
The wife also submitted that in contrast to the in rem remedies provided by
the FraudulentConveyances Act, R.S.O. 1990, c. F.29, the Divorce Act, R.S.C.
1985, c. 3 (2nd Supp.), the Family Law Act, R.S.O. 1990, c. F.3, and the
Assignments and Preferences Act provide for in personam remedies.
Consequently, she submits there are no outstanding orders against third party
applicants to this litigation as the in personam nature of the remedy merely
allows the wife to stand in the shoes of the husband vis-a-vis the third party
applicants. No authorities were offered in support of this argument. Sections 4
and 5 of the Assignments and Preferences Act merely provide a mechanism
whereby defeated creditors may impugn transactions made by insolvent debtors
to third persons. That this mechanism may be characterized as an in personam
as opposed to an in rem remedy does not alter its essential nature. The wife's
argument runs counter to the fundamental tenet of our justice system that third
parties must have notice of any legal proceeding which affects their rights,
including arbitration ...

23. Supra, footnote 15.

24. R.S.O. 1990, c. A.33.
25. Supra, footnote 15, at p. 390.

392 Advocates Quarterly

[Vol. 21

In the more recent case of Webster v. Webster 6 Ferrier J. took a

view consistent with those of Granger and Jarvis JJ. in describing
the equalization right given to spouses under s. 5(1) of the Family
Law Act. The case concerned the separation of a very wealthy husband and his wife. In material provided to the wife by the husband's
accountant, the husband's net family property was stated to be $102
million. Soon after the separation, the husband began to dispose of
various assets and to acquire new ones for himself and his new partner. The husband sold the matrimonial home which was registered
in his name. The proceeds of sale were paid to a bank in satisfaction
of an outstanding line of credit which was secured by a collateral
mortgage against the house. The husband also sold his interest in a
vineyard and took steps to sell a Chinese art collection valued at
about $600,000. The husband acquired a new home for $1.7 million
subject to a $1 million mortgage, spent about $300,000 on renovations and made a $500,000 loan to his new partner. When the husband commenced partition and sale proceedings in respect of a
Bermuda property owned by an Ontario trust in which both spouses
had an equal interest, the wife brought an action in Ontario to enjoin
the proceedings in Bermuda and for several other forms of relief
including a restraining order in respect of all of the husband's net
family property.27
Notwithstanding that the wife requested several types of relief,
Ferrier J. stated in his judgment that only the questions of interim
support and the issue of the Bermuda property were argued before
him. In enjoining the husband from continuing with the partition
and sale proceedings in Bermuda, Ferrier J. accepted the wife's
arguments that she would be prejudiced if the Bermuda property
were sold prior to a determination of the family law issues in dispute. He noted that the wife might ultimately establish that she was
entitled to a conveyance of the Bermuda property as a means of satisfying her equalization entitlement and that this remedy would not
be available if the Bermuda property had already been sold.28
Ferrier J. did not consider whether a general restraining order was
warranted in this case (presumably because the need for such an
order was not argued) although there was considerable evidence that
the husband in this case was dealing with "family property" without
26. (1997), 32 O.R. (3d) 679, 37 R.F.L. (4th) 347 (Ont. Ct. (Gen. Div.)).
27. Ibid., p. 681.
28. Ibid., p. 697.

Division of Property in the Family Law Act 393

1999]

regard to the statutorily protected interests of his wife in such property. Jarvis J.did not discuss the connection between preservation of
assets and the ability to make an equalization payment. He noted
that the legislation creates a right to an equalization payment and
does not create rights to specific property. 9 He did not discuss the
possibility that if the propertied spouse disposes of his or her property, this may have the effect of making such spouse "judgment
proof" in the event that judgment for an equalization payment is
obtained by the other spouse.
These four cases are illustrative of the inadequacy of restraining
orders as granted or given effect to by our courts. Given the limitations of restraining orders as a means of protecting the spousal property interests granted by the Family Law Act, the efforts made by the
wife's solicitor in Pirner v. Pirner seem creative, although somewhat desperate.
(4)

Enforcement Provisions

Under s. 8 of the Family Law Act, spouses are required to prepare

and file a statement under oath disclosing their respective assets,
debts and liabilities, in support of an application under s. 7 for a
determination of the spouses' respective property interests. This
statement must provide this information as at the date of the marriage, the date of separation and the valuation date. The Family Law
Act does not contain any specific provisions relating to enforcement
of this requirement or penalties for failing to supply information or
for providing false information, although the filing of such a document would be subject to the usual procedures applicable to documents filed in court. The Family Law Act does not contain any
penalties for violation of a preservation order.
In contrast, the Bankruptcy Act contains an entire part dealing
with bankruptcy offences as well as many enforcement sections.
The fact that a bankrupt is prevented from dealing with his or her
own property by virtue of the fact that the property is vested in a
trustee 11is in fact an enforcement provision. To reinforce this mea29. Ibid., p. 693.
30. Rule 1.01(2) of the Toronto Family Case Management Rules provides that: "The
Rules of Civil Procedure or the Rules of the Ontario Court (Provincial Division),
as the case may be, also apply to proceedings to which these rules apply, but these
rules prevail in the event of conflict."
31. Bankruptcy Act. s. 71(2).
14--21 A..Q.

