Zavarella v. Zavarella

Zavarella v. Zavarella Collection Decisions of the Court of Appeal Date 2013-11-28 Neutral citation 2013 ONCA 720 Docket numbers C54236 Judges Gillese, Eileen E.; Juriansz, Russell G.; Strathy, George R. Subject Family Decision Content COURT OF APPEAL FOR ONTARIO CITATION: Zavarella v. Zavarella, 2013 ONCA 720 DATE: 20131128 DOCKET: C54236 Gillese, Juriansz and Strathy JJ.A. BETWEEN Rony Zavarella Applicant (Respondent) and Filomena Zavarella Respondent (Appellant) Jerry J. Chaimovitz, for the appellant Deborah Barfknecht, for the respondent Heard: September 25, 2013 On appeal from the order of Justice Robert B. Reid of the Superior Court of Justice, dated August 5, 2011. Gillese J.A.: [1] A person made an assignment into bankruptcy shortly before she was married. Within months of the marriage, she was discharged without having made any payments on her debt. How should the debt that she had at the date of marriage be treated when calculating her net family property (“NFP”)? [2] Prior to trial, the parties agreed on how they would deal with many of the issues arising from the demise of their marriage, including certain NFP calculations. During trial, it became apparent that their agreement in respect of one NFP matter rested on a mistake of fact. One side wanted the matter revisited by the trial judge but the other said their agreement governed. Was it open to the trial judge to interfere with their agreed handling of the matter? [3] This appeal must answer these two questions, among others. OVERVIEW [4] The parties were married on August 21, 1994, and separated on July 30, 2009. They have two teenage children. After separation, they lived separate and apart in the matrimonial home until November 12, 2009, when it was sold. [5] The parties settled all matters before trial with the exception of a number of questions relating to their NFP calculations, as well as Mr. Zavarella’s claim for spousal support. [6] By order dated August 5, 2011 (the “Order”), among other things, the trial judge granted their divorce, ordered Mr. Zavarella to pay Ms. Zavarella an equalization payment of $38,955.00, and dismissed Mr. Zavarella’s claim for spousal support. [7] Ms. Zavarella appeals. She contends that the trial judge erred in his rulings on certain of the NFP calculations and that she is entitled to a significantly larger equalization payment. [8] For the reasons that follow, I would allow the appeal in part. [9] For ease of reference, in my reasons I will refer to the parties by their names or their status in this proceeding. Ms. Zavarella is the appellant and Mr. Zavarella is the respondent. BACKGROUND IN BRIEF [10] This matter was set for trial on July 4, 2011, to commence at 10 am. When it commenced, the parties advised the trial judge that nearly everything was in issue. However, based on lengthy negotiations that had taken place over the preceding weekend, they thought that if the trial were stood down for a brief period, they would be able to resolve most, if not all, of the issues. [11] The trial judge stood the matter down and the trial commenced at 2 pm. At that point, the parties gave the trial judge partial minutes of settlement (the “Agreement”), which reflected the agreement they had reached. They advised the trial judge that the only issues to be decided at the trial were Mr. Zavarella’s claim for spousal support and certain aspects of the NFP calculations that bore on the question of equalization. [12] The additional background facts necessary to decide this appeal relate to four matters: (1) Ms. Zavarella’s date of marriage debt; (2) the car that Ms. Zavarella brought to the marriage, one of the matters on which the parties had reached agreement prior to trial; (3) Mr. Zavarella’s date of marriage debt; and, (4) Ms. Zavarella’s use of the parties’ joint line of credit, in the approximately three-month period following separation. Ms. Zavarella’s Date of Marriage Debt [13] On August 12, 1994, about two weeks before the date of marriage, Ms. Zavarella made an assignment into bankruptcy. This was done with Mr. Zavarella’s knowledge and encouragement. Ms. Zavarella signed a Statement of Affairs in support of the assignment, which disclosed that she had debts of $59,838.70 (the “Debt”).[1] She received her discharge in bankruptcy approximately nine months later, without having made any payment on the Debt. The question to be decided at trial was how much, if any, of the Debt was to be treated as Ms. Zavarella’s date of marriage debt for the purpose of calculating her NFP. [14] The trial judge held that Ms. Zavarella had to include the Debt as her date of marriage debt. He accepted the expert evidence that given her age, income, and personal circumstances, there was no expectation on the date of marriage that Ms. Zavarella would be required to make any payment on the Debt. He also accepted that no payments were ever made on the Debt during the course of the marriage. However, he rejected the argument that the Debt was analogous to a contingent liability, saying that whereas a contingent liability may not become a debt, the Debt was fixed and existing at the date of marriage. He noted that the Debt was not extinguished until Ms. Zavarella was discharged and that had Ms. Zavarella received an inheritance or won a lottery before she was discharged, those assets would have vested in the trustee in bankruptcy and been used to pay her creditors. Further, he expressed the view that if the Debt were excluded from the NFP calculation, there would be a benefit to Ms. Zavarella in the equalization calculation. The Car [15] At the time that the parties married, Ms. Zavarella drove a 1993 Pontiac Sunbird car (the “car”). Her Statement of Affairs showed a “nil” value for vehicles and a secured debt, valued at $10,000, in favour of GMAC. It also indicated that the car was a “pledged asset” and that it was leased. Nonetheless, prior to trial, both parties and their lawyers thought that Ms. Zavarella owned the car at the date of marriage. Ms. Zavarella had included the car as an asset in her NFP statement because she had located an insurance certificate for it in her records and from that, assumed that she had an ownership interest in it. [16] As previously mentioned, shortly before the trial commenced in earnest, the parties entered into the Agreement, which reflected their settlement of a number of matters, including the car. As reflected in the Agreement, the parties agreed to treat the car as an asset that Ms. Zavarella brought to the marriage, with a value of $10,000. Accordingly, when counsel gave the trial judge a list of the items that had to be decided at trial, the list did not include the car. [17] However, during Ms. Zavarella’s cross-examination