Feb 13, 2015

AREAS OF LAW: Family law; Family assets; Reapportionment

Nowak v. Nowak, 2014 BCCA 409 (CanLII)

Under ss. 58(3)(a)(i) and 58(3)(b)(i) of the Family Relations Act, property over which a spouse has power of appointment exercisable in favour of the spouse, or a share in a corporation where the corporation owns property, are both deemed to be family assets if the property in question, were it owned outright by a spouse, would be a family asset.~

BACKGROUND: The Appellant, Mr. Nowak, and the Respondent, Ms. Nowak, were married for 16 years before separation. Both had children from previous relationships. About six years before he began cohabiting with the Respondent, the Appellant bought a commercial strata property using money borrowed from his as a down payment. When his mother passed away, he used his inheritance to pay off the outstanding mortgage to his mother’s estate. In September 2010, the Appellant created the Nowak family trust, and named himself and his three children as beneficiaries. He also incorporated Nowak Enterprises Ltd., and he and the trust were the shareholders of the corporation. He transferred 50% of the legal ownership and 100% of the beneficial ownership of the strata property to the corporation in exchange for a promissory note and shares worth $1,001,000, the assessed value of the strata property at that time. At trial, the judge made several findings of fact: the Appellant deposited employment and strata property income into two bank accounts, which were used to pay for all family and other expenses; the Respondent contributed very little directly to the strata property, but it was a passive investment and did not require much of the Appellant’s time either; the Respondent assisted the Appellant in accumulating assets by sharing expenses with him; the Appellant was able to save more than the Respondent, who has little in savings and pension; and the rental income from the strata property has funded the Appellant’s retirement since he stopped working in 2010. The trial judge concluded that the strata property was ordinarily used as a family asset and that the Respondent should be compensated for one half of its current value. She also found that the parties’ retirement plans could only have been funded from the continued use of the rental income. The trial judge considered and rejected the alternative claim that the property should be reapportioned to the Appellant under s. 65 of the Family Relations Act (FRA).

APPELLATE DECISION: The appeal was allowed in part. The Appellant argued that the trial judge erred in ignoring the family trust and corporate structure. He maintained that the Respondent was well aware of the transfer of the interest in the property to the family trust. The Respondent submitted that the Appellant bore the onus of proving that the property was not a family asset, and that he failed to discharge this onus. She also argued that the Appellant is both beneficiary and trustee of the trust, and that therefore the trust is a family asset. It was unnecessary to resolve the question of whether the trial judge misapprehended the evidence about the use of rental income, because there were other bases in the evidence to support the judge’s finding that the property was ordinarily used for a family purpose. The Court discussed in detail judicial interpretation of s. 58 of the FRA for determining whether the fact that the property is held in an estate planning arrangement removes it from the ambit of that section. The majority found that ss. 58(3)(a)(i) and 58(3)(b)(i) applied to the strata property and provided statutory authority for the deeming of the common shares in the corporation and the preferred shares in the trust. The extent to which the Appellant used the property income for family purposes was also a relevant factor for reapportionment. The trial judge did consider the factors in s. 65 of the FRA. However, her analysis failed to consider several factors, including the date when the property was acquired, whether the asset was acquired through inheritance, and the circumstances relating to the acquisition, preservation, maintenance, improvement, or use of the property. All of these factors favoured reallocation to the Appellant. Although the application of s. 65 is discretionary, the trial judge erred in her application of it. The majority found that the common and preferred shares, rather than the strata building itself, are family assets and so must be divided or alternatively a compensation order made, based on the value of those shares, for the Respondent’s reapportioned interest. This issue the majority remitted to the trial judge for determination.

Garson JA dissented in part. She found that the trial judge did not err in her application of s. 58(3)(b)(ii) to the property, and would have upheld the determination that the strata property was a family asset. She also would have reapportioned the strata property 90/10 in favour of the Appellant, ordering the Appellant to make a payment to the Respondent for 10% of the property value. She saw no reason to disturb the judge’s order concerning the family debt, or her decision on costs.