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Posts from the ‘Net Family Property’ Category

The Bezos fortune gets divided in a private divorce agreement and Amazon doesn’t miss a beat

The Bezos fortune gets divided in a private divorce agreement and Amazon doesn’t miss a beat

MacKenzie Bezos announced earlier today in a tweet that she and, now ex-husband, Jeff Bezos, have settled their financial affairs in a private divorce agreement. Though full details of the Agreement are not publicly available, MacKenzie declared she was “happy” to sign over 75% of the couple’s jointly owned stock in Amazon as well as voting control of her shares and her interests in The Washington Post and the Blue Origin aerospace company.

Following the news of the Bezos family settlement, Amazon’s stock price reportedly dropped by a mere 0.4%. The Bezos’ settlement out of court played a significant role in stabilizing the effect their separation would have on Amazon’s viability, and stock price. Consider the contrary, for a moment—had the Bezos’ litigated their family law dispute, personal financial details would have been made public record, and the very fate of Amazon may have been at the discretion of a family court judge—which could have resulted in an outcome felt around the world.

The success of the Bezos family settlement illustrates key benefits of resolving legal issues out of court: privacy, creativity and a controlled impact on the family business. These same benefits can be realized by family business owners who choose the collaborative process. Collaborative clients are empowered to privately resolve legal issues using creative solutions like share transfers, family trusts and delayed equalization, to name a few, to ensure an orderly transition, preserving the family business, and family legacy for generations.

We have published several other posts on the very topic of how the collaborative process can help family run businesses survive and thrive after divorce. To learn more, click here.

At Russell Alexander, Family Lawyers our focus is exclusively family law, offering pre-separation legal advice and assisting clients with family related issues including: custody and access, separation agreements, child and spousal support, division of family property, paternity disputes, and enforcement of court orders. For more information, visit us at RussellAlexander.com.

Personal Injury Structured Settlements: Are They “Property” or “Income” Upon Divorce?

Personal Injury Structured Settlements: Are They “Property” or “Income” Upon Divorce?

In a recent family case called Hunks v. Hunks, the court considered whether structured settlements – such as the type that are reached as part of a personal injury claim – are considered “property” or else “income” for the purposes of the property-division and equalization regime under the Ontario Family Law Act (the “FLA”).

In that case, Donna and Gary got married in 1995. A few months later, Donna suffered an injury at a supermarket that left her disabled.   She successfully sued the supermarket, and was awarded more than $500,000 in compensation. After using spending about $200,000 for family-related needs, she used the rest to purchase a structured settlement (which is a mechanism by which a personal injury victim such as Donna could receive her settlement funds on a fixed schedule, rather than all up-front).

That structured settlement was arranged so that she would receive $1,290 per month for the rest of her life, as well as a lump-sum payment of $15,000 every five years (to a maximum of four such payments). All of this was subject to a small annual increase.

Unfortunately, the marriage between Donna and Gary did not flourish, and they separated about 15 years after Donna’s accident. In the course of settling out their financial affairs through the customary equalization process mandated by the FLA, the issue arose as to how the structured settlement should be properly characterized.

A lower court found that conceptually, a structured settlement was similar to a “pension” and rather than be excluded it formed part of Donna’s matrimonial property that was subject to equalization.

However, the Court of Appeal later overturned that ruling.   That court found that the structured settlement was essentially a special type of annuity, and it was more analogous to disability benefits. Under Ontario law, such benefits are considered “income” for FLA purposes, and while not subject to the equalization process per se, they are considered in determining spousal support levels.

For the full text of the decision, see:

Hunks v. Hunks, 2017 ONCA 247 (CanLII)

At Russell Alexander, Family Lawyers our focus is exclusively family law, offering pre-separation legal advice and assisting clients with family related issues including: custody and access, separation agreements, child and spousal support, division of family property, paternity disputes, and enforcement of court orders. For more information, visit us at RussellAlexander.com

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For Amateur Lawyers, Part 2: Equalizing a House that Cost More to Build than it’s Worth

For Amateur Lawyers, Part 2: Equalizing a House that Cost More to Build than it’s Worth

As I reported last week, the case of Strobele v. Strobele involved a couple who in the two years leading up to their final split had invested all their life savings (and more) to build their “dream home”. Unfortunately, it turned out that not only was the construction project the “death-knell” to their relationship, but the home also ended up being worth far less than it cost them to build/renovate.