at trial, it became apparent that at the date of marriage she had been leasing the car and did not own it. Counsel for Mr. Zavarella argued that because the parties’ negotiations in respect of the car were based on the mistaken view that Ms. Zavarella owned the car, the trial judge should take into account the fact that the car was leased when deciding whether to respect that provision in the Agreement. Counsel for Ms. Zavarella argued that the parties’ agreed-upon manner of dealing with the car was the product of good faith negotiations about numerous items and that one item could not be taken out of the Agreement without affecting the resolution reached on other items. [18] The trial judge recognized the significant policy interest in enforcing settlements made during the course of litigation. He noted, however, that in reaching agreement about the car, both parties were operating under the misapprehension that Ms. Zavarella owned the car. In his view, a common mistake as to a fundamental fact made the Agreement voidable by either party. Consequently, he removed $10,000 – the value the parties had attributed to the car – from Ms. Zavarella’s date of marriage assets. Mr. Zavarella’s Date of Marriage Debt [19] At the time the parties were married, Mr. Zavarella also had debts. One source of his debts was an ongoing custody and access dispute involving two children from his previous marriage. Both parties in this proceeding agreed that on the date of marriage, Mr. Zavarella had a substantial amount of debt relating to that litigation, and that his debt continued to increase after the marriage until the custody and access proceeding concluded some two years thereafter. Because the parties could not agree on how much debt Mr. Zavarella owed at the date of marriage, however, they left that matter to be decided by the trial judge. [20] The trial judge was faced with conflicting evidence on the matter. A financial statement that Mr. Zavarella filed in the custody and access litigation with his former spouse showed that on December 5, 1996, he had debts of approximately $98,800, exclusive of his mortgage debt. There was also evidence from the assignment into bankruptcy that Mr. Zavarella made on August 8, 1997, approximately three years into the marriage. His debt at that time, as disclosed in his Statement of Affairs, was just short of $125,000. Further, at para. 2 of Mr. Zavarella’s trial management conference brief, dated March 21, 2011, Mr. Zavarella stated that “[b]oth parties brought over $100,000.00 of debt into the marriage”. Finally, there was Mr. Zavarella’s financial statement filed in these proceedings, and his trial testimony, both to the effect that he had debts totalling $30,000 on the date of marriage. [21] The trial judge referred to the conflicting evidence in relation to Mr. Zavarella’s date of marriage debts. He found para. 2 of Mr. Zavarella’s “unsworn” trial management conference brief ambiguous and not persuasive evidence of Mr. Zavarella’s date of marriage debt. After noting that each party bears the onus of proving the assets and debts on which they rely in their respective NFP statements, he found that Mr. Zavarella’s pre-marriage debt was $30,000. In making this finding, he stated that Mr. Zavarella’s date of marriage debt “has not been sufficiently established beyond the $30,000 which he admitted for me to determine on a balance of probabilities that the debt was in some greater amount” (the “impugned statement”). Use of the Joint Line of Credit Post-Separation [22] In November of 2009, after selling the matrimonial home, the parties paid off their joint line of credit. They accepted equal responsibility for the total amount owing on the line of credit to the agreed date of separation of July 30, 2009. However, there were disputes about the withdrawals made in the approximately three-month period between separation and sale of the matrimonial home. The focus on this appeal is on Ms. Zavarella’s withdrawals of approximately $155,000, made during that period. [23] Ms. Zavarella acknowledged that of the approximately $155,000, she had used $100,000 for a down payment on a new home for her and the children. She did not dispute that $100,000 had to be added back into the net proceeds of sale of the matrimonial home in determining equalization. [24] Of the remaining approximately $55,000, Ms. Zavarella testified that only $12,086 had been used to pay her business expenses. She acknowledged that she was responsible for this sum, as well. She testified that the balance had been used for household expenses and brought records to support her position. [25] The trial judge found that Ms. Zavarella used $2,401.53 to pay off a different line of credit, $588.70 to pay off the MBNA Visa debt, and $24,405 for family expenses. In his view, however, after the separation Ms. Zavarella was “attempting to use the line of credit as much as possible, drawing all available funds rather than use her own commission income to pay family and business expenses.” He found that she had withdrawn $27,662 more than was needed for family expenses and to pay off the other line of credit and credit cards. He concluded that sum had been used for her business expenses. THE ISSUES [26] The appellant submits that the trial judge erred in: (1) including the Debt as her date of marriage debt; (2) deducting $10,000 from her date of marriage assets for the car; (3) finding that Mr. Zavarella had only $30,000 in date of marriage debt; and (4) finding that after separation, she used $27,662 from the parties’ joint line of credit to pay for her business expenses. ANALYSIS Issue #1: What was Ms. Zavarella’s Date of Marriage Debt? [27] The appellant submits that the trial judge erred in treating the Debt as her date of marriage debt for the purpose of the NFP calculations. She points out that when the parties married, she had already filed for bankruptcy and they had no expectation that she would be required to make any payment on the Debt. Further, she notes, no payments were ever made on the Debt. In these circumstances, she submits, the trial judge should have discounted the value of the Debt to $0. [28] The respondent says that the appellant’s submission is based on the flawed assumption that Ms. Zavarella’s discharge in bankruptcy worked retroactively to make the Debt non-existent at the date of marriage. He argues that the trial judge correctly viewed the Debt as fixed and existing at the date of marriage. Were it otherwise, the respondent contends, Ms. Zavarella could not have filed for bankruptcy. He argued that the Debt continued until Ms. Zavarella was discharged, an event which occurred after the date of marriage. Therefore, even though there was very little likelihood at