The finer points of Serra v. Serra, 2009 ONCA 105 (CanLII) Updated!

The finer points of Serra v. Serra, 2009 ONCA 105 (CanLII)

The Court, on appeal, decided to agree to a variance of the net family property division. In this case the original property valuation on separation day favored the wife such that the husband was expected to make equalization payments of a very significant sum. Following the separation, the husband’s manufacturing business suffered due to changes in WTO policies and changes in government tariffs following free market strategies.

The question was whether or not a recalculation of the net family property subsequent to the valuation date was just or in other words was the original calculation at valuation date unconscionable in the circumstances.

The Judge departed from previous case law and held that a market driven decline in net family property is a circumstance under which the court may order an unequal division of property under section 5(6) of the Family Law Act. But would this apply in all cases of a market driven decline in property? The Judge speculated accordingly in paragraph 65 of the judgment. As noted by a senior lawyer, the key difference between a business and a stock in this case is that it is generally accepted that stocks fluctuate. But why is this relevant? By way of analogy, a business is not unlike a stock portfolio in that there is an element of risk where the business may also go up in value or the value may fall. Obviously, one makes investments as responsibly as one can. You could argue that there is no difference between stocks and a business if reasonably managed. There is an element of foreseeability that arises when thinking about the differences. It seems that it is more foreseeable or more probable that stocks may go up and down than for a successful business, reasonably managed, to suddenly fail due to market forces and government policies beyond the business owner’s control. In other words, it is more probable that the stocks will go up and down than for a successful business to suddenly fail. As a result, the burden of the probability should not be born unjustly by the reasonable business owner. It would be unconscionable to leave the value of the property without adjustment in the net family property statements. Simply put, the business owning spouse does not have the value in the business any longer and it is not their fault. The calculation of the business value on separation day is only estimated value.

If it was a stock portfolio, we could say that the owner of the portfolio took the risk of the investment with the understanding that the asset is inherently volatile. It follows that all the risk involved with the stocks should remain in the owner’s hand and the responsibility for assets to a spouse in the event of marital breakdown. It would seem that this may have been the Judge’s reasoning.

Looking at this case further, it could be argued that there is a taste of the unconscionable arising from the fact that both parties worked in the business or owned shares in the same. They both suffered the loss as owners. Why should she ( Ms. Serra) be compensated for her business loss by way of an equalization payment? It would be unjust. According to the Judge’s reasoning and the evidence of the auditor, there was no evidence of sabotage by the husband. It is well argued that it would be unconscionable to leave the value of the business un-adjusted in these circumstances leading to an overvalued business appearing in the net family property statements. The court reasoned accordingly. For all family law practitioners, it is helpful to remember that each case is judged on its own facts and that one cannot expect hard and fast rules. We may very well conclude that a business that fails due to sabotage, with evidence on a balance of probabilities, or poor management on the part of the spouse responsible for the equalization payment will not give rise to a case where there is mercy or hope for a revaluation under section 5(6) of the FLA ( Family Law Act)[Canada].

We look forward to the next case in this rather interesting area of family law.


Serra v. Serra-a new update to this article(see the archives) will address whether the business assets of the husband should have been a part of the net family property since the entity is not a signatory to the marriage as husband or wife. The corporate person is not a party to the union and the husband or wife may have received payment in shares. It is likely that the shares, with no doubt, are a part of the calculation only in terms of the shares that his corporation issued to him personally.  If she did not buy the shares, then she does not own the shares.  The corporation is an independent corporate person and being a director does not connote ownership necessarily.   Being the sole shareholder represents control of the company if shares are issued but they will not amount to property for net family property calculations since they have nominal value; especially if it is not a publicly traded company.  If it is publicly traded, it has an unquantifiable value until liquidated.      The shares represent investment and a unique right to participate in the company if you purchased them and became a signatory.  The company cannot be forced to accept someone as an investor and  nor can it be said that the law of divorce makes a spouse a trustee in an unwritten trust for such investments that are unquantifiable on separation day because  the company is a third party signatory and has a right to enter or not enter into contracts with whomever it chooses. It has not chosen to enter contracts with all divorcees simply because they are divorcees.   It is not a right granted in the vacuum of family dissolution. In the Serra v Verra case, the wife was only an employee.

-Angel Ronan-
Written By: Warren Augustine Lyon, B.A.(Hons), LL.B(Hons), PGDL
Barrister and Solicitor
angelronan@gmail.com
-March 2009- (copyright)
Toronto, Canada