At the end of the day, the home cost about $1.8 million to build, but ended up being worth $1.2 million, with title solely in the husband’s name. The wife had contributed $240,000 of her own money to the construction project over the years they were together.

So how does a Family Court split a home that’s worth less than what the spouses invested in it? The answer: With some complex calculations, and after looking at all the circumstances.

An already-tricky scenario was made somewhat more complicated by the fact that the husband wanted to buy the wife out, so that he could stay in the home. This meant that one of the many issues for the court was how much the husband should have to pay her.

The court first ruled out doing a straightforward Net Family Property calculation using the home’s current low market value. That would result in allowing the husband to stay in the home, obtain the benefit of the surroundings, and have the wife make further payments towards the home’s cost. This, the court stated, would be unfair.

Instead, the court had to look at the economic consequences of the relationship and its breakdown. The couple had moved into the home before they got married, and the wife spent $240,000 of her own money on construction projects both prior to and after marriage. They had enjoyed a relatively equal economic partnership throughout their relationship.

The fair approach was thus to calculate – and to divide equally – the overall losses that the couple sustained in building their dream home, and to give the wife a 50 percent equitable interest in the home – whatever that might turn out to be – by way of resulting trust.

Using an as-built value of $1.8 million, and a market value of $1.2 million, the court focused on “consumption value”, which would lead to a determination of what the parties’ loss on investment was. In these circumstances, the parties had each lost one-third of their overall investment in the home.

When that discount ratio was applied to the $240,000 that the woman put in over the course of their relationship, this meant she had lost one-third of that, too. In other words, rather than have the wife emerge with nothing from her $240,000 investment, the fair solution was to gross-down that figure by one-third, to represent her losses.

So after the normal equalization calculation the husband was at liberty to purchase the wife’s interest in the home for $160,000 and also personally assume all the debt associated with the house. Or, if that transaction did not take place and he chose not to buy her out, then the house could be sold and the loss that results could be divided equally between the parties through the usual equalization process.

Was this the outcome you would have predicted? What are your thoughts?
For the full text of the decision, see:

Strobele v. Strobele, [2005]

At Russell Alexander Family Lawyers our focus is exclusively family law, offering pre-separation legal advice and assisting clients with family related issues including: custody and access, separation agreements, child and spousal support, division of family property, paternity disputes, and enforcement of court orders. For more information, visit us at RussellAlexander.com

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Wife’s Accusations About Husband’s Infidelities “A Waste of Time”

Wife’s Accusations About Husband’s Infidelities “A Waste of Time”

In a case I covered a few weeks ago, the spouses were divorcing and were in the process of untangling their disputes relating to support and division of assets. As part of that litigation, the wife asked the court’s permission to amend her pleadings to add allegations that the husband, while still married, had frittered away some of their money by spending it on a 10-year adulterous affair, on ordering male and female escort services, and for membership fees to an adult fetish website.

The wife claimed this was relevant to how their Net Family Property should be divided; she wanted the court to impose an unequal split in her favour, to account for the money the husband allegedly frittered away on these activities.

In this context, the Court of Appeal quickly corralled the wife’s use of these accusations to finance-related issues, not bigger-picture ones impugning the husband’s character or hinting at scandal. More importantly, the court found it was not even relevant as a ground for divorce anymore. It stated:

Legislation, jurisprudence and the practice of family law have evolved over the last decades in an attempt to eradicate allegations of marital misconduct unrelated to financial consequences. Fault grounds for divorce are rarely used, having been replaced, in practice, with separation grounds. This approach recognizes that family litigation has the potential to leave families worse at the end of the case than they were at the beginning. It recognizes that resolution is the preferred outcome. Inflammatory allegations impede resolution.