the date of marriage that Ms. Zavarella would be called upon to pay the Debt, the Debt was not a contingent liability and the trial judge correctly treated it as Ms. Zavarella’s date of marriage debt. [29] I would accept the appellant’s submission on this ground of appeal. In my view, Ms. Zavarella’s date of marriage debt should be valued at $0. [30] It is important to begin by placing this issue in context. Valuation of the Debt relates to equalization, the process mandated by s. 5 of the Family Law Act, R.S.O. 1990, c. F.3 (“FLA”). Section 5 provides that spouses are to share equally in any increase in the value of family property between marriage and the date of separation: see Greenglass v. Greenglass, 2010 ONCA 675, R.F.L. (6th) 271, at para. 25. Specifically, s. 5 stipulates that when a marriage ends, the spouse with the lesser of the two NFPs is entitled to one-half the difference between the two. In short, the spouse with the lesser NFP is entitled to an equalization payment. [31] Thus, to determine the amount of the equalization payment, the court must consider each party’s NFP. NFP is defined in s. 4 of the FLA as: the value of all the property, … that a spouse owns on the valuation date, after deducting, the spouse’s debts and other liabilities, and the value of property, other than a matrimonial home, that the spouse owned on the date of the marriage, after deducting the spouse’s debts and other liabilities, …, calculated as of the date of the marriage[.] [32] It will be readily apparent that the debt a spouse brings to the marriage will affect that spouse’s entitlement in the equalization calculation. This makes sense because it can be assumed that the spouses paid off that debt during the course of the marriage and the family assets were diminished accordingly. [33] However, if the evidence does not support this assumption, the court cannot simply insert the face value of the debt into the NFP calculation. To do so could undermine the objective of equalization, which is to divide equally between the spouses the net wealth accumulated from the date of marriage to the date of separation. Instead, in my view, the court must make a meaningful determination of the value to attribute to the date of marriage debt. In determining how to do that, I will consider caselaw that has developed in respect of contingent liabilities because there are no cases directly on point. [34] Greenglass, a recent case of this court involving contingent liabilities, is illustrative. In Greenglass, at the valuation date the husband faced contingent legal costs associated with litigation that had begun during the marriage. In determining how to value this contingent liability, Epstein J.A., writing for the court, made the following observations. Contingent liabilities are to be taken into consideration when it is reasonably foreseeable that they will be paid (para. 26). When the courts have found that at the valuation date there is no, or a very low risk that a guarantee would be called on, the value of that contingent liability has been held to be nil (para. 27). In the end, the court’s task is to make its best assessment of the reasonably foreseeable amount of the contingent liability and use that figure for purposes of NFP calculations (para. 31). Using that approach, this court valued the husband’s contingent legal costs at $300,000. [35] In Poole v. Poole (2001), 16 R.F.L. (5th) 397 (Ont. S.C.), Heeney J. used a similar approach when determining the value of a debt acquired during the marriage. In Poole, the husband’s parents lent the parties over $80,000. The debt was evidenced by promissory notes. After the parties separated, the parents began legal proceedings to recover the money from both of the spouses. [36] At para. 32 of Poole, Heeney J. wrestled with the question of how to value the debt for NFP purposes. He observed that having found the promissory notes constituted a debt, one might think it would be a simple matter to insert the face value of the debt into the appropriate place in each party’s NFP calculation. However, the process is not so simple. Just because an asset or a debt has a certain face value, it does not automatically follow that the court must insert that face value in the net family property calculation. There may well be a valuation issue to be resolved, in situations where the face value of an asset or debt does not necessarily equate with its real value. [37] He went on to value the debt based on the probability that it would be collected. As there was no question that the parents would enforce judgment as against the wife, 50% of the face value of the debt was used for her NFP calculation. However, as it was “highly improbable” (para. 40) that the parents would call on the husband to pay his half share of the debt, Heeney J. discounted the husband’s debt to 10% of its face value. [38] This court has expressly endorsed Heeney J.’s approach in Poole, saying that the courts are frequently called upon to assess the actual worth of a claim, asset or liability, by discounting its face value where the evidence indicates it is unlikely that the promissor will ever be called upon to pay: see Cade v. Rotstein, 50 R.F.L. (5th) 280 (Ont. C.A.), at para. 8. [39] Greenglass is about contingent liabilities at the end of the marriage. Poole is about debt acquired during the marriage. Both cases demonstrate that in order to fairly calculate equalization, the court must make a realistic determination of the value of debt in an NFP calculation, and that determination is based on the reasonable likelihood that the debt will ever be paid. [40] Just so in the present case. Although this case is about debt brought to the marriage, the same principle operates: the debt is to be valued based on the reasonable likelihood that the debt will ever be paid. The expert evidence led by both parties showed that there was a very low risk that Ms. Zavarella would ever be called upon to pay the Debt. On that basis alone, the Debt should have been seriously discounted. But the evidence in this case made it unnecessary to resort to an estimate of the reasonable likelihood that the Debt would be paid. The evidence showed that the Debt was extinguished without any payments ever having been made on it. In the circumstances, it was an error to attribute any value to Ms. Zavarella’s date of marriage debt. [41] I would conclude on this issue by rejecting the respondent’s contention that this approach to valuing date of marriage debt circumvents the Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3 (“BIA“) and its specific requirements relating to the discharge of debts. This approach to the valuation of the Debt is to be understood in the appropriate legislative context, namely, the