What Are Preservation Orders? And When are They Warranted?
When property that is jointly owned by divorcing spouses is sold prior to trial, the net proceeds are usually placed in trust pending equalization at a later trial. This avoids prejudice to either spouse. The funds can be dispersed earlier only if they both agree that there are sufficient assets to satisfy any likely equalization payment that one of them will owe the other in the future.
But under Canadian Family Law, a spouse can go one step further to protect those funds pending trial. Through something called a “preservation order” (also known as a “non-dissipation order”) a court can expressly prevent a spouse from selling, encumbering, or otherwise disposing of an asset, until a later fuller determination can be made by the court. In other words, the court places a “freeze” on a spouse’s ability to thwart the other’s rights by dealing with property pending trial.
This authority arises under the provincial Family Law Act, which provides that as part of an application to resolve ownership questions or equalize Net Family Property, the court can make a preservation order where it is “necessary for the protection of the other spouse’s interests”. The order can be aimed at: 1) restraining the depletion of a spouse’s property; and 2) giving directions around possessing, delivering up, safekeeping and preserving that property.
The court was asked to make this kind of order in a recent case called Conforti v. Conforti, where the long-married spouses were divorcing and had agreed to list their matrimonial home for $6 million. Although the home eventually sold for $5.3 million, the wife was only told a few days before closing, and suspected the husband had some sort of secret side-arrangement with the buyer that would see him receive additional funds directly into his own pocket. About $1.27 million of the proceeds were still being held in trust by their joint lawyer on the sale, and the husband brought a motion to have that money released. The wife countered by asking for a preservation order, given her concerns over the integrity of the sale transaction.
In this context, the court examined the governing principles and factors that determine whether such an order should be made. These included the following:
- A preservation order should be restricted to specific assets.
- The onus is on the spouse who seeks the preservation order to prima facie show that he or she is likely to receive an equalization payment equal to the value of those specific assets.
- The court will look at several factors: (1) the relative strengths of the parties’ positions; (2) the balance of convenience; and (3) whether irreparable harm may occur if the preservation order is not granted.
- The court will also consider how likely it is that the spouse requesting the preservation order will receive an equalization payment, and whether there is a real risk that the equalization claim will be defeated if the order is not made.
After considering these principles and reviewing prior decisions on-point, the court in Conforti concluded that a preservation order was not warranted in the particular circumstances. It ordered that the $1.27 million currently being held in trust was to be distributed to the husband and wife equally.
In an upcoming Blog, we will take a further look at some interesting fact scenarios that illustrate when a preservation order is (and is not) likely to be granted by the court.
For the full text of the decision, see:
Conforti v. Conforti, 2021 ONSC 1767