Asset decline and COVID-19
Updated: Apr 9, 2020
What happens if the value of your assets decline after separation because of COVID-19?
The Ontario Court of Appeal decided in a case called Serra v. Serra that a market driven decline after separation in the value of the assets of the spouse who is required to make an equalization payment may be taken into account, particularly when there is no fault based conduct.
Equalization payments and asset decline
At the end of marriage, property is divided by taking a snapshot of each spouse’s assets and liabilities at the date of marriage and the date of separation to determine which spouse accumulated a greater net worth during the marriage. Generally, the spouse with the greater gain makes a payment to the other to equally share the value of property accumulated during the marriage. This payment is called an “equalization payment”. But sometimes after the date of separation, the paying spouse’s net worth declines rapidly and significantly—a common experience during the COVID-19 crisis. What happens if the paying spouse can no longer afford to make the payment?
The impact of COVID-19 on payments
It may be possible to take into account the decline in the value of a spouse’s assets after the date of separation as a result of the COVID-19 crisis. The Ontario Court of Appeal decided in a case called Serra v. Serra that a market driven decline after separation in the value of the assets of the spouse who is required to make an equalization payment may be taken into account, particularly when there is no fault based conduct.
In that case the husband had a successful textile manufacturing business that experienced a drop in value because of a downturn in the textile industry. While the husband’s shares in the business were worth between $9.5 and 11.25 million at the date of separation in 2000, the value of the shares decreased to between $1.875 and 2.6 million by the date of trial. The result of the downturn would have required an equalization payment that exceeded the husband’s net worth at the time of trial. The Court of Appeal determined that the husband had taken all reasonable steps to preserve the value of the business and found that without varying the equalization payment, the result would be unconscionable.
It is too early to know what the economic results of the COVID-19 pandemic will be but this case and the arguments contained in it are very important to keep in mind as we address these issues.
To seek advice on how these issues may affect you, contact Lenkinski, Carr & Richard LLP at firstname.lastname@example.org .