equalization scheme in the FLA. How the Debt is treated, when being considered for the purposes of the BIA, is a different question, to be resolved by reference to the applicable BIA provisions. [42] Accordingly, I would set aside the trial judge’s determination of Ms. Zavarella’s date of marriage debt and fix her date of marriage debt at $0 for purposes of the NFP calculations. Issue #2: How should the Car be treated for NFP purposes? [43] The appellant submits that it was an error for the trial judge to have gone behind the parties’ agreement in respect of the car and reduced her date of marriage assets by $10,000. She also contends that the respondent should have been barred from withdrawing his pre-trial agreement in respect of the car. She says that she relied on the Agreement in her conduct of the trial and that the respondent has not demonstrated a common mistake that would justify the trial court’s interference with the Agreement. [44] The respondent submits that he only made the concession in respect of the car because of the appellant’s factual representation of ownership. When that representation was undermined at trial, he says that their pre-trial agreement regarding the car was also undermined and justified a change in his position. [45] In any event, he argues, the pre-trial agreement on the car was void for common mistake. Relying on Miller Paving Ltd. v. B. Gottardo Construction Ltd., 2007 ONCA 422, 86 O.R. (3d) 161, he submits that the court had the power to set aside the agreement in respect of the car because the parties were under a common misapprehension as to the fact of the car ownership and he, the party seeking to set aside the agreement, was not at fault. Furthermore, he says, there was no evidence that Ms. Zavarella made any concession in exchange for his concession in respect of the car. Therefore, the trial judge’s ruling on the car should stand. [46] I accept the appellant’s submission on this ground of appeal. In my view, the trial judge erred in going behind the parties’ agreement in respect of the car. I reach this conclusion because the doctrine of common mistake was neither available nor properly applied, in the circumstances of this case. [47] Where the doctrine of common mistake applies, the court has the power to set aside an agreement. However, in ruling on the car, the trial judge did not consider the Agreement as a whole. Instead, he considered only that part of the Agreement which related to the car. In doing so, he erred. If he were to consider the terms of the Agreement, he had to consider them all and not simply the one part of the Agreement that related to the car. [48] Similarly, it was not open to the respondent, during the course of the trial, to withdraw his consent to a single term of the Agreement. If he wished to challenge the validity of the concession he made about the car, he had to challenge the validity of the Agreement as a whole. He could not pick and choose among its terms, for the purposes of such a challenge. It does not matter that the appellant could not point to any particular concession and say that she made it in response to the respondent’s concession about the car. The Agreement in this case reflected “give and take” by both parties on a number of matters. The appellant was entitled to rely on the Agreement in her conduct of the trial, unless the Agreement was properly set aside. [49] Further, while the trial judge said that he was alive to the important policy reasons for enforcing pre-trial settlements, in my view, he failed to respect them. Fairness and finality considerations, along with the need to encourage parties to settle their affairs with the confidence that their settlement will not be interfered with lightly, favour enforcement of the Agreement. Agreements should not be interfered with, except in very narrowly circumscribed circumstances. And, to reiterate, if an agreement is to be considered by the court, it is the agreement as a whole that must be reviewed, not some isolated part of it. [50] In any event, in my view the respondent could not have successfully invoked the doctrine of common mistake. I reach this conclusion for two reasons. [51] First, the mistake about the car did not go to the root of the Agreement. While the Agreement does not form part of the record before this court, a review of the trial transcript shows that its terms govern a large number of disputed matters, including custody and access, as well as various matters related to the parties’ NFP statements and equalization. In the circumstances, the car – a single item with a relatively small dollar value attached to it – cannot be seen to be the “root” of the Agreement. That is, the mistaken assumption about the car did not change the subject matter of the Agreement so that it became something essentially different from what it was believed to be. The parties believed the Agreement to be the resolution of a host of matters relating to the demise of their familial relationship. The essential nature of the Agreement remained. [52] Second, for the doctrine of common mistake to apply, the respondent would have had to have shown that the mistake as to ownership of the car was not his fault. In the circumstances of this case, he could not have discharged that burden. [53] As the respondent properly acknowledges, both parties had access to the appellant’s bankruptcy documents, including her Statement of Affairs, during the pre-trial negotiations. The Statement of Affairs clearly indicates that the car was leased at the date of marriage. It was sheer inadvertence that caused this matter to be missed. Such an oversight is understandable. The parties and their lawyers had a large number of important matters to attempt to resolve in a short period of time and they did an admirable job in that regard. The car was a small matter, considered in the context of all the matters that divided the parties. This is not a situation where there was inadequate or untimely disclosure, or where one party took advantage of the other. Nor was there misrepresentation. It is true that Ms. Zavarella believed she owned the car and prepared her NFP statement on that basis. But that document was prepared a great many years after the date of marriage, when memories had faded. Both parties also had her Statement of Affairs, a document contemporaneous to the date of marriage, which showed that she was leasing the car at that time. [54] The respondent’s concession in respect of the car was made within the context of full disclosure, which showed the true state of affairs in respect of the car, good faith negotiations, and lots of “give and take” by both sides on many matters. In these circumstances, in my view, the respondent would not