Equalization of Net Family Property with Debt and Contingent Liabilities
As previously discussed, calculating the Net Family Property requires the quantification of assets and debts on the Valuation date and the subtraction of the value of assets and liabilities on the date of marriage. One of the permitted deductions under the Family Law Act, RSO 1990, c. F.3 (“FLA”) section 4(1.1) are contingent liabilities, but only where those liabilities are reasonably foreseeable and sufficiently proven (Hollies-Eigelshoven v Eigelshoven 2024 ONSC 2568). Examples of common forms of contingent liabilities include tax and disposition costs.
Contingent liabilities must have a value which is first determined by the likelihood the debt will be paid.
Low Likelihood of Debt Repayment
If the evidence indicates a low likelihood of payment, the contingent liability can be discounted accordingly (Zaverella v Zaverella 2013 ONCA 720). In Poole v Poole (2001), 16 R.F.L. (5th) 397 (Ont. S.C.J.), following separation the husband’s parents commenced legal proceedings against both spouses to recover a loan in excess of $80,000. However, the court determined the value of the debt based on the probability it would be collected and did not believe the likelihood that the parents would realistically pursue their son’s portion, therefore attributing discounts of 50% to the wife and 10% to the husband for the NFP calculation.
High Likelihood of Debt Repayment
If the contingent liability was very realistically going to be realized, and was reasonably foreseeable on the valuation date, it will be deducted from the NFP (Greenglass v Greenglass 2010 ONCA 675). In Greenglass, the husband’s legal fees arising from a business litigation were deducted as a contingent liability despite the fees accumulating post-separation because “[t]he litigation arose out of actions taken during the marriage and the claim had crystallized before the date of separation” (Greenglass at para 23).
Jurisprudence supports the inclusion of liabilities where they are “imminent” to a parties’ separation, as was the case in Murray v Bortolon 2016 ONSC 5164. Here, a wife’s personal guarantee for a loan to the husband’s corporation was subject to outstanding litigation, and given the creditor obtained an order on a summary judgment motion for the wife’s 80% portion of liability, she was entitled to claim the amount as a contingent liability.
Ambiguous or Uncertain Likelihood of Debt Repayment
Occasionally, the courts will be in a precarious position whereby the valuation of the contingent liability is haphazard given lack of evidence or absence of any strong indication of probability. For example, in Roach v Lashley 2018 ONSC 134, the husband had an outstanding litigation in relation to a Canada Revenue Agency reassessment resulting in back taxes of $37,515. During the family law matter, Justice McDermott “had to be somewhat arbitrary concerning this particular contingent debt” given the lack of evidence and His Honour awarded a 50% deduction of the debt (at para 96-97).
The approach in Roach v Lasley mirrors that of Justice Beckett in Drysdale v Drysdale [1994] O.J. No. 2897, where the value of the contingent liability could not be predicted with any certainty and was similarly attributed an ambiguous liability of 50% of the amount in question.
The capricious nature of how Ontario Courts handle contingent liabilities in determining equalization of Net Family Property indicates that the claimant asserting the deduction must gather evidence about the realistic value of the contingent liability and be prepared to assert its’ reasonable foreseeability at the date of separation. Without a strong case to put forward to the hearing judge, it is virtually impossible to predict the outcome of entitlement to a deduction.