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2013-04-25

Fairy Tales Come True for Middle-aged Men: Spousal Support Award for a “kept” Man

By leishamurphy | Filed under Spousal Support

The Book of Life begins with a man and a woman in a garden and it ends with Revelations, Oscar Wilde, 1856 – 1900

The man, a 50 year old bachelor named Gordon. The woman, a 71 year old wealthy widow named Valerie. The revelation – Cinderella fairy tales come true even for middle-aged men.

Gordon met Valerie in 1997. He was unemployed and on welfare. Valerie lived alone on a large property and was in need of some company. Three months after they met, Valerie asked Gordon to move in. She paid for all of their living expenses, clothed Gordon, bought him expensive gifts (including a luxury car) and employed housekeepers and gardeners for their home. They travelled and holidayed extensively all over the world – 60 trips in total.

They lived lavishly.

In 1998, Valerie presented Gordon with a “residency agreement.” The agreement stated that the parties were not spouses, but “friends and companions”; were financially independent of each other; had not contributed to each other’s acquisition of assets; and had no claims to each other’s property.

Not surprisingly, Gordon was reluctant to sign the agreement. Valerie persisted and then cried. Gordon signed the agreement.im_a_kept_man_life_is_great_greeting_cards-r43e273bc0684442aa127a6831038a520_xvuak_8byvr_216

Fast forward 14 years – like all good things, the relationship came to an end. Gordon was 65. Valerie was 86 and wanted a newer model.

Without Valerie, Gordon could not maintain the lavish lifestyle he had become accustomed to, so he brought a spousal support application. To order Valerie to pay Gordon support, the Court had to determine whether: (a) Gordon was a spouse and (b) if found to be a spouse, whether Gordon was entitled to financial support.

Was Gordon a spouse?

The Court applied the two-pronged test set out by our Court of Appeal (Gostlin v. Kergin, [1986] BCJ No. 365 and Austin v. Goerz, 2007 BCCA 586) to determine that Gordon was in fact a spouse. The test involves:

  1. A subjective assessment of whether the parties would have felt themselves to be a committed couple in line with a married couple if asked during their relationship; and
  2. An objective assessment of evidence such as the presence of joint bank accounts and shared vacations.

The Court concluded that the parties were in a marriage-like relationship. This conclusion was based on the following factors: the parties shared meals, Gordon’s financial dependence on Valerie, joint vacations, the parties’ socializing as a couple, love notes and the use of nicknames such as “Boo”, “Angel” and “Darling”. These all signalled that Gordon and Valerie intended to form a psychological and emotional union that qualified as a marriage-like relationship.

Unfortunately for Valerie, the residency agreement could not override Gordon’s right to seek spousal support.

Was Gordon entitled to financial support?

In the words of the Court: “[Gordon was] a kept man throughout his 14 year relationship with [Valerie]” and came to financially rely on her. Without Valerie’s support, Gordon’s annual income dwindled to a mere $25,000 per annum; certainly not sufficient to hire housekeepers and gardeners or purchase luxury items as he had come to enjoy while residing at Casa Valerie. Based on Gordon’s significant decrease in lifestyle, the Court found that he was entitled to financial support from Valerie.

In the end, the Court awarded Gordon lump-sum spousal support in the amount of $157,000.

The revelation for Valerie; even a kept man can have his day in court.

Note: the above story is loosely based on Walker v. Brown, 2013 BCSC 204.

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2013-03-18

New Family Law Act in Force Today: Highlights of major financial changes to the law

By leishamurphy | Filed under Property Division

The new Family Law Act comes into force today (March 18, 2013).

This means that all claims, except property division claims, that started under the old Family Relations Act will continue under the new Family Law Act. If you start a fresh action or enter a Marriage or Separation Agreement tomorrow on March 19, 2013 and you have no previous agreements or orders dealing with property division, the new Family Law Act will apply to you.

Quick references to some of the major financial changes to the law include:

*Please note: this is not an exhaustive list and is meant only to highlight some of the major changes.