have discharged his burden to show that the mistake was not his fault. Both sides bear responsibility for the mistaken assumption. [55] I am fortified in my view of this ground of appeal by a consideration of this court’s decision in Miller Paving. [56] In Miller Paving, Miller Paving Limited (“Miller”) contracted to supply aggregate materials to B. Gottardo Construction Ltd. (“Gottardo”). Gottardo used the materials to build a highway extension. On December 20, 2001, Miller and Gottardo signed a memorandum of release (the “Contract”) in which Miller acknowledged it had been paid in full for all the materials it had supplied to Gottardo. When Miller later discovered that it had failed to bill Gottardo for some materials, it rendered a further invoice. Gottardo resisted the claim for additional payment, even though it had been paid by the highway owner for the materials in question. [57] At trial, the court refused to apply the doctrine of common mistake and set aside the Contract. This court dismissed Miller’s appeal. [58] Goudge J.A., writing for this court, held that Miller could not avail itself of the doctrine of common mistake because it had agreed to bear the risk of a mistake of the sort in question. In this regard, he noted the terms of the Contract in which Miller acknowledged that it had been paid in full for all materials supplied. [59] Goudge J.A. went further, however, holding that Miller could not have succeeded in any event. Under the common law doctrine of common mistake, the subject matter of the Contract would have had to become something essentially different from what it was believed to be. The Contract was the release of all further claims by Miller. Nothing about the mistaken assumption changed the Contract’s subject matter. Moreover, to engage the equitable doctrine of common mistake, Miller would have to have shown that it was not at fault. In light of the trial judge’s finding that the mistake was due to unexplained errors in Miller’s procedures, it could not have discharged that burden. [60] Unlike Miller Paving, there is no suggestion in the present case that in the Agreement, one party agreed to bear the risk of the mistake in question. However, just as in Miller Paving, the mistake in this case did not cause the Agreement to become something essentially different from that which the parties believed it to be. Indeed, no one contends that the essence of the Agreement related to the car. And, for the reasons already given, I do not see that the respondent could discharge his burden to show that he was not at fault. [61] Accordingly, I would allow this ground of appeal and permit the appellant to maintain a figure of $10,000, in respect of the car, in her date of marriage assets. Issue #3: What was Mr. Zavarella’s Date of Marriage Debt? [62] The appellant submits that while the extent of Mr. Zavarella’s indebtedness on the date of marriage was unclear, the bulk of the evidence showed that it was much in excess of $30,000, and the trial judge erred in finding it to be limited to that sum. [63] I would reject this submission. [64] The trial judge was faced with conflicting evidence on this matter and chose to accept Mr. Zavarella’s trial testimony. As his reasons show, the trial judge was expressly alive to the legal principle that each party bears the onus of proving his or her assets and debts at the time of marriage. I do not accept that the impugned statement, set out above in the background portion of these reasons, amounted to the trial judge impermissibly shifting the burden to Ms. Zavarella to disprove Mr. Zavarella’s proposed figure of his date of marriage debt. The impugned statement is awkwardly worded. However, it follows quickly after the trial judge’s correct statement as to the burden of proof in respect of date of marriage assets and debts. In that context, I understand the trial judge to be saying, in the impugned statement, that he found Mr. Zavarella’s date of marriage debt to be $30,000, based on Mr. Zavarella’s testimony to that effect. [65] The trial judge sifted through the conflicting evidence and made a finding of fact as to the amount of Mr. Zavarella’s date of marriage debt. As an appellate court, this court is not to interfere with that finding, absent palpable and overriding error. In Fletcher v. Manitoba Public Insurance Corp., [1990] 3 S.C.R. 191, at p. 204, the Supreme Court explained the need for appellate deference in relation to findings of fact, saying: The very structure of our judicial system requires this deference to the trier of fact. Substantial resources are allocated to the process of adducing evidence at first instance and we entrust the crucial task of sorting through and weighing that evidence to the person best placed to accomplish it. [66] I see no palpable and overriding error in the trial judge’s finding of fact on Mr. Zavarella’s date of marriage debt. Accordingly, I would dismiss this ground of appeal. Issue #4: How was the joint line of credit used post-Separation? [67] It will be recalled that the trial judge found that Ms. Zavarella used $27,662 from the parties’ joint line of credit for her business expenses. [68] On appeal, Ms. Zavarella essentially argues that the trial judge was bound to accept her trial evidence that she spent only $12,086 for her business expenses. Her argument can be summarized as follows. She managed the household finances when the parties were married. Until the matrimonial home was sold, they continued to live in the home, although separate and apart, in much the same style as they had during the marriage. She kept meticulous records in relation to her spending of funds during that period. She asserts that her trial testimony on this matter was never challenged or contradicted. Therefore, the trial judge made a palpable and overriding error in finding that she used $27,662 to pay for her business expenses. [69] I would not accept this submission. [70] The trial judge had the opportunity to hear Ms. Zavarella’s testimony and cross-examination on that testimony. As well, he examined the parties’ financial documentation, including their banking records. The trial judge’s finding that Ms. Zavarella used $27,662 to pay for her business expenses is a finding of fact to which deference is owed. As noted above in relation to the third issue, this court is not to interfere with a trial judge’s finding of fact, absent a palpable and overriding error. In my view, the appellant has not demonstrated such an error. [71] Thus, I would dismiss this ground of appeal. DISPOSITION [72] Accordingly, I would allow the appeal in part and direct the parties to calculate the equalization payment using a figure of $0 for Ms. Zavarella’s date of marriage debt and retaining the figure