I recently came across a study about the impact of the recession on family life, The State of our Unions, Marriage in America 2009: Money and Marriage. The study was released by the University of Virginia (click here for a PDF file).

The author of the stufy suggests that economic stress has made American marriages slightly more stable overall, as couples develop a “new appreciation for the economic and social support that marriage can provide in tough times”. Is this a nice way of saying that people are staying together for their creditors? How much fun can that be?

Having suggested that the recession might not be so devastating to American families, the study nonetheless expresses concern that the recession’s job losses have been heavily concentrated among working class men, who may not be equipped to make a smooth adjustment to playing stay-at-home dads while their wives support the family. So perhaps things aren’t so rosy for American families, after all.

Furthermore, although divorce rates in the U.S. are down slightly, the decrease can be explained by falling marriage rates. This is consistent with a trend we have seen in Canada over the past couple of decades away from marriage to cohabitation. Unfortunately, Canadian social studies suggest that families without the benefit of marriage and its commitment are at higher risk for separation.

The reality is that a financial stress like a recession places all families at risk.

The trial decision of the Ontario Superior Court in A.G.L. v. K.B.D., 2009 CanLII 943 (ON.S.C.) has created a lot of discussion about Parental Alienation Syndrome (PAS). The case is a sad one, and reminds us how upsetting and complex these disputes can be.

After 17 days of trial the court found that the mother had alienated the parties’ 3 daughters – aged 14, 11 and 9 – from their father. The court granted custody to the father despite an 8 year status quo in which the children were in the primary care of their mother. It did so after finding that the mother had engaged in an outrageous course of conduct which had alienated the children from their father. The trial judge found the mother’s conduct to be child abuse.

A cautionary note: the mother’s conduct in this case was so outrageous, and the father’s behaviour was beyond reproach, so there was little discussion about “realistic estrangement” – alienation that is reasonable or warranted between a child and parent. Given the dysfunctions faced by many families undergoing separation, “realistic estrangement” may arguably be more common than PAS.

PAS is not new. The term was coined in the mid-1980s by Richard Gardner. There is much debate about its meaning, and it appears to be more of a “phenomenon” than a disorder. Nonetheless, the court accepted the expert evidence of Dr. Barbara Jo Fidler regarding the warning signs of behaviours of “pathological alienation” (at pages 13-15 of the decision). The court relied on Dr. Fidler’s evidence that children are more susceptible to alienation in certain age ranges:

 

  • Dr. Fidler gave expert evidence that children can have shifting allegiances to parents from ages 5 to 8, and that children can become confused at that time in their development when they can hold both positive and negative views about a parent.
  • At age 10 or 11, children may choose to side with one parent over the other in order to free themselves from emotional conflict and the stress it causes.
  • In children of 12 years old and older the alienation can become extreme, to the point where the child can find his or her own reasons to dislike or hate the alienated parent, even ones which are not real.

The court accepted Dr. Fidler’s evidence that there was a broad range of effects of this type of alienation on a child:

  • Low self-esteem to self-hatred, guilt, feelings of abandonment, feeling of being unloved and unworthy;
  • Self-doubt and doubt about their ability to perceive reality;
  • Simplistic or rigid information processing;
  • Poor differentiation of self;
  • Aggressive and poor impulse control;
  • Where court orders are disobeyed, children learn that it is acceptable not to obey court orders; and
  • Alienated children can lack compassion and remorse and can also develop an ability not to feel guilt.

With the economy in a free fall, the Ontario Court of Appeal’s (OCA) decision in Serra v. Serra could not be more timely. The OCA decision reversed the trial court’s judgment and replaced it with an order requiring the husband to make a lesser payment to his wife to resolve the property claim under Ontario’s Family Law Act.

The decision allows litigants to pursue an unequal division of net family property where market driven forces cause a decrease in the post separation value of assets.

Modern family law reflects a social policy of recognizing spouses equal contributions towards marriage by dividing family property equally. Ontario’s family property law differs from many jurisdictions because it uses a fixed date valuation approach to achieve that underlying policy. For most purposes, that date is the separation date.

Ontario courts had been reluctant to look beyond the separation date by either valuing assets ‘in hindsight’ or considering a post-separation value in an application for an unequal division. They did so because of the desire for certainty in resolving cases.

In the Serra case:

  • the husband’s business was worth between 9 and 11 million dollars at separation.
  • At trial 7 years later his assets had declined in value so that his net worth was perhaps 2 million.
  • Nonetheless, the trial judge found that she had no authority under Ontario’s Family Law Act to order a lesser equalization payment. The trial court ordered the husband to pay his wife an equalization based on the value of his business at separation — twice as much as his net worth at trial.

The OCA has clarified that a non-fault, market driven decline in the value of equalized assets is sufficient for the courts to consider making an award for an unequal division of property.

In one part of the decision, the OCA suggests that a temporary market decline of shares or securities would not meet the test of unconscionability. However, does this apply to a spouse’s RRSP savings, especially where it is not uncommon to see a loss of value exceeding 30 percent in this market? These are expensive issues for spouses that separated in 2007 or earlier, but who are only now effecting equalization payments.

The Court of Appeal relied on section 5(6)(h) of the Family Law Act, which says:

5(6) The court may award a spouse an amount that is more or less than half the difference between the net family properties if the court is of the opinion that equalizing the net family properties would be unconscionable, having regard to…

(h) any other circumstance relating to the acquisition, disposition, preservation, maintenance or improvement of property. R.S.O. 1990, c. F.3, s. 5 (6).

Up until the Serra decision, the titled spouse was largely the insurer of the other party’s equalization claim in the face of market driven reductions. Now, market driven forces are “other circumstances” relating to the acquisition, disposition, preservation, maintenance or improvement of property.

In the face of declining markets, will the propertied spouse rush to make a transfer of assets vulnerable to reduction in value? Should he or she do so? The Family Law Act does not permit trial judges to make specific transfers of property in satisfaction of equalization payments.

Before making an order for an unequal division, a trial court must be of the opinion that an equalization will be “unconscionable”. The Court of Appeal noted the standard is more than simply “unfair”, “harsh”, or “unjust” alone but must “shock the conscience of the court”.

Of interest in the Serra decision:

  1. The Court’s ruling that unconscionability need not be based on fault based conduct;
  2. Despite the Court’s discussion of the absence in fault, it seemed to penalize the wife in her conduct of the litigation, and specifically the preservation orders and support orders obtained by her and which required the husband to hold on to his failing business to meet his obligations under the court orders;
  3. The OCA held that in fashioning an unequal division, the trial court should exercise its “normal discretion”, and not simply make an award that was shy of unconscionable; and
  4. yet the OCA gave very little insight about how it exercised its discretion when it declined to saddle the wife with the entire downside of the business decline.

The OCA really did not touch upon an interesting element of the trial. The fact that the husband had admitted the wife’s claim for a one-half interest in the business, that she subsequently withdrew on the eve of trial. Had the trial court allowed the admission, the wife would have been saddled with one-half of the decline in the business value, as she would have owned half of it.

Many practitioners feel there is enough in the Serra decision to allow litigants to pursue post-separation swings in the value of assets. Whether that will be applied to upswings in value will likely not be seen for years (given the recent market trends), and the extent to which trial judges will allow such claims is yet to be seen.