Shrinking Values: COVID-19 and its Potential Impact on Property Division

 In Family Law

With COVID-19, many people have seen the value of their assets drop. An investment that was climbing with the market has now plummeted. The value of businesses have decreased with the ongoing closures. How long it will take for these to bounce back is anyone’s guess.

In a separation, the value of one’s assets and debts is captured at three points in time: the date of marriage, the date of separation, and today’s date. To calculate property division and the payment that will equalize the parties’ property, the date of marriage and date of separation are the bookends: the value accumulated between these two dates is what is divided and equalized.

However, for many, the values of their assets today are lower than what they were at the time of separation. While a post-separation increase or decrease to an asset is not typically considered in property division, there can now be a sense of unfairness as the funds to make a payment may no longer be as readily available because of COVID-19.

A new decision, Jayawickrema v Jayawickrema, is the first case that hints at the fact that COVID-19 could impact on how parties’ property is divided in a separation.

This case went to trial in November 2019. The judge reserved writing his decision until a later date and, by the time the judge was ready to release the decision, COVID-19 was in full swing. The judge found that the wife owed the husband an equalization payment of approximately $66,000. However, while unequally dividing property was not contemplated at the trial, the judge was not prepared to make an order on the equalization payment without giving the wife the opportunity to submit materials on whether or not it would be unconscionable to make her pay the equalization payment because of COVID-19. The judge specifically noted that the negative impact on the economy “likely impacted [the wife’s] ability to operate her business, pay the mortgage on its premises and thus fund any equalization payment”.

The law allows for parties to make an argument that an equalization payment amount should be changed if it would be ‘unconscionable’ to otherwise order it. In 2009, the Court of Appeal said that an asset whose value has been negatively impacted by a declining market could, in certain instances, be an appropriate ‘unconscionability’ consideration and therefore a reason to unequally divided property.

The threshold for unconscionability is very high: ordering the equalization payment, as is, must ‘shock the conscience of the court’. Where dealing with the effects of a market, the court specified that each case turns on its own facts and many things have to be considered like, could the diminishing value of the asset been protected from further decline (e.g. selling it, preserving it in some other way) or is the decrease in value temporary. Even if the threshold is met, it is still up to a court to decide what is fair – a recalculation of an equalization payment is not guaranteed.

The family law bar will be closely watching this case because of the potential impact it could have on parties and property division. While this case specifically deals with businesses, it is possible that the principles arising from any such decision could apply to other assets, like investments, that have seen a significant loss in value due to COVID-19.

This blog post was written by Olivia Koneval, a member of the Family Law team.  She can be reached at 613-369-0367 or at olivia.koneval@mannlawyers.com.

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