of $10,000 for the car as a date of marriage asset. I would order that para. 21 of the Order be varied to reflect the new equalization payment. [73] If the parties are unable to reach agreement on costs of the appeal, I would permit them to file brief written submissions on the matter, to a maximum of three pages in length, such submissions to be filed with the court no later than fourteen days from the date of release of these reasons. [74] At the conclusion of the oral hearing of the appeal, the parties alluded to the fact that the result on appeal might have an impact on the costs award at trial. I would permit the parties to include submissions on this matter in their written submissions on the costs of the appeal. “E.E. Gillese J.A.” “I agree G.R. Strathy J.A.” Juriansz J.A. (dissenting): [75] I have read my colleague’s reasons and, with respect, I am unable to agree that the trial judge committed a reversible error by strictly applying the equalization formula set out in the Family Law Act, R.S.O. 1990, c. F.3 (“FLA”). In my view, this case invites a return to first principles, especially the basic proposition that the legislature adopted a formulaic approach to equalization of family property to minimize the exercise of judicial discretion. [76] It is undisputed that on the date of marriage the wife had debts to a number of credit card companies, retailers, and government bodies totalling approximately $49,000. Unlike my colleague, I do not consider it appropriate to pose the question of how this debt “should be treated” when calculating her net family property. In my opinion, the trial judge was correct in ending the inquiry with the finding that the debt in question existed at the date of marriage and then applying the statutory formula. The Formulaic Approach [77] Ontario’s FLA creates a rigid formula for dividing property on marriage breakdown. Section 5(1) provides that upon a designated trigger (e.g., divorce or separation), “the spouse whose net family property is the lesser of the two net family properties is entitled to one-half the difference between them.” The definitions provided in s. 4(1) flesh out how this payment is calculated, and effectively create a mathematical formula to determine property division. [78] This formulaic approach with defined inputs was not accidental. The FLA was specifically designed to reduce family law litigation by wringing judicial discretion out of the system: see FLA, Preamble; Family Law Rules, O. Reg. 114/99, Rule 2. T.W. Hainsworth, author of the Ontario Family Law Act Manual, loose-leaf, 2nd ed. (Toronto: Thomson Reuters Canada, 2009), at para. 5-1.02, states conclusively that the FLA property rules eliminate judicial discretion. [79] For this proposition, Hainsworth relies on Skrlj v. Skrlj (1986), 2 R.F.L. (3d) 305 (Ont. H.C.) and Serra v. Serra, 2009 ONCA 105, 93 O.R. (3d) 161. In Skrlj, Galligan J. observed that the marital property regime’s equalization formula left the court with no discretion to decide spouses’ affairs in accordance with the presiding judge’s sense of fairness. He said, at p. 309: Before dealing with the property issues, I want to make a very brief observation about the new regime of family law in Ontario. As I read the Family Law Act 1986, it leaves the court with no discretion to decide spouses’ affairs in accordance with a particular Court's sense of fairness. Subject to a discretion if it finds unconscionability, under s. 5(6), the courts must decide the rights of separating spouses in strict compliance with the terms of the Act, even if in an individual case, a judge may feel that the result does not appear fair according to that particular judge's sense of fairness. I think the Legislature has clearly expressed its intent to remove judicial discretion from property disputes between separating spouses. [80] Galligan J. stressed this point by adding, colourfully, that the new scheme put an end to “Palm Tree Justice” in Ontario. He said, at p. 309: In this case certain suggestions were put to the court about how this dispute could be resolved by transferring assets to discharge corresponding liabilities. In my view, that is the stuff of settlement. Separating spouses can settle their differences as they see fit but if they do not settle them and decide to come to trial, they are entitled to, and should expect to get, adjudication, not mediation. I think that any remnants of "Palm Tree Justice" have now disappeared from Ontario. I intend to decide this case, and other cases, strictly according to the Family Law Act, as I interpret it. The chips will fall where they may.[2] [81] In Serra, Blair J.A. echoed this sentiment when he observed, at para. 56, that “the design of the legislation,” i.e. the adoption of the equalization formula, “is to promote the goals of certainty, predictability and finality in the resolution of property matters following the breakdown of marriage.” The certainty, predictability and finality of outcomes make the disposition of family property cases immeasurably more efficient. The equalization formula, with its certain, predictable and final results, dissuades parties from litigating. [82] The issue in Serra was the application of s. 5(6) of the FLA. Section 5(6) authorizes the court to depart from the outcome of the statutory formula if the result would be “unconscionable”. While Blair J.A.’s reasons focus on the scope of s. 5(6), his clear premise is that the statutory formula must be applied unless “unconscionability” is established. In this provision, unconscionability sets an “exceptionally high” threshold: the application of the statutory formula in the circumstances must “shock the conscience of the court” (at paras. 47, 71). Blair J.A. observed that “[j]udicial discretion with respect to equalization payments is therefore severely restricted, by statutory design” (at para. 57). [83] Hainsworth points out that the unconscionability threshold was a change from the former property regime, which permitted judicial intervention if equal division was “inequitable”. He notes, at para. 5-4.02, that the change in language “demonstrated that the legislature intended to afford the equalization regime additional protection from judicial interference.” [84] In contrast to the FLA property rules, judicial discretion leads to trials. Its exercise requires detailed evidence about the unique circumstances, histories and expectations of the particular spouses. These finely-tuned results come at a cost most often disproportionate to what is at stake. Litigation of property issues in family law not only saddles the parties with disproportionate financial and emotional costs, but allowing property issues to fester while awaiting trial and appeal detrimentally affects