394 Advocates Quarterly

[Vol. 21

sure, the Bankruptcy Act goes further by stipulating that a bankrupt's dealings with his property within three months preceding
bankruptcy, in the case of arm's length transactions, or within 12
months of bankruptcy in the case of non-arm's length transactions,
are subject to being set aside as fraudulent and void if the effect of
the transactions is to give to a creditor a preference over other creditors."
Section 158 of the Bankruptcy Act corresponds roughly to s. 8 of
the Family Law Act. Under s. 158, a bankrupt is required to "make
discovery of and deliver all his property... to the trustee", deliver
to the trustee for cancellation all his credit cards, deliver all books,
records, title papers, tax records and insurance documents to the
trustee, prepare and submit a statement verified by an affidavit
showing the particulars of his assets and liabilities, attend before the
official receiver for examination under oath, make disclosure of all
property disposed of within a certain time preceding bankruptcy,
execute such powers of attorney, conveyances and deeds as may be
required and generally do all things in relation to his property as
may be reasonably required by the trustee.
Section 198 of the Bankruptcy Act lists a series of bankruptcy
offences. Failure to do any of the things required under s. 158 constitutes an offence. In addition, fraudulent disposition of property
either before or after bankruptcy constitutes an offence. Failure to
answer questions truthfully, making a false entry or material omission in a statement or accounting, and concealing, falsifying or
destroying books or documents within 12 months of bankruptcy, all
constitute offences. If the offence is punishable on summary conviction, it carries a maximum fine of $5,000 or imprisonment for up
to one year or both. If the offence is punishable on indictment, it carries a maximum fine of $10,000 or imprisonment for up to three
years or both.
4.

Conclusion

Ontario has had 13 years of experience with the current Family

Law Act, which introduced the requirement that on separation the
net family property of each spouse should be divided equally with
the other spouse. Experience has shown that the property provisions
in the 1986 legislation are very rudimentary. The legislation is not
32. Bankruptcy Act. ss. 95 and 96.

1999]

Division of Property in the Family Law Act

395

clear as to the precise nature of the property interests given to

spouses and the nature of this interest has not as yet been elucidated
by the case law.
Apart from s. 5(1) of the Family Law Act, which gives the spouse
with the lower net family property the right to an equalization "payment", sections of the Family Law Act deal with this right as if it
gave the spouse asserting the right an interest in the other spouse's
property. For instance, a court has the power under s. 9 of the
Family Law Act to order that a spouse pay the equalization payment
determined by the court and that in support of such an order a
spouse be required to charge his or her property in favour of the
other spouse, that any property be partitioned or sold or that any
property be transferred to the other spouse, either absolutely or for
a term of years. Section 12 also indicates that the right to an equalization payment under s. 5(1) is in the nature of a property interest
since a court, in order to protect this right, may make an order
restraining depletion or for the safekeeping and preservation of
property. Nonetheless, the decisions in Lasch v. Lasch, Nevarc
Holdings, Pirnerv. Pirner and Webster v. Webster" give very little
scope to the equalization right created by s. 5(l). The judgments in
these cases indicate that the equalization right can be asserted only
by one spouse against the other and that even where a spouse has
given a third party an interest in a property in violation of a restraining order, the third party will take his interest free of the spouse's
rights in the property.
The deficiencies in the Family Law Act may be readily understood through a comparison with the corresponding provisions in
the Bankruptcy Act. This comparison may be justified on the basis
that the purpose of both pieces of legislation is to protect the rights
of creditors. In the case of bankruptcy, creditors have rights against
one another as well as against the bankrupt. In the case of the Family
Law Act, spouses have rights against one another and, arguably,
against third parties.
This comparison indicates the following notable deficiencies in
the Family Law Act:
(i) the statute contains no guidance as to what constitutes a
"debt" or "liability" which may be set against the value of

33. Supra, footnotes 19, 14, 15 and 26 respectively.

396 Advocates Quarterly

[Vol. 21

assets, in order to reduce the value of a spouse's net family

property;
(ii) additional sections must be added to the legislation clarifying that preservation orders are effective against third parties and the circumstances under which third parties will be
bound by such orders;
(iii) in contrast to the Bankruptcy Act, there are virtually no
enforcement provisions in the Family Law Act. In particular,
since it is not clear whether the property rights given to
spouses by the Family Law Act are enforceable against third
parties, there is no concept of setting aside a transaction carried out in order to frustrate a spouse in claiming property
rights, as a fraudulent transaction. Likewise, the Family Law
Act does not constitute as an offence a failure by a spouse to
disclose information or a falsification of information
required by the other spouse in order to assert property
rights.
Probably the most obvious problem with the Family Law Act
property provisions is that legal proceedings or a formal legal separation usually follow physical separation at such a distance in time
that the legal process is too late to protect the parties' interests as
they existed at separation. Accordingly, the Family Law Act must be
amended to ensure that the law serves its purpose in divorce, as in
all other areas of social activity, by protecting the rights of individuals. Divorcing or separating spouses should have a duty to: (a) preserve and maintain the value of their respective property until it is
divided; and (b) use their respective incomes towards the maintenance of their property until it is divided. In addition, each party: (c)
should be prohibited from diverting his or her income to non-family
uses if this would impair the ability of such party to maintain his or
her property until it can be divided.
These amendments would go a long way to strengthen the law in
this area. In this connection, it is important to remember that
spouses' dealings with marital assets will not only determine the
financial status of the spouses but also the living standards of their
children in the two households created as a result of the separation.