The statements about the husband’s conduct are inflammatory. They are – in my view – there to provide a springboard to question the husband about his extra-marital conduct, not about his net family property. As [Justice] Blair J.A. said in Serra v. Serra, … it is the financial consequence of the conduct that is relevant, not the conduct itself. Extended questioning of the husband’s conduct … that is unrelated to financial consequences would be inflammatory, a nuisance and a waste of time.

In other words, the trend in Ontario Family Law is to confine the relevance of marital misconduct allegations to finance-related matters only – not to find “fault” or penalize a spouse for his or her conduct during the marriage. And, as the Appeal Court in Frick v. Frick seems to suggest, it is certainly not to be used as part of one spouse’s campaign to embarrass or impugn the character of the other spouse after-the-fact.

Do you agree with this decision? Do you think marital misconduct, adultery and similar scandal should have a diminished importance in the non-financial aspects of the divorce process? What are your thoughts?

For the full text of the decision, see:

Frick v. Frick, 2016 ONCA 799 (CanLII)

Serra v. Serra, 2009 ONCA 105 (CanLII)

At Russell Alexander, Family Lawyers our focus is exclusively family law, offering pre-separation legal advice and assisting clients with family related issues including: custody and access, separation agreements, child and spousal support, division of family property, paternity disputes, and enforcement of court orders. For more information, visit us at RussellAlexander.com

Appeal Court Confirms Unique “Philosophy” of the Ontario Family Law Rules

Appeal Court Confirms Unique “Philosophy” of the Ontario Family Law Rules

The Ontario Court of Appeal, in a recent case called Frick v. Frick, confirmed that the Ontario Family Law Rules are philosophically different from their civil counterpart, and reflect the unique nature of litigation involving families.

The initial facts in Frick v. Frick were unremarkable: The couple married in 1993 and had two children. They separated 20 year later, and the wife started divorce proceedings. In addition to custody and spousal/child support, she also asked for the usual equalization of Net Family Property (NFP).

But after filing her pleadings, the wife learned that the husband had spent money on extra-marital activities during the marriage, namely those incurred during what she claimed was a “10-year affair”, as well as the cost of male and female escort services and an adult fetish website membership.

In light of that spending, the wife claimed the husband had recklessly depleted his share of family funds during the marriage. Because of it, she asked for an unequal division of NFP in her favour, now that their relationship was over. She asked the court for permission to amend her claim accordingly.

But the court declined, and went one step further by expressly preventing the wife from asking for an unequal NFP division at trial. The wife appealed.

The Appeal Court ruled in her favour, finding that the motion judge had made several procedural errors. For one thing, he had innovated certain evidentiary requirements for the wife to meet, that were simply not contained anywhere in the Family Law Rules (FLR). He took issue with the wife’s failure to specify in her pleadings the precise FLR provisions on which she relied for unequal division, even though these were implicit. He took procedural liberties by essentially bringing his own motion to strike out the wife’s unequal division claim, and baring her from pursuing it at trial, even though the husband had not requested these remedies himself.

The motion judge had also applied an unjustly-high threshold for establishing the wife’s unequal division claim, and had deprived her of notice that it might be struck out permanently. As the Appeal Court put it:

Here, the wife knew that the motion was to strike portions of her document. She could not have known that her claim for an unequal division would be judged according to the summary judgment rules. Nor could she have known that her claim would be barred forever since she was denied leave to amend.

The key error, however, was the motion judge’s assessment that the FLR governed certain procedural aspects inadequately, and that he should look to the civil procedure rules for guidance instead. (Although Ontario judges are permitted to do this where warranted, the motion judge in this case showed over-reliance on the civil rules, and misunderstood when they could be invoked.).