Property division:

Old Family Relations Act New Family Law Act
Who is a spouse? Married couples only Married personsPersons who have lived together in a marriage-like relationship for two years
When does the relationship end and each spouse become entitled to an undivided one-half interest (as a tenant in common) to family property? “Triggering event”  which is typically one of three events: 1) a section 57 declaration is made  by the Court; 2) spouses enter a separation agreement; or 3) spouses become divorced. “separation” which means one spouse decides they no longer wish to be in the relationship*It is a good idea to document this day in writing
What type of  property is divisible between spouses? Family AssetProperty owned by one or both spouses at end of the marriage that was ordinarily used for a  family purpose during the marriage

For example:

  •   Money in a savings account
  •   Pension/RRSP
  •   A right, share or interest of a spouse in a  venture to which the other spouse directly or indirectly contributed
  •   Property owned by a corporation or trust that if   owned by the spouse would be a family asset
 Family PropertyProperty owned by one or both spouses at the date of separation

For example:

  • Money in a bank account
  • Shares in a corporation
  • Pension/RRSP
  • The increase in value of excluded property since the relationship began or the excluded property was acquired
  • That part of trust property contributed by a spouse to a trust which
  1.   The spouse is a beneficiary and has a vested  interest in that part of the trust property not subject to divestment
  2.   The spouse has power to transfer to himself or herself that part of the trust property
  3.   The spouse has power to terminate the trust and on   termination that part of the trust property reverts to the spouse
What type of property is excluded? Assets not ordinarily used for a family purpose and excluded business assets (s. 59 of the Family Relations Act) Property acquired by a spouse prior to relationship and other types of property which include for example:

  • Gifts or inheritances to one spouses
  • Personal injury awards
  • Excluded property held in a trust for a spouse
  • Property held in a   discretionary trust where a spouse did not contribute to it; the spouse is a beneficiary and the settler of the trust is someone other than the spouse
Debts There was no concept of family debtThe court had discretion to apportion assets in favour of one spouse to account for debt that should not be shared between the spouses Family debts are defined as all financial obligations incurred by a spouse during the relationship, after the date of separation, if incurred for a family purposeOn separation, each spouse is responsible for one-half of the family debt
The court’s ability to depart from equal division of assets and debts held by the spouses at separation s. 65(1) gave the court discretion to divide assets unequally between the parties in the interest of fairness based on factors such as:

  • length of the marriage
  • date when property was acquired
  • extent to which the property was a gift or inheritance
  • needs of each   spouse to become or remain economically self-sufficient
 s. 95 gives the court discretion to divide assets unequally between the spouses when it would be significantly unfair not to do so (the test is now elevated to significant   unfairness)The factors under s. 95 are similar to the factors under s. 65 of the Family Relations Act, but include a few new additions such as

  • whether family debt was incurred in the course of the relationship
  • a tax liability that may be incurred as a result of the sale or transfer of property or as a   result of an order
Valuation of Assets No definition of value Value means “fair market value”Valuation takes place at the date the spouses enter an agreement or at a hearing/trial dealing with division of the property
Agreements Spouses can make agreements dividing property as they see fit. Marriage agreements must be in   writing, signed by the spouses and witnessedAgreements can be set aside for unfairness and non-disclosure of assets (see my previous blog post on this topic for further detail). Spouses can make   agreements dividing property as they see fit. Marriage agreements must be in   writing, signed by the spouses and witnessedSimilarly, agreements can be set aside if a spouse has

  • Failed to disclose significant property or debts
  • A spouse took improper advantage of the other spouse
  • A spouse did not understand the nature or consequences of the agreement
  • Other circumstances that would under the common law cause the agreement to be voidable

Unlike property division, there have been more minor changes to spousal and child support.

Some of these changes include:

Old Family Relations Act New Family Law Act
Who is a spouse for the purpose of spousal support? Married spousesUnmarried persons, who have cohabitated in a marriage-like relationship for at least two years Married spousesUnmarried spouses who have:

  • cohabitated in a marriage-like relationship for more than two years; or
  • cohabitated in a marriage-like relationship for less than two years who have a child together

*applications for spousal support must be brought within two years of divorce or annulment for married spouses and within two years of separation for unmarried spouses

 
Who is a parent for the purposes of paying child support? Natural parents of the children

*there is case law dealing with child support from persons aside from the natural parents, such as step-parents

 Parents, guardians, guardians who are not parents and stepparents

*the step-parent must have contributed to the support of the child for at least one year and a proceeding against the step-parent must be started within one year after the date the step-parent last contributed to the child.

