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Family - Net Family Property. Karatzoglou v. Commisso
In Karatzoglou v. Commisso (Ont CA, 2023) the Court of Appeal considered an appeal of a dismissal of a partial summary judgment motion in an NFP divorce matter. These quotes address the motion judge's finding that the wife lacked standing to allege that the husband's mother held real property in trust for him for NFP purposes:[9] The motion judge concluded that there was no evidence of a trust of any sort (express, resulting, or constructive) with respect to either property. In any event, he also concluded that Rosetta lacked standing to pursue the trust claims against Lisa. He dismissed Rosetta’s claims against Lisa.
[10] The motion judge adopted the reasoning in Morris v. Nicolaidis, 2021 ONSC 2957, at para. 38, where McGee J. states:A claim that a third person holds property in trust for a non-titled spouse, or that a non-titled spouse has a beneficial interest in property, or a monetary claim arising from the acquisition, maintenance or use of that property can only arise from the personal, direct deprivation of the non-titled spouse. An equalization claim is, at best, an indirect legal interest. It is therefore insufficient to confer standing to a person to make a trust claim on behalf of a non-titled spouse or former spouse. ....
[14] I conclude that the appeal must fail for two reasons. Each reason independently is fatal to the appeal. ... Second, a person does not have standing to advance a trust claim on behalf of a former spouse for equalization purposes. Consequently, summary judgment, as authorized by the Family Law Rules, O. Reg. 114/99, r. 16, was appropriate.
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(2) Rosetta does not have standing
[22] The motion judge concluded that Rosetta lacks standing to advance a trust claim on behalf of Philip. He commented that, although he was not bound by Morris, he found it persuasive and relied on it. He considered Rosetta's submission that Morris should be restricted to trust claims based on resulting or constructive trust principles and wrote, at para. 34, “I disagree. Regardless of whether the scope of Morris should be so restricted, this is simply not an express trust case.”
[23] I agree with the motion judge that there was no evidence of an express trust. Furthermore, there is no reason to restrict the Morris principles as suggested by the appellant.
[24] In my view, Morris accurately sets out the law. A person does not have standing to advance a trust claim on behalf of a former spouse for equalization purposes. In so concluding, I adopt the reasoning of McGee J. in Morris, at paras. 32-33 and 36-40:At the heart of this motion is an interesting question. Can a person advance a trust claim on behalf of a former spouse in order to increase that spouse’s net family property and consequently, benefit the person’s claim for, or defense to an equalization payment?
A claim for a constructive trust is a claim in equity that is privately held. It is not a public interest claim. The common law principle relating to private interest standing states that “one cannot sue upon an interest that one does not have.” (Watson, McKay & McGowan, Ontario Civil Procedure, at §11 Standing to Sue).
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Can an equalization claim create a direct personal legal interest that confers standing to make a trust claim on behalf of a spouse or a former spouse?
I find that it cannot. An equalization payment cannot change the titled or beneficial ownership of property between spouses. The equalization scheme in Ontario is not based upon a division of property, but rather, it recognizes a spouse’s non-financial contributions to a marriage by equalizing the increase in value in each party's net family property between the date of marriage and the date of separation, subject to variation per section 5(6) of the Family Law Act.
A claim that a third person holds property in trust for a non-titled spouse, or that a non-titled spouse has a beneficial interest in property, or a monetary claim arising from the acquisition, maintenance or use of that property can only arise from the personal, direct deprivation of the non-titled spouse. An equalization claim is, at best, an indirect legal interest. It is therefore insufficient to confer standing to a person to make a trust claim on behalf of a non-titled spouse or former spouse.
Even trust claims between married persons are exceptional because "[i]n the vast majority of cases any unjust enrichment that arises as a result of the marriage will be fully addressed through the operation of the equalization provisions of the Family Law Act," see Martin v. Sansome, [2014 ONCA 14, 118 O.R. (3d) 522, at para. 64.] Writing for a unanimous court, Justice Hoy envisions in Martin, supra, that it will be a rare case in which monetary damages for unjust enrichment cannot be adequately addressed by an equalization payment; and in those cases, a variation of share per section 5(6) of the Family Law Act, should be invoked before consideration of a trust claim.