the other family law issues the parties must resolve. [85] In any event, it is not for the courts to weigh the relative costs and benefits of the two approaches. The legislature has chosen the formulaic approach over the judicial discretion approach. This choice necessarily entails that the strict application of the rules may lead to a result different from what a court might order, short of “unconscionability”. The Authorities Relied Upon [86] The primary authorities on which the appellant relies in this appeal are this court’s decision in Greenglass v. Greenglass, 2010 ONCA 675, 99 R.F.L. (6th) 271, and Heeney J.’s decision in Poole v. Poole (2001), 16 R.F.L. (5th) 397 (Ont. S.C.). [87] In Greenglass, Epstein J.A. recognized the court’s ability to include contingent debts in a spouse’s NFP calculation, when those debts were foreseeable at the valuation date, even if they are not yet liquidated. In that case, the contingent debts were legal fees for litigation related to actions taken during the marriage for a claim that had crystallized before the date of separation. [88] The present case, as both counsel recognized, is different because the wife’s date of marriage debts were not contingent but actual. Indeed, the definition of “property” in s. 4(1) of the FLA includes “contingent” interests, which indicates a jurisdiction to include them in the calculation. The appellant seeks to extend the treatment of contingent debts to the circumstances of this case. [89] Poole concerned money that the husband’s parents had lent the married couple, which they sought to collect when the marriage ended. The trial judge discounted the husband’s share of the debt because he found the parents were very unlikely to collect it from their son [90] Poole is one of a line of cases dealing with money advanced to married adult children by their parents: see, e.g., Da Silva v. Da Silva (2004), 1 R.F.L. (6th) 108 (Ont. S.C.), at para. 46; and Seneshen v. Seneshen, [2006] O.J. No. 2104 (S.C.), at paras. 12-27. In my view, the question that arises in these cases is whether the transfer of property from a parent to a married adult child or couple should be characterized as a gift or loan. The court is given the jurisdiction to consider whether a transfer is a “gift” by s. 4(2)1 of the FLA. Under s. 4(2), parties bear the onus to establish that a particular piece of property should be excluded from their NFP because it was a gift. The nature of the provision requires factual findings from judges. [91] As I read her reasons, my colleague would extend the Poole approach beyond money advanced from parents, or as gifts, to apply to all debts. She says that “in order to fairly calculate equalization, the court must make a realistic determination of the value of debt in an NFP calculation, and that determination is based on the reasonable likelihood that the debt will ever be paid.” [92] I have grave reservations about extending the Poole approach. Unlike with gifts, there is no suggestion in the FLA formula that certain debts will not be included in the NFP calculation. To repeat, unlike gifts, which are excluded under s. 4(2)1, s. 4 does not contemplate characterizing particular liquidated debts as real or illusory, nor does it mention the possibility of discounting them. [93] Having concluded the trial judge erred by not departing from the equalization formula, my colleague relies on the following evidence called by the parties to conclude that the wife’s date of marriage debts should be set at $0: the two expert opinions, the parties’ testimony about their conversations before marriage, and the fact that the wife was eventually discharged without making any payments. In another case, the economic affairs and prospects of the bankrupt spouse might be different; the expert opinion about whether some payment would likely be required might be different; the parties would have had different pre-marriage conversations; and the subsequent events might be different. A court exercising this discretionary approach in another case may set the date of marriage debts at some value other than $0, depending on the evidence. [94] My larger concern is that my colleague’s reasoning cannot be confined to cases in which one spouse has made an assignment in bankruptcy. The principle that courts have the discretion to determine, for NFP purposes, a liquidated debt’s “true” value while disregarding its face value could apply to many kinds of debt, whether owed by or to a spouse. In my opinion, recognizing judicial jurisdiction to value particular debts raises the spectre of family law litigants looking to the court to rate the quality of all of the debts they owe or are owed. Not only would the outcomes be uncertain and unpredictable, but the resolution of each case would require evidence about the particular circumstances. Expert opinion would be required in a great many cases. [95] The certainty and predictability provided by the statutory equalization formula would be undermined. The result would be greatly expanded scope for litigation in the already overburdened family courts. Applying the Formula [96] In the circumstances of this case, I would agree with the trial judge’s approach. That is, I believe the correct approach is to simply apply the computations set out in s. 4(1) of the FLA and “let the chips fall where they may”. [97] Section 4(1) defines “net family property” as follows: “net family property” means the value of all the property, except property described in subsection (2), that a spouse owns on the valuation date, after deducting, (a) the spouse’s debts and other liabilities, and (b) the value of property, other than a matrimonial home, that the spouse owned on the date of the marriage, after deducting the spouse’s debts and other liabilities, other than debts or liabilities related directly to the acquisition or significant improvement of a matrimonial home, calculated as of the date of the marriage[.] [Emphasis added.] [98] This definition clearly provides that one must deduct the spouse’s debts “calculated as of the date of the marriage”. As of the date of marriage, the wife in this case had debts in the amount of $49,838.70. These were actual, liquidated debts, not contingent debts as in Greenglass. Nor is there an issue whether these funds were a gift. Indeed, unlike assets or debts about whose value there could be disagreement among experts, such as art or real property, these were liquidated amounts owing to arm’s-length creditors. [99] No one disputes these facts. As the trial judge concluded, at para. 12: … a contingent liability which may or may not become a debt obligation is different from an actual debt. In the case at bar, the debts were fixed and existing at the date of marriage. [100] I would attach no significance to the wife’s application for an assignment in bankruptcy before marriage. It did not change the legal character of her debts. This court, in Thibodeau v. Thibodeau, 2011 ONCA 110, 104 O.R. (3d) 161, dealt with the application of bankruptcy principles to family law disputes. Blair J.A. rejected the notion that equalization payments should receive special treatment in a bankruptcy, except for those orders explicitly made pursuant to s. 9(1) of the FLA. The court held that the bankruptcy regime applies strictly to family law property disputes, unless the statute provides otherwise. See also Schreyer v. Schreyer, 2011 SCC 35, [2011] 2 S.C.R. 605, at paras. 