 

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2013-02-06

Whose Debt is it Anyway? Division of debt between separating spouses under the current Family Relations Act and the new Family Law Act (coming into force in March 2013)

By leishamurphy | Filed under Property Division

Daisy and Eric have decided to separate. They agree to equally divide their assets, but Daisy does not want to pay for half of the Line of Credit which Eric used (without Daisy knowing) to go to Vegas (without Daisy), buy new skis, and purchase a new Mercedes after the parties separated.

Eric thinks Daisy should pay for half the line of credit.

If this situation sounds familiar, you are not alone. This is a common question spouses struggle with during separation.

Debt under the Family Relations Act

Under the current Family Relations Act, family debt is not defined.  In the scenario above, because Eric is alleging he and Daisy have a joint responsibility for the Line of Credit, he has the responsibility of proving that the Line of Credit debt was incurred for a family purpose. In other words, Eric has the responsibility of proving the debt should be shared.

To determine whether the Line of Credit debt was incurred for a family purpose, the following questions may assist:

  1. Did both Daisy and Eric benefit from incurring the debt or from the dilatory payment of the debt either before or after separation?
  2. When the debt was incurred, who did Daisy and Eric intend to be responsible for it?
  3. When was the debt incurred?
  4. With regard to income tax liability, when was the income received that resulted in the tax liability being incurred?

To prove to the Court that the Line of Credit was used for a family purpose, Eric would be required to provide the Court with an accounting, to the extent possible, of records and his recollection of the total cash flow through his hands for the particular year(s) under scrutiny.  As a matter of common sense, however, Eric will enjoy the benefit of the doubt when there is no evidence and no suggestion that any of the cash flow found its way into a non-family purpose (Mallen v. Mallen, 1992 CanLII 4034 (BCCA)).

In the case of Daisy and Eric, Daisy did not benefit from Eric incurring the debt. Since Daisy did not know Eric incurred the debt, it can be assumed that it was intended that Eric would be responsible for the debt. While the trip to Vegas and the skis were purchased during the marriage, the Mercedes was purchased after separation, which makes it more likely that Eric will be on the hook for that purchase. If the trip to Vegas and the skis were purchased close to separation, this will also weigh in favour of Eric being responsible for the debt. However, if these items were purchased at the beginning of the marriage, this may weigh in favour of the debt being shared. Ultimately, whether debt will be shared between the parties or the sole responsibility of Eric is an exercise of discretion by the Courts.

Debt under the new Family Law Act

Under the new Family Law Act, coming into force in March 2013, family debt is defined under s. 86 as follows:

Family debt includes all financial obligations incurred by a spouse

a)      during the period beginning when the relationship between the spouses begins and ending when the spouses separate, and

b)      after the date of separation if incurred for the purpose of maintaining family property.

Under s. 81 of the Family Law Act, spouses are both responsible for family debt, regardless of their respective use or contribution.  It is only under s. 95 of the Family Law Act where the Court may order an unequal division of family property or family debt, or both, if it would be significantly unfair to equally divide the family debt.

Under the new Family Law Act, the responsibility to prove the debt should not be shared would shift to Daisy. As a result, Daisy would have to show that dividing the Line of Credit would be significantly unfair to her.  Whereas, under the current Family Relations Act, it is Eric who has the onus of proving that the family debt should be equally shared between the parties.

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2012-10-26

Jamie McCourt claims she was jipped in Divorce Settlement: Is it possible to get out of settlement agreements?

By leishamurphy | Filed under Property Division

Frank and Jamie McCourt, the infamous former owners of the LA Dodgers, are back in court.

Jamie alleges that Frank vastly understated the value of the Dodgers, which was sold earlier this year for approximately $2 billion, leaving her with an unfair settlement.

A source close to Jamie told Vanity Fair magazine in 2011 that all she wanted out of the settlement was “… enough money to keep her houses in L.A., and live comfortably, and never have to deal with this again.” That was true when she believed $113 million was half of the pot.

Jamie now alleges that Frank either misled her into believing the Dodgers were worth less, or mistakenly provided her with inaccurate figures when the parties settled. She claims to have received 7% of the net assets, while Frank walked away with 93%.

What would happen to Jamie’s claim in B.C.?