Although not in evidence here, there may be a situation in which a meritorious trust claim is not advanced by a non-titled spouse. In such a case, the other spouse cannot step into the non-titled spouse’s shoes and advance the claim himself because he has no direct personal legal interest in the trust claim; but he could seek to vary the equalization between he and the non-titled spouse if the resulting payment is found to be unconscionable per section 5(6) of the Family Law Act. [25] In summary, a non-titled spouse cannot assert a trust claim against a third party on behalf of a spouse for equalization purposes. . Karatzoglou v. Commisso
In Karatzoglou v. Commisso (Ont CA, 2023) the Court of Appeal considered an appeal of a dismissal of a partial summary judgment motion in an NFP divorce matter. Here the court cites a statutory provision respecting gifts and NFP:[18] ... Under the Family Law Act, R.S.O. 1990, c. F.3 (FLA), s. 4(2)1, gifts and inheritances acquired after the date of marriage are excluded from net family property and from equalization. Rosetta would have no entitlement to share in the value of such a gift. . Torgersrud v. Lightstone
In Torgersrud v. Lightstone (Ont CA, 2023) the Court of Appeal considered the treatment of inheritance in net family property under the FLA:[16] It is unclear on the record whether the application judge was referring to the total value of the inheritance (which would be excluded from sharing) or the income from the inheritance. Under both Ontario and Quebec law, inheritances are excluded from what is shared between spouses. At the same time, again under both regimes, income or “fruits” of inherited property are not excluded from sharing unless specifically excluded by the donor or testator.
[17] Section 4(2)2 of the FLA provides:The value of the following property that a spouse owns on the valuation date does not form part of the spouse’s net family property:1. Property, other than a matrimonial home, that was acquired by gift or inheritance from a third person after the date of the marriage.
2. Income from property referred to in paragraph 1, if the donor or testator has expressly stated that it is to be excluded from the spouse’s net family property. [Emphasis added.] [18] Similarly, the Civil Code of Québec, S.Q. 1991, c. 64, art. 450(2) provides:The private property of each spouse consists of(1) property owned or possessed by that spouse when the regime comes into effect;
(2) property which devolves to that spouse during the regime by succession or gift, and the fruits and income derived from it if the testator or donor has so provided; [Emphasis added.] [19] In this case, there was no evidence that the husband’s family had specified such an additional exclusion. Absent such evidence, while the inherited property is in any case excluded from sharing pursuant to the legislation, the contracts deprive the wife of her entitlement to share in the income or fruits of that property. The application judge’s finding that the wife did not understand this consequence at the time that she signed the contract is entitled to deference and supported by the evidence. . Madi v. King
In Madi v. King (Ont CA, 2023) the Court of Appeal considered proprietary estoppel, here in a family separation case where the value of the matrimonial home increased from the date of separation to the actual sale:[25] The leading case governing proprietary estoppel is the Supreme Court’s decision in Cowper-Smith. That decision, which was not a family law case, set out the following test, at para. 15:An equity arises when (1) a representation or assurance is made to the claimant, on the basis of which the claimant expects that he will enjoy some right or benefit over the property; (2) the claimant relies on that expectation by doing or refraining from doing something, and his reliance is reasonable in all the circumstances; and (3) the claimant suffers detriment as a result of his reasonable reliance, such that it would be unfair or unjust for the party responsible for the representation or assurance to go back on her word. [Citations omitted.] [26] The claimant must establish all three elements of the test: Cowper-Smith, para. 23.
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[34] There is no evidence of any detriment suffered by the respondent by reliance on the assurance or expectation that she was an equal owner. She did not contribute either to the mortgage or to the expenses of running the home, nor did she change her position in any other material way. Notably, in the only Ontario case which appears to have applied the doctrine of proprietary estoppel to a post-valuation date increase in the value of the matrimonial home, the wife, who had thought she was on title, was registered on the mortgage and had contributed $120,000 to the purchase of the home, which the court found to have constituted detrimental reliance: Spadacini-Kelava v. Kelava, 2020 ONSC 7907, 52 R.F.L. (8th) 143, leave to appeal to Ont. C.A. refused, M52096.
