THE DIVORCE PIE

Spouses can be ordered to front costs

COURTS LIKE TO ‘ EQUALIZE’ ASSETS BETWEEN SEPARATING SPOUSES BUT FIGURING OUT THE VALUE IS TRICKY.

Family law cases can be complex. Many provinces have legislation requiring a separating couple to value their assets and debts at the date of marriage and the date of separation or trial and “equalize” the difference. All provinces have laws in place which set out the way in which a spouse’s income must be calculated when determining child and spousal support.

While determining the value of some assets, such as publicly traded shares or cash investments, is relatively straightforward, many assets or debts are not nearly so easy to value.

Sophisticated legal assistance and expert valuation advice may be required. Chartered business valuators, accountants and actuaries are frequently called upon to assist the lawyer, the client and the court on issues which can range from valuing shares held by a spouse in a private company, to whether the value of a debt owed to a party should be discounted because it may not be collectible. If a spouse is not a T-4’d employee, determining income for support purposes can be similarly difficult.

But what happens when the parties are not in an equal financial position? As contingency fees are not available in family law, how can a spouse with few assets or little income retain the professionals required to allow the moneyed spouse’s experts to be “tested” or even hire counsel to argue the matter in court?

In Ontario, the answer is found in Rule 24( 12) of the Family Law Rules, which say, “a Court can make an order that a party pay an amount of money to another party to cover part or all of the expenses of carrying on the case, including lawyer’s fees.” Other jurisdictions in Canada have similar rules.

A separated spouse in litigation can ask a court before trial for what are known as “interim disbursements,” orders that the wealthier spouse pay an amount to the spouse in need to use for lawyers and experts.

There is, of course, a threshold test before interim disbursements may be granted. In 2003, the Supreme Court of Canada in B. C. v. Okanagan Indian Band, confirmed that to be entitled to interim disbursements, a litigant must show that the case cannot proceed unless the funds are granted. In addition, the party must show that their position is sufficiently meritorious to warrant pursuit, and that special circumstances exist to allow the Court to exercise this extraordinary remedy.

The threshold for these payments in family law cases, however is not as high. In Ontario, a family law litigant need not demonstrate that she or he is entitled to an “extraordinary remedy.”

The leading family law case of Stuart v. Stuart confirms that the court may exercise its discretion to order payments under Rule 24(12) simply to “level the playing field,” so that both are equally able to provide or test disclosure, make or consider offers and possibly advance to trial. Stuart specifically requires, however, that the amounts requested be necessary and reasonable, given the needs of the case and the moneys available.

Stuart does require that the balance of the Okanagan test be met, confirming that the spouse seeking disbursements must show an incapacity to fund the amounts and that there must be a meritorious claim.

Wealthier spouses can take heart in the judge’s cautionary note in Stuart, however, when she warned that a payment under Rule 24(12) does not immunize the recipient spouse from having costs ordered against her or him in the litigation, and that the payment should not be one that gives the recipient a “license to litigate.”

That said, once the threshold in Stuart has been passed, the amounts paid to the recipient spouse can be significant: In Ontario, awards of $ 150,000 to $ 250,000 are not uncommon; in Alberta, awards have been as high as $500,000.

While this may sound like a windfall for the recipient spouse, in many complex matters, one spouse alone may spend $ 50,000 or more on experts’ fees, with legal fees being in excess of that amount. While experts have an obligation to the court to be independent and not act as an advocate for either party, reasonable experts often disagree. Valuation is as much of an art as a science, and varying valuation approaches can result in experts being several hundred thousand — or even several millions of dollars apart.

In most cases, if an order is made under Rule 24( 12), the amounts may simply be an advance by the moneyed spouse to the other against a payment that is ultimately due.

When making an order for interim disbursement, the court has discretion to decide both when the payment must be made by the wealthier spouse, and the way in which a payment will be accounted for.

Often the payment is advanced against a future equalization ( property) payment owing by the wealthier spouse. In many cases, it is clear early in the litigation that a property payment is owing — the only issue is “how much.”

Family law litigation can be an expensive proposition, but interim disbursements can help balance the scale.