According to the seminal cases of Hartshorne v. Hartshorne, 2004 SCC 22 and Miglin v. Miglin, 2003 SCC 24, the factors to consider are:

  1. Were the circumstances of the negotiation fair? In other words, did one party exert pressure on the other party to sign an unfair agreement, or did one party take advantage of the other in some way? The presence of professional assistance, such as lawyers, can be perceived as balancing the playing field, making it difficult for a weaker party to later claim they were hoodwinked.
  2. Is the final settlement in substantial compliance with the law (i.e. the Family Relations Act and/or the Divorce Act)?
  3. Has an event occurred since the settlement to now make the settlement unfair? For example, the party who agreed to pay $2000 per month in spousal support was in a car accident after the settlement was reached and can no longer work. It would be unfair for that party to continue paying $2,000 per month if he or she is no longer working. On application to the court, the injured party may be able to change the terms of the settlement to pay less support in light of their new circumstances.

The new Family Law Act, set to come into force in March 2013, aims to strengthen private agreements between parties, making it more difficult to get out of agreements and negotiated settlements.

The law in California is different than B.C. If Frank and Jamie lived in B.C., Jamie would have a difficult time showing the settlement should be overturned, unless she can prove there was a significant error in the valuation of the Dodgers, settlers’ remorse is not sufficient.

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2012-09-07

The Cancer of Family Law: Non-Disclosure of Financial Assets

By leishamurphy | Filed under Property Division

Non-disclosure of assets is the cancer of matrimonial property litigation

-Cunha v. Cunha (1994), 99 B.C.L.R. (2d) 93 (S.C.)

Non-disclosure of financial information, whether real or imagined, is almost invariably claimed by one spouse during family litigation. This, in my view, is the result of the deep level of mistrust that is usually engendered by the separation itself. Especially in circumstances where the spouses were not fully aware of their partner’s assets during the marriage, almost nothing can reconcile that spouse’s fear that the other person is “hiding” something from them.

Short of hiring a forensic account, it can be difficult, though not impossible, to locate hidden assets.  Knowing the institutions and accounts of your spouse before separation can go a long way to mitigating this situation. Prior to separation, usually there is a great deal more trust between spouses, facilitating a greater flow of information. Once parties separate, it can quickly turn into every man/woman for themselves.

There are remedies, however, if you believe your spouse may be hiding assets from you. Once non-disclosure has been established at any stage of the court proceedings, the onus is on the non-disclosing party to satisfy the Court that s/he has subsequently given full disclosure. If, by the end of trial, the Court is satisfied that full disclosure has actually been made, an award of costs might be the only appropriate remedy.

If the non-disclosing party has not satisfied the court that he/she has given full disclosure, the Court may infer that the value of the undisclosed assets is of equal value to the disclosed family assets. In this scenario, up to 100% of the disclosed family assets can be awarded to the spouse who has provided full disclosure to the court. For example, in the case of Dong v. Liu, 2008 BCSC 1795, the Court found that the plaintiff had concealed assets during the course of litigation and as a result apportioned the disclosed family assets 75% in the defendant’s favour. The Court of Appeal (2009 BCCA 306, paras. 9 and 24) upheld this finding.

Take some precautions and learn about your partner’s assets before separation.

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2012-07-22

How to avoid losing your shirt upon separation or divorce

By leishamurphy | Filed under Property Division, Remedies for Common Law Couples

While many people feel like the snail (without a shell) after a divorce, the reality is our law dictates that family assets  are divided equally between married spouses, unless an equal division would be unfair to one spouse.  

For the moment, the sections in the Family Relations Act that deal with property division do not apply to common law spouses. This will change when the Family Law Act comes into force in 2013. Under the Family Law Act, the property division sections will apply to both common law and married spouses.

The main way to avoid being the snail on the right after divorce or separation is to enter a marriage or cohabitation agreement. 

A marriage or cohabition agreement sets out the parties’ rights and obligations towards one another. These agreements can deal with everything from who gets to keep the TV, to where the children will live, to who gets to keep the Ford camper van.

It is important to know that despite the intentions of the parties when an agreement is signed, the contents of their agreement may still end up being evaluated by the court, and possibly changed, if one of the parties later has a problem with the agreement. While the court will pay a great deal of respect to any written agreement, if an agreement is unfair or becomes unfair the court will generally be willing to look into things and perhaps make an order that is different than what the parties agreed to in their agreement.