In this context, the Court of Appeal made some important comments about the fundamental nature of the FLR:

The Family Law Rules were enacted to reflect the fact that litigation in family law matters is different from civil litigation. The family rules provide for active judicial case management, early, complete and ongoing financial disclosure, and an emphasis on resolution, mediation and ways to save time and expense in proportion to the complexity of the issues. They embody a philosophy peculiar to a lawsuit that involves a family.

The Appeal Court allowed the wife’s appeal, in part.

For the full text of the decision, see:

Frick v. Frick, 2016 ONCA 799 (CanLII)

At Russell Alexander, Family Lawyers our focus is exclusively family law, offering pre-separation legal advice and assisting clients with family related issues including: custody and access, separation agreements, child and spousal support, division of family property, paternity disputes, and enforcement of court orders. For more information, visit us at RussellAlexander.com

Can the Post-Bankruptcy Distinction Between Support and Equalization Payments be Circumvented?

Past Due

Can the Post-Bankruptcy Distinction Between Support and Equalization Payments be Circumvented?

Recently I wrote “How Does an Unpaid Equalization Payment Intersect with Bankruptcy?” about the impact that a paying spouse’s bankruptcy has on the recipient spouse’s entitlement to nonetheless receive either child/spousal support, or an equalization payment as part of a separation or divorce. I observed that – perhaps surprisingly – Canadian law treats these two categories quite differently in terms of the post-bankruptcy collectability by the recipient spouse.

Perhaps this distinction is why some courts might be tempted to try to re-cast a spouse’s entitlement, to maximize the possibility that his or her valid family law-related claim against the bankrupt spouse – essentially in creditor/ debtor roles – will be more likely to be preserved and enforced after the bankruptcy.

But as a case called Mwanri v. Mwanri illustrates, this re-characterization is not always appropriate or permissible in law.

After a trial, the husband and wife were granted a divorce, with the husband being ordered to pay the wife about $50,000 as an equalization payment. However, he filed an assignment in bankruptcy soon after, without ever having paid a dime in satisfaction of that obligation (his spousal and child support payments were current, however). It was unlikely that his assets would be sufficient to satisfy the amount he owed the wife in equalization.

In light of this and other developments, the wife applied to a motions judge for an order that his ongoing child and spousal support obligations be converted to a lump-sum amount in the same amount as the equalization payment would have been, i.e. $50,000. The motion judge agreed, ostensibly under a broad discretion to do so under the Ontario Family Law Act and the federal Divorce Act. The husband was discharged from his bankruptcy shortly after.

From a legal standpoint, the motion judge’s ruling effectively circumvented the distinction in law between the types of award: Unpaid equalization payments got swept into the husband’s bankruptcy and evaporated once he was discharged, while spousal support obligations did not. So by asking for a $50,000 lump-sum spousal award – which was the same amount she would have received in equalization were it not for the husband’s bankruptcy – the wife could enforce the award even after the husband was discharged. In other words, the motions judge simply converted the mother’s now-unenforceable equalization claim into an enforceable entitlement to lump sum spousal support.

The husband objected, and brought an appeal to the Court of Appeal, claiming that the judge’s award was tantamount to re-distributing the husband’s assets in favour of the wife and in preference to his other creditors.

The Appeal Court agreed with the husband. It found that when it came time to make the support award, the motion judge had failed to consider: 1) the father’s status as an undischarged bankrupt; 2) the effect of a lump sum spousal support award on the father’s ongoing bankruptcy, and 3) the implications of the father’s eventual discharge from bankruptcy on the parties’ financial circumstances and assets.

The lump-sum award – not coincidentally in the same amount as the equalization payment would have been – had been made without regard to the father’s impending bankruptcy, and amounted to an end-run around the normal operation of the bankruptcy legislation. Since this was impermissible, the motion judge’s earlier ruling was overturned.

For the full text of the decision, see:

Mwanri v. Mwanri, 2015 ONCA 843 (CanLII)

At Russell Alexander, Family Lawyers our focus is exclusively family law, offering pre-separation legal advice and assisting clients with family related issues including: custody and access, separation agreements, child and spousal support, division of family property, paternity disputes, and enforcement of court orders. For more information, visit us at RussellAlexander.com.

