Nova Scotia Court of Appeal Provides New Update on Matrimonial Property Division Laws – Wolfson v. Wolfson, 2023 NSCA 57
Wolfson v. Wolfson, a recent decision of the Nova Scotia Court of Appeal, dealt with a divorce proceeding, where matrimonial property division under Nova Scotia’s Matrimonial Property Act was at issue. For purposes of the appeal, the main dispute was over the husband’s corporations which dealt in real estate rentals and development.
Unlike most provinces in Canada, Nova Scotia is a unique province, as “business assets” are exempt from division under our Matrimonial Property Act during a divorce. Nova Scotia is currently only joined by New Brunswick and Newfoundland in this unique aspect of our matrimonial property division laws.
In Wolfson, the Nova Scotia Court of Appeal reversed the decision of the trial-level Court. The trial-level Court had found that the husband’s corporations had two equal purposes: the generation of income in the entrepreneurial sense, as well as a retirement vessel for the couple. This meant that the corporations were half-matrimonial assets and subject to division, while also being half-non-matrimonial and not subject to division. This determination is important, because it meant that the wife was entitled to twenty-five percent (25%) of the corporations, which was worth a staggering $4,477,165.
However, the Court of Appeal had found that the trial-level Court erred in its legal analyses leading to this conclusion and had also made “palpable and overriding errors” in respect of the factual findings made to arrive at this conclusion.
First, the Court of Appeal overturned the trial-level decision on the basis that a matrimonial asset cannot have dual status – assets must either be wholly matrimonial and subject to division, or wholly non-matrimonial, and not subject to division. The Court found this by determining that the wording of the Matrimonial Property Act does not allow for assets to have “dual status.”
Second, the Court of Appeal also found that the trial-level Court’s factual finding that the corporations were intended for the parties’ retirement was a “palpable and overriding” error. Simply put, the Court of Appeal found that there was no evidence before the Courts to establish that they were primarily intended for retirement by the parties.
In addition to overturning the trial-level Court on this issue, the Court of Appeal also overturned the trial-level Court on its finding that the same result could be found using section 13 of the Matrimonial Property Act. For context, our Matrimonial Property Act features two further relevant sections to the division of business assets. The first is section 18, which, essentially, allows for spouses who do not own the exempt business assets to receive compensation for any labour or money contributed to the business asset. Meanwhile, section 13 allows Courts to either divide matrimonial property unequally, or to divide non-matrimonial assets, where a normal division “would be unfair or unconscionable”. In order to make an unequal division or to divide a non-matrimonial asset under this section, the Court must consider a list of factors that are provided under the Matrimonial Property Act.
The trial-level Court found that section 18 of the Matrimonial Property Act could not be used, because any work or money contributed to the businesses by the wife had already been compensated. However, the trial-level Court found that, even if it was wrong about its dual classification of the husband’s corporations, that a division without these corporations would amount to the division being “unfair or unconscionable”, allowing it to use section 13 to find the same result.
The first factor which the trial-level Court used for its section 13 analysis was subsection 13(a), which is, “the unreasonable impoverishment by either spouse of the matrimonial assets.” Once again, the Court of Appeal found that the trial-level Court’s legal analysis was flawed and that there was also no factual basis for its finding. The trial-level Court, in its reasoning, determined that this factor was met since the husband had “prioritized” the non-matrimonial assets (the corporations) at the expense of developing matrimonial assets. The Court of Appeal determined simply that this does not meet the Matrimonial Property Act’s requirements, which is that there must be an “impoverishment” of matrimonial property in favour of non-matrimonial assets.
The second factor used by the trial-level Court was subsection 13(e), “the date and manner of acquisition of the assets.” This section is typically used for marriages of short duration, where a party comes into a marriage with significantly more assets, and it would be unfair to equally divide them for a short marriage. Essentially, the Court of Appeal found that the same factual errors made to determine that the corporations were intended for the parties retirement applied to this same factor and overturned the trial-level Court on that basis.
Finally, the Court of Appeal found that the trial-level Court also did not complete the full two-step analysis for under section 13. In addition to using the statutory list of factors to determine whether it would be unfair or unconscionable to divide the matrimonial assets equally, Courts must also reapply the same factors to determine what division would actually be fair and conscionable. It was this final stage of the analysis that the trial-level Court did not perform.
With the consent of the parties, the Court of Appeal did not return the matter to the trial-level for a redetermination. Instead, the Court of Appeal decided upon the final result.
Despite the above findings, the Court of Appeal did not find that section 13 was totally inapplicable, instead, the Court of Appeal reduced the section 13 award to the wife. This was because some of the factors for a section 13 unequal division were not challenged on appeal, such as the wife’s disproportionate assumption of childcare and domestic responsibilities. The award under section 13 was therefore reduced from $4,477,165 to $1,500,000.
The Court of Appeal also redetermined the legal costs for the parties. At the trial-level, the Court awarded $422,567 in costs against the husband of which $168,117 was related to expert fees incurred by the wife for the valuation of disputed assets. Finding that the Court of Appeal decision moved the total outcome from success on the part of the wife, to mixed success for both parties, the Court of Appeal held that the parties would bear their own costs, with the exception of the expert fees, which were retained.
So, what are the key takeaways from this decision from a legal standpoint?
Most importantly, when parties are divorcing and their assets need to be divided, in determining whether a business asset is or is not a matrimonial asset, the analysis is an all or nothing proposition. An asset is either matrimonial and subject to division, or an asset is not matrimonial and not subject to division.
Despite this, sections 13 and 18 of the Matrimonial Property Act remain available as a way that the party without the business asset argues that the exclusion is unfair. Although determining whether a business asset is matrimonial or non-matrimonial is now definitively binary, sections 13 and 18 keep the analysis nuanced and dependent on a lot of factors – parties will therefore continue to require legal guidance on this issue.
The following article is meant for general information only and should not be relied upon in place of legal advice. If you have any questions about your family law matter, please do not hesitate to contact us.