37-41. [101] In this case, the bankruptcy discharge was granted during the marriage. As such, it should be treated like any other financial benefit received by one spouse during the marriage and the parties should share its benefit equally. Receipt by one spouse of a financial benefit during the marriage that then accrues to both spouses upon marriage dissolution is in no way unique to these circumstances. [102] I would also pay no heed to the parties’ pre-marriage conversations in which the husband advised the wife to make an assignment in bankruptcy. While s. 52(1) of the FLA allows prospective spouses to “enter into an agreement in which they agree on their respective rights and obligations under the marriage or on separation”, s. 55(1) provides that such a contract is “unenforceable unless made in writing, signed by the parties and witnessed.” [103] These provisions are consistent with the overall scheme of Part I of the FLA. They encourage the certain, predictable and final resolution of family property disputes by shrinking the scope for the calling of evidence and circumscribing the discretion of courts. [104] Finally, I would attach no significance to the evidence that the wife eventually received a discharge without making any payment towards her debts. The character of the wife’s interests on the date of marriage should not change with the unfolding of subsequent events. I restate the closing phrase of s. 4(1) that a spouse’s debts are to be “calculated as of the date of the marriage”. [105] The clarity of this phrase was recognized by this court in Dembeck v. Wright, 2012 ONCA 852, 114 O.R. (3d) 44. In that case, the 62-year-old husband received a $190,000 termination package from his employer shortly before separating from his wife, whom he had married when he was 53. The husband unsuccessfully argued that most of the value of the package had accumulated before marriage and should be excluded from the calculation of his NFP. [106] Writing for the court, Epstein J.A. also rejected the husband’s alternative argument that the part of the package that had fully accumulated prior to marriage retroactively became date-of-marriage property when his entitlement to the amount crystallized before the date of separation. She looked to the FLA and found “nothing in [the definition of property] that gives the court jurisdiction to reclassify an interest as circumstances change” (at para. 56). She added, at para. 57, that to reclassify an interest when circumstances change would be contrary to Ontario's “mechanism for giving effect to the policy underlying modern family law legislation”. This would permit on-going adjustments as to what is and what is not property, destroying the "fixed date valuation" identified by Blair J.A. in Serra. [107] In coming to this conclusion, at paras. 58, 59, she emphasized the purpose of the FLA of promoting settlement through certainty of outcomes: … In my view, expanding the definition of property in proceedings under the FLA to allow for retroactive reclassification would be contrary to the statutory intent. This intent has been expressed in many ways, but for the purposes of making this point I go to the preamble of the Act itself. The preamble identifies the Act’s purpose as “to provide in law for the orderly and equitable settlement of the affairs of spouses upon the breakdown of the partnership”. To allow retroactive reclassification of property would be anything but orderly. It would inject a substantial dose of uncertainty into a statutory framework in want of none. It would also increase the consumption of limited resources of time, money and emotional energy that accompany the resolution of matrimonial disputes. [108] If there was any legitimate concern over unfairness, Epstein J.A. concluded, at para. 60, it had to be addressed under s. 5(6) of the FLA by establishing that equal division of property would be unconscionable. [109] While Dembeck is not on all fours with this case, I would employ similar reasoning and refuse to revisit the characterization of the wife’s date of marriage debts because of the subsequent event that she made no payment towards them. [110] I would therefore conclude that the trial judge was correct to include the debts the wife owed at the date of marriage in her date of marriage debts. I would not consider whether this result was “unfair”, “harsh” or “unjust”. The threshold for departure from the statutory formula, as this court has decided, is whether the result “shocks the conscience of the court”. In my view, it does not. The Car [111] I respectfully agree with the legal principles that my colleague applies in allowing the appeal with respect to the car—both with respect to pre-trial settlements and the doctrine of common mistake. However, I would dismiss the appeal on this issue because of the state of the record. [112] It seems to me that when this court is asked to review a trial judge’s treatment of a $10,000 piece of property in a family law case, at a minimum, the appellant should be expected to place a record before the court with a proper foundation for the relief sought. The standard to intervene on an issue of this kind is high and in part “designed to promote finality in family law litigation”: Juvatopolos v. Juvatopolos (2005), 19 R.F.L. (6th) 76 (Ont. C.A.), at para. 13. In this case, the appellant has not filed in the appeal record any settlement agreement upon which she relies. Other Issues [113] I agree with my colleague’s disposition of the other two issues on appeal. Released: November 28, 2013 (“E.E.G.”) “R.G. Juriansz J.A.” [1] The trial judge excluded the secured debt of $10,000 from the Debt because there was no evidence that the value of the car was inadequate to offset its associated debt. There was no appeal taken from this finding of fact and the appeal proceeded on the basis that the Debt was $49,838.70, rather than $59,838.70. [2] This court has approved Galligan J.’s remarks in Skrlj. See, most recently, Buttar v. Buttar, 2013 ONCA 517, 116 O.R. (3d) 481, at paras. 50-53.