To limit the court’s ability to make an order that is different than the agreement, it is a good idea to review marriage or cohabiation agreements approximately every 5 years or upon a significant event happening, such as having children, starting a new business or upon receipt of a large inheritance. This is not en exhaustive list, just examples to consider. Much like a Will, agreements should be kept current. If an agreement is not kept current, this does not mean the agreement is not valid, it just leaves more room for the court to meddle in the agreement, if the parties later have a problem with it.

 

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2012-06-13

Donated, Sold and Stored: Sperm as Family Property

By leishamurphy | Filed under Property Division

Like so many issues that come before our courts, moral and philosophical considerations must be tackled. Unfortunately, the court, ensnared with procedures, legislation and rules, is often ill-equipped to handle the existential questions that come before it.

A recent example of our courts tackling moral conundrums is found in the decision of JCM v. ANA, 2012 BCSC 584. This case involved the purchase of 13 sperm straws by a female same-sex couple from an anonymous donor in the U.S. After purchasing the sperm, both women used therapeutic insemination to become pregnant and give birth to a child.

The women subsequently separated in 2006 and divided the spoils of their marriage, except for the remaining sperm straws. A few years later JCM met a new partner, TL, and wanted to use the remaining sperm to create a new family. ANA wanted the sperm destroyed. They could not agree and as a result turned to the courts for a solution.

Unlike typical property, like a home or car, sperm carries the potential for human life. This added complexity engaged the court in a debate over whether the sperm should even be considered property that could be divided between the women.

Ultimately, the court decided that while ANA may be morally opposed to the “commercialization of reproduction or the commoditization of the body” she purchased the sperm at $250 a vial. The commoditization had already occurred. The court reasoned that ANA and JCM purchased the sperm and by concluding this transaction, the sperm was treated as property and should retain this quality.

As an aside– you are prohibited from purchasing sperm in Canada pursuant to the section 7 of the Assisted Human Reproduction Act. Couples are, however, able to purchase sperm in the U.S.

In determining that the sperm was property, the court ordered the 13 sperm straws be divided equally between the women. On its face, this solution appears to be the most practical; however, in coming to this solution, the Court has also decided that sperm can be considered and divided as property.

There have been cases, like this one, in the U.S. with differing results. For example, in the case of Davis v. Davis in Tennessee, the Court created an interim category of property for frozen embryos, where the embryos were not characterized as either “persons” or “property”. Instead, the court gave each person an ownership interest and decision-making authority over disposition of the frozen embryos. This approach, in my view, is an attempt by the Tennessee Court to recognize that frozen embryos cannot be lumped into the same category as the house and the car.

Our court did not adopt the reasoning of the Tennessee Court. Our Court, instead, reasoned that without characterizing the sperm as “property”, the court was unable to decide what should be done with the sperm.

If our court would have adopted the reasoning of the Tennessee Court, the sperm would have created a new category of property for which there is no governing legislation. As a result, there would have been no discernable mechanism for people to dispose of leftover sperm upon separation. By categorizing the sperm as property, the sperm falls under the same property provisions as a house and, according to our law, should be divided equally between the parties.

Unfortunately, there are no grey areas in court decisions, even when the grey areas clearly exist outside of the court system.

 

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2012-05-28

Video Seminars on Wealth and Divorce

By leishamurphy | Filed under Divorce, Property Division

I discuss the financial implications of divorce and separation with Heather Holden of Hayashi Holden Wealth Management. Quick, informative and personal (you get to see me talking instead of reading a post):

 

Check out Heather’s newsletter: http://www.hayashiholden.ca/newsletters/

Or go straight to the video seminars: http://www.youtube.com/channel/UC6l3-mkzEDtHsMiDr2-c4pQ/feed

 

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2012-05-03

What happens in Vegas, stays in Vegas…Unless you get married

By leishamurphy | Filed under Divorce

Like all good stories, this one starts in the wee hours of the morning at the Little White Chapel in Las Vegas, Nevada. The couple, having known each other for a solid two hours, decided to pledge their love for one another after a night of drinking.

