22 March 2012

Supreme Court Releases Decision on Family Debt

The Supreme Court of British Columbia has released a decision concerning, among many other issues, responsibility for debts in a family law context. The court's decision in Salminen v. Garvie is helpful for its summary of the law on a problem which, despite its frequency, is not dealt with by the Family Relations Act and is left entirely to the common law.

Thankfully, for the sake of brevity, the facts in the case aren't necessary to address with the case's discussion of the law on family debts. Here is the court's summary, with cites omitted:
"[70] The FRA does not explicitly address division of debts (Popp v. Popp; Mallen v. Mallen).  The respondent wishes to have the debts considered in the division of property.  He bears the onus of demonstrating that the debts were incurred for a family purpose.

"[71] In Moore v. Moore, Huddart J. held the following guidelines should be used in determining whether a particular debt should be considered in the reapportionment of assets:
5. ...
(a) the extent to which each spouse has benefited from the incurring of the debt or from the dilatory payment of it, before or after separation;
(b) the intention of the spouses when the debt was incurred as to who would be responsible;
(c) whether the debt was incurred before or after separation;
(d) with regard to income tax liability, the date of receipt of the income by reason of which the liability has been incurred.
"[72] These guidelines have been refined by later decisions such as Mallen v. Mallen.  In Mallen, Lambert J. held the following at para. 6:
6. The proper focus for the examination of a debt should be a focus on the nature and purpose of the borrowing and on the expenditure of the borrowed funds. If the funds were used to acquire a family asset, to maintain a family asset, to discharge a family burden, or to maintain the family members, then it is likely that equality and fairness will require an equal sharing of the debt or liability and its adjustment in the division of the assets in such a way as to carry out the principles of equality and fairness. If the funds were used entirely for the personal purposes of the spouse who borrowed them it is likely that equality and fairness will require that spouse to bear the whole burden of the debt after the triggering event. …
"[73] Later, in Stein v. Stein, it was found that both parties had benefited from certain tax shelters under reassessment and at para. 10 the following was noted:
10. Indeed the term 'family debt' has evolved in the jurisprudence out of a recognition that spouses jointly contribute to not only the accumulation of assets, but also debt. Although the phrase has no statutory significance, it has been used with increasing regularity by trial courts, (particularly in British Columbia) to describe 'a liability of either or both of the spouses which has been incurred during the marriage or for a family purpose' (Mallen, at para. 26). The very existence of the term 'family debt' underlines the reality that in order to ensure fairness, both debts and assets must be considered after the breakdown of the marriage.
"[76] This is consistent with the scheme of the FRA as described by Lambert J.A. in Mallen:
5. In my opinion, the equality of treatment of the spouses as required by the scheme of the Act is intended to be a true equality in real terms, and not an artificial equality reached by ignoring some of the facts and emphasizing others. In order to bring about a true equality it is necessary that debts and other liabilities of the spouses at the time of the triggering event and earlier be examined in a way that will illustrate the true relationship between the debts, on the one hand, and the attainment of equality and fairness, on the other. The examination of the debts should not be confined to classifying them into one category or another and so consigning them to treatment in one way or another, without regard to the underlying scheme of the Act.
"[77] Hinkson J. in Bryan v. Chapman, in referencing the above passage in Mallen said, at para. 43, that 'whether any particular debt is a family debt or not depends upon whether there is a discernible nexus between the debt itself, and some family purpose or benefit'."
To summarize this somewhat...
  1. Debt can be considered in the division of property between spouses.
  2. The spouse who wants the debt to be considered bears the burden of proving that the debts were incurred for a family purpose.
  3. Debt incurred for a "family purpose," broadly speaking, means debt incurred for the collective benefit of the family, for example in buying a family asset, servicing a family asset or supporting the family.
  4. If a debt was incurred for a purely personal purpose, the debt will remain the responsibility of the spouse incurring the debt.
The Family Law Act deals expressly with family debt, defining shareable "family debt" as debt incurred by either spouse between the date of cohabitation and the date of separation, and says that both spouses are presumed to be equally responsible for family debt as at the date of separation.