Toronto Family Lawyer John Schuman was recently asked the following question:

Is there any case law that would show I am not liable for any of the following losses? When applying for a divorce, you must fill out a financial statement. Before we were married my wife had RRSP’s that were called labour sponsored funds. They subsequently lost 90% of their value after we were married. I contend that I should not be liable for any of these losses.

Answer:

On the breakdown of a marriage (but not a common law relationship), spouses “equalize” their assets and liabilities and share, with some exceptions, the growth in their net worth during the marriage.  This video explains “Equalization of Net Family Property” in greater detail.

Many separating spouses can feel that the equalization process can be unfair – particularly where one spouse has spent money on stupid things, gambled it away, is getting a windfall due to the division of the matrimonial home, or it has been a very short marriage.  In these and other situations, dividing up all property “50/50” can seem unfair.

Section 5(6) of Ontario’s Family Law Act does allow a Court (or Family Arbitrator) to deviate from the usual equalization of Net Family Property and divide the family’s wealth another way. It accommodates all of the scenarios above and a few others.

However, the test that the Family Court (or arbitrator) has to use is not whether the normal “equalization” would be unfair. Section 5(6) says that to deviate from the normal equalization, the Court must be “of the opinion that equalizing the net family properties would be unconscionable.”   “Unconscionable” is much more than just unfair.  The case law says that it means that the usual result must be “shocking to the conscious of the court.” That is much more than just unfair.  One spouse spending a lot of money on an affair is not enough.  A spouse spending too much is not enough.  Justice Jennings put it this way:
The result must be more than hardship, more than unfair, more than inequitable. There are not too many words left in common parlance that can be used to describe a result more severe than unconscionable.

Specifically on the issue of investment losses, the Courts have held that improvident (stupid) investing is not enough to justify an unequal division of net family properties.  The investment must have been made recklessly or in bad faith.  That means the spouse must have known, or should have known, that the investment would become worthless. Risky investing is not enough. The spouse must have acted deliberately to lose money or known that he or she was likely to lose money.

That can definitely seem unfair – especially when one spouse is a conservative investor and one spouse is a high risk investor, or where one spouse’s savings have done really well and the other spouse’s investments have done poorly. But, fairness is not the test.  Different opinions on finances can cause stress in, or event the end of, a lot of marriages.

Where spouses have significant differences of opinion about money, they should consider getting a marriage contract.  Spouses can get a marriage contract at any point during the marriage.  They can keep a marriage together if one spouse wants to do something risky and the other one wants financial protection.  This video explains how to protect yourself  and save your marriage with a marriage contract.

But, if you are separated now, it is likely too late for a marriage contract, and you have made one of the common family law mistakes.  You should speak to an excellent Family Law Lawyer as the only way to correct this may be through spousal support, as section 15.2(6)(a) of the Divorce Act allows a judge to address the economic consequences of the marriage and its breakdown through spousal support.  That can be through either awarding spousal support or reducing an amount of spousal support to reflect how the marriage affected the spouses financially.

You can get a lot more information about Ontario Family Law issues, including support and property division, and most other common family law issues by downloading this $9.99 e-book for Kindle, Kobo, or iPad/iPhone/Mac, or ordering the paperback version.  But, to keep out of trouble, it is always best to speak with a good family law lawyer.

John Schuman is a Certified Specialist in Family Law.  He is the partner managing the Family Law Group at Devry Smith Frank LLP, a full service law firm located near Eglinton and the Don Valley Parkway in Toronto. Learn more about John! Call him at 416-446-5080 or 416-446-5847 or email john.schuman@devrylaw.ca Listen to the Ontario Family Law Podcast!

“This article is intended to inform. Its content does not constitute legal advice and should not be relied upon by readers as such. If you require legal assistance, please see a lawyer. Each case is unique and a lawyer with good training and sound judgment can provide you with advice tailored to your specific situation and needs.”