At 4:20 a.m. the couple were married by Reverend Luck. With marriage certificate in hand, the couple parted ways and returned to their respective hotel rooms, expecting never to see each other again.

But like all good stories involving Vegas and alcohol-fuelled love, there was one small snafu.  They were legally married.    Unless they could prove their marriage was void or sought a divorce, they were not permitted under Canadian law to marry anyone else. Polygamy is still illegal in Canada.

To rectify the situation, the “wife” went to the courts in B.C. claiming that she was drunk and did not know what she was doing.  In the alternative, she argued that the marriage was void because it was not consummated.

You can get out of many an awkward situation by claiming you were drunk and did not know what you were doing.  Unfortunately, entering a marriage contract requires such a low level of intelligence it is difficult not to meet the required threshold. In fact, you only have to understand that marriage is an engagement between a man and woman to live together, and love one another as husband and wife to the exclusion of all others (Hunter v. Edney (1885), 10 P.D. 80).

Since our blushing bride actually went to City Hall in Nevada to get the marriage certificate, the “I was really drunk” excuse did not work.  Strike one.

Consummating the marriage is still a requirement for a valid marriage. However, it is not enough to simply say that you have not had sexual intercourse since the date of the marriage. You need to demonstrate that you are impotent by reason of a psychological defect.  In other words you find the other person so repugnant that you are unable to consummate the marriage (see: HLC v. MAL, 2003 BCSC 1461).

The “wife” in this case simply stated they did not consummate the marriage.  This was not sufficient, and certainly did not involve a physical repugnance to her “husband”.  Strike two.

In a desperate attempt to get out of the marriage, the “wife” claimed the marriage was not valid in B.C. because it happened in Vegas.  However, because the marriage ceremony was valid according to Nevada law, and the marriage ceremony was recognized as valid according to B.C. law, the couple were legally married, and the validity of the marriage was upheld.  Strike three.

The only way out was to file for divorce. 

Next time you go to Vegas, remember, a night of drunken revelry could leave you with more than a hangover and empty wallet.

This story is based on the case of CMD v. RRS, 2005 BCSC 757.

 

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2012-04-18

Tax Treatment of Legal Fees related to Support Payments

By leishamurphy | Filed under Child Support, Spousal Support

I must admit upfront that I am not a tax expert. If you have specific tax-related questions regarding this post, you should consult your tax advisor or accountant.

Given it is tax season, I thought some information about the tax treatment of legal fees as they relate to a family proceeding may be useful.

The Income Tax Interpretation Bulletin IT-99R5 outlines the treatment for tax purposes of legal and accounting fees. Specifically, paragraphs 17 to 21 discuss the tax treatment for legal fees paid in relation to spousal and child support.

To read sections 17 to 21 in full, click on the link above. In summary:

¶ 17. Legal costs incurred to obtain a divorce, a spousal support order under the Divorce Act or a separation agreement are not tax deductible. Legal costs incurred to obtain an order for child support are deductible. Legal costs incurred to obtain an increase in spousal or child support are non-deductible.

¶ 18. Legal costs incurred to enforce an interim or permanent support amount that arises from a written agreement, a court order or legislation such as sections 11 and 15.1 of the Divorce Act are deductible (for example, if your former spouse is not paying monthly child support as set out in a court order, the legal fees you incur to have the order enforced may be tax deductible). Legal expenses incurred to defend against a reduction in the amount of support are also deductible (for example, if your former spouse brings an application to reduce the amount of child support, the legal fees you incur to defend the application may be tax deductible).

¶ 20. Legal fees incurred in connection with the receipt of a lump sum payment are not deductible. If the payor owes the recipient a large amount of money for non-payment of periodic (i.e. monthly) support, the payment of the amount owing will not necessarily be considered a lump sum payment and may be tax deductible.

¶ 21. Legal costs incurred by the payor in negotiating or contesting an application for support payments are not deductible. Similarly, legal costs incurred for the purpose of terminating or reducing the amount of support payments are not deductible. Legal expenses relating to obtaining custody of or visitation rights to children are also non-deductible.

CRA may require your lawyer to provide a letter setting out the percentage of the total amount of legal fees incurred that relates to a tax deductible category. As a result, it may be prudent to request this letter from your counsel before submitting your taxes to CRA.

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