[35] Here, not only was there no evidence of detrimental reliance, but the respondent received countervailing benefits in the sense applied in the case of Scholz v. Scholz, 2013 BCCA 309, 46 B.C.L.R. (5th) 98, at para. 33. Specifically, the appellant allowed her to continue to live in the house without paying rent or contributing to the mortgage for several months after they separated. . Madi v. King
In Madi v. King (Ont CA, 2023) the Court of Appeal considered a family separation case where the value of the matrimonial home increased from the date of separation to the actual sale:[17] The starting point for any consideration of property division and entitlement following separation is the applicable statutory scheme. Section 5(7) of the FLA sets out the purpose of equalization and makes clear that the Act is intended to address the financial unfairness that would otherwise routinely arise from marriage breakdown: Martin v. Sansome, 2014 ONCA 14, 118 O.R. (3d) 522, at para. 63.
[18] One important feature of the equalization scheme is the special status it accords to the matrimonial home, which is always included in the net family property of the titled spouse(s). However, the scheme does not give a non-titled spouse the right to share in property arising after the date of separation. A non-titled spouse may still seek to share in the post-separation increase in the value of the matrimonial home by making a claim for unequal division under s. 5(6) of the FLA, or a distinct ownership claim such as an equitable trust claim: Bakhsh v. Merdad, 2022 ONCA 130, at paras. 15-16.
[19] In McNamee v. McNamee, 2011 ONCA 533, 106 O.R. (3d) 401, at para. 66, this court stated that, “in the vast majority of cases, any unjust enrichment that arises as the result of a marriage will be fully addressed through the operation of the equalization provisions under the Family Law Act”. The high threshold of unconscionability that is required under s. 5(6) to depart from the presumptive equal sharing of value makes clear that the intent of the legislation is “not to alleviate every situation that may be viewed as in some ways unfair or inequitable”: Ward v. Ward, 2012 ONCA 462, 111 O.R. (3d) 81, at para. 25. The Act’s scheme for property sharing upon marriage breakdown is intended to promote predictability and thereby discourage litigation. If courts were to deviate from the scheme of the Act wherever it gave rise to an unfair result, this would have the undesirable effect of encouraging parties to litigate their claims: Ward, at para. 25.
[20] It stands to reason that a similar logic applies to constructive trust claims made in the course of divorce proceedings. While the determination of ownership precedes equalization, constructive trust claims made in this setting must be approached in a contextual fashion that gives weight to Ontario’s chosen legislative scheme. Ultimately, the court must be satisfied that the arrangement between the parties is not already meant to be captured by the FLA regime. For example, a shared understanding between two spouses that they are buying a matrimonial home “together” has to be understood with reference to a non-titled spouse’s FLA entitlements upon marriage breakdown. As discussed further below, it may not, on its own, constitute an unambiguous promise that the non-titled spouse would continue to be entitled to their share of the increase in value of the property after separation. . Meyer-Schelbert v. Meyer
In Meyer-Schelbert v. Meyer (Ont CA, 2023) the Court of Appeal considered the family law valuation date for equalization of net family property purposes:[1] The appellant appeals from the order of the trial judge finding that, for purposes of determining the valuation date for the respondent’s equalization claim under the Family Law Act, R.S.O. 1990, c. F.3 (the “FLA”), the date of separation was February 2015.
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[14] The assessment of the date of separation is a case-specific exercise that requires a trial judge to consider the totality of the circumstances. As such, the findings of a trial judge with respect to the date of separation are entitled to deference. In this case, the trial judge properly considered the evidence as a whole. She provided detailed reasons for her findings of fact and credibility. The findings of fact made by the trial judge were open to her on the record before her. We see no palpable and overriding error.
[15] In light of our conclusion that there is no error in the trial judge’s finding regarding the date of separation, there is no basis to interfere with the trial judge’s conclusion that respondent’s equalization claim was brought within the applicable limitation period under s. 7(3) of the FLA. ... . Senthillmohan v. Senthillmohan
In Senthillmohan v. Senthillmohan (Ont CA, 2023) the Court of Appeal briefly considers the difference between property equalization and a 'direct ownership claim': [18] We reject the appellant’s argument about equalization. The wife’s claim to the sale proceeds has nothing at all to do with equalization. Hers is a direct ownership claim: Rawluk v. Rawluk, 1990 CanLII 152 (SCC), [1990] 1 S.C.R. 70.
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