Is a Verbal Marriage Contract Only Worth the Paper It’s Written On?

Blank Paper

Is a Verbal Marriage Contract Only Worth the Paper It’s Written On?

In an interesting case from British Columbia, the court was asked to rule on whether a verbal marriage agreement, purporting to govern the division of a couple’s assets, was valid and enforceable.

The backstory featured a rather lavish courtship between a now 59-year-old doctor and a 49-year-old lawyer, who got married in Las Vegas in 2011. As part of their contentious divorce about three years later, the court heard that the husband had led the wife to believe that he was financially well-off; in the months prior to their wedding he had acted like a rich man, whisking her off to stay in 5-star hotels in destinations such as San Francisco, Palm Springs, Seattle, Europe, Los Angeles, Hawaii. In reality, he was overwhelmed with debt, owed money to Canada Revenue Agency, and had been repeatedly investigated and fined for improper billing in his medical practice.

Unaware of the true state of affairs, the wife proceeded with their wedding plans. At some point prior to the nuptials, she raised her concerns over a property she owned on Ross Street; she wanted it to be excluded from their family property, since it was her only asset and she wanted to have something for her children from a previous relationship.

They verbally agreed that the husband would not make a legal claim to it in the event they separated; the wife’s faith in his promise was fortified by her assumption that the husband was well-off in his own right. They had also discussed her understanding that under Canadian family law the Ross Street home would not become family property unless they lived in it together (which they did not intend to do, post-marriage, since it was rented to a tenant). They couple also agreed verbally to each pay their own credit card debts and their own car expenses, but share household expenses equally.

However, years of lavish and impulsive spending by the husband both before and during the marriage took its toll; after the inevitable financial collapse the wife was finally made privy to the true state of their precarious financial situation. The court described the next phase of their relationship this way:

She suggested to [the husband] that they move into Ross Street, but he would have to sign an agreement that recognized her sole right to that property and his sole obligation to pay his debts. [The husband] retorted that he would sign anything she wanted but she did not understand what it meant to be his wife. He suddenly asserted the marriage was over and he wanted a divorce. At the end of October 2014, [the wife] gave her Ross Street tenant notice and she moved into that home on January 1, 2015.

As part of the now-contentious divorce proceedings – and despite his verbal assurances to the contrary – the husband claimed against the wife’s Ross Street property nonetheless.

Ultimately the court issued a 132-paragraph ruling, which among other things considered in detail the provisions of the B.C. family legislation relating to division of property. The ruling culminated in a finding that the verbal agreement between the former couple to exclude the Ross Street home was valid and enforceable.

Among the evidence in favour of this conclusion was the fact that throughout their marriage they had acted in a manner that was consistent with the existence of such an agreement: the wife paid all the expenses related to the property and kept any income derived from it; the husband was never added on title, rarely attended at the property, and never made any financial or labour contributions to it (other than helping to power-wash the exterior on one occasion).

Although under Canadian law not all verbal agreements will necessarily be valid and enforceable, in this case the husband’s lack of credibility likely sealed the deal: In a preface to its ruling, the court underlined its finding that the husband “is not a trustworthy person”, that he had “little respect for the truth”, and that his evidence was “generally … unreliable and incredible”. This no doubt informed the court’s conclusion on the agreement’s existence, despite the husband’s unbelievable claims to the contrary.

For the full text of the decision, see:

Brown v. Brown, 2016 BCSC 1037 (CanLII)

At Russell Alexander, Family Lawyers our focus is exclusively family law, offering pre-separation legal advice and assisting clients with family related issues including: custody and access, separation agreements, child and spousal support, division of family property, paternity disputes, and enforcement of court orders. For more information, visit us at RussellAlexander.com

Think You’re a Gift-Giver? Think Again

Gift Giver
Think You’re a Gift-Giver? Think Again

It seems like a straightforward scenario: Parents, perhaps now in their twilight years, decide to give a substantial gift to their married adult offspring, in the form of a large sum of money, land, a family cottage, or another asset (large or small). There is nothing in writing because – after all – it’s a gift between close family members.

But would it surprise you to know that absent a contract or other clear indication otherwise, the law actually presumes not that a gratuitous gift has been made from parent-to-adult child, but rather that the adult child holds the item/property on the parents’ behalf, unless there is evidence to the contrary?

The law on this perhaps confusing presumption was made clear in a recent Ontario decision called Barber v. Magee.

There, the couple had met in 2000, married in 2002, had a child together, and ultimately divorced in 2011. During the marriage, the husband had received $90,000 from his father toward the purchase of the matrimonial home, and another $67,000 later on. There was never a demand for repayment, nor any attempt to actually repay this $150,000 to the father. Nor were there any documents available: The husband claimed that his mother was the custodian of them, but had destroyed them in a “document purge”. He was thus unable to give the court evidence on the details of the purported loan, including the terms, interest rate, or repayment schedule.

Still, as part of settling their financial affairs during the divorce proceedings the husband claimed that this $150,000 was merely a loan from his father which he still had to repay; from a family law perspective this meant it would still form a liability and be deducted from his net family property.

As part of evaluating the husband’s position, the court revisited the current law on gifts-versus-loans in the context of these sorts of family law proceedings.

The court helpfully summarized the principles this way:

• In a scenario involving a gratuitous transfer of property from any one person to another (which for convenience we will still call a “gift”), the law of “resulting trust” applies. The law presumes that the actual intent of the gift-giver is to retain the gift but put in the hands of another person for “safekeeping” (so to speak), and not actually give it away.

• This also applies to gratuitous gifts between parents and adult children: The presumption is not that the parent intends a gift, but rather that the adult child is holding the property in trust for the aging parent. In other words, the assumption is that the gift-giving parents nonetheless hold an interest in the asset, even after placing it in the hands of the adult child.

• However, that presumption is rebuttable by putting forward evidence to the contrary. The burden is placed on the recipient adult child to show that an actual gift was intended, i.e. that he or she gets to keep the item.

• In the case of a dispute, the judge hearing the matter must begin with the presumption, and then weigh all the evidence in an attempt to determine the parents’ actual intent at the time of the transfer. The precise nature of the required evidence will depend on the facts of the case.

• There are various factors to consider:

o Whether there were any contemporaneous documents evidencing a loan;

o Whether the manner for repayment is specified;

o Whether there is security held for the loan;

o Whether there are advances to one child and not others, or advances on equal amounts to various children;

o Where there has been any demand for payment before the separation of the parties;

o Whether there has been any partial repayment; and,

o Whether there was an expectation or likelihood of repayment.

(A court will also take into account the fact that what started off as more of a “gift” to one spouse in a newly-separated couple may prompt the parents to suddenly collude in the claim it was a loan, to help out their son or daughter in the face of threatened litigation. This may be particularly so if the alleged debt is old, the parents do not need the money, and there has been no demand for repayment until after separation).

All of these principles stem from the law of equity, which focuses itself on what is fair. Those principles presume the existence of bargains, not gifts.

Returning to the Barber v. Magee facts, the court found that the $150,000 advanced from the husband’s father were gifts, with no clear intention or expectation that it be returned. Among other things, the court considered the fact that the wife had no idea during the marriage that the money was supposedly a loan; it was never discussed. She never saw or had knowledge of any documentation, and learned of the alleged loan only after she and the husband separated.

For the full text of the decision, see:

Barber v. Magee, 2015 ONSC 8054, 2015 CarswellOnt 19620, [2015] O.J. No. 6818

At Russell Alexander, Family Lawyers our focus is exclusively family law, offering pre-separation legal advice and assisting clients with family related issues including: custody and access, separation agreements, child and spousal support, division of family property, paternity disputes, and enforcement of court orders. For more information, visit us at RussellAlexander.com.

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