25 February 2014

Supreme Court Releases First Decision on Interim Property Distributions under the FLA

Mr. Justice Melnick of the British Columbia Supreme Court has recently released his decision in M.A.L. v N.A.L., giving us what I believe is the first judgment on orders for the interim distribution of property under the new Family Law Act. As usual, I need to provide a bit of background to explain what the new act has to say on the subject and why this is an important decision.

The Old Law

Under s. 66 of the old Family Relations Act, when a married couple were involved in a claim for the division of family assets, the court could:
determine any matter respecting the ownership, right of possession or division of property ... and may make orders that are necessary, reasonable or ancillary to give effect to the determination
That last bit, about orders that are necessary to give effect to the determination, was sometimes used to apply for an "interim distribution" of property — an order that some of the family assets be given to a spouse or used by a spouse in advance of trial or settlement. However, the law on the issue was very restrictive. A case called Ansari v Ansari from the Supreme Court in 2000 offered a very useful discussion of the issue, and concluded that interim distributions would only be allowed if it met this narrow test:
"[16] ... (1) Is the advance required to mount a challenge to the other spouse’s position at trial; 
(2) Will the advance or the payment on an interim distribution basis jeopardize the other spouse’s position at trial? ... "
As a result, you could apply for an interim distribution to fund an expert required for trial, but you couldn't apply for a distribution to pay your legal fees.

The New Law

All of this changed as a result of s. 89 of the Family Law Act, which says this:
If satisfied that it would not be harmful to the interests of a spouse and is necessary for a purpose listed below, the Supreme Court may make an order for an interim distribution of family property that is at issue under this Part to provide money to fund 
(a) family dispute resolution, 
(b) all or part of a proceeding under this Act, or 
(c) the obtaining of information or evidence in support of family dispute resolution or an application to a court.
This section rejects the case law that developed under s. 66 of the old act, and makes it plain that the court should, and perhaps ought, to allow interim distributions of family property — not excluded property, you'll note, just family property — to pay for the cost of out-of-court settlement processes, contribute to the cost of legal fees incurred in connection with claims for the division of property, and pay for the costs of experts. Very cool.

In the case before Justice Melnick, the respondent sought an interim distribution of the family property to help her cover her anticipated legal fees for a two-week trial:
"[4] ... The respondent needs money now to pay for legal expenses. The parties have reserved ten days in June for a trial to deal with their various issues. Those issues include the extent to which each party contributed to the acquisition of family assets, including the matrimonial home."
With an admirable economy, His Lordship reviewed the facts and, at paragraph 14, the text of s. 89, and made his order thusly (important bits in bold):
"[12] There are at present too many unknowns concerning the extent to which each party may have equity in the matrimonial home to order that the respondent be compensated now for one-half of its value or that it be sold prior to trial. As the claimant and the child, by court order, and the nanny are all living there it would not be expedient to order the sale now. But it may be that, ultimately, once each party’s interest in the family assets is determined, the claimant may have to relocate to less costly accommodation. ... 
"[13] At this point, given ... that as part of the interim arrangements the claimant has sole occupancy of the home, and the disparity in their income and access to assets, the parties proceed toward and into trial in very unequal circumstances. ... 
"[15] The respondent’s alternate application is for an interim distribution to her of family assets in the amount of $200,000 so that she may fund her litigation expenses. On the evidence before me on this application, I am satisfied that is a reasonable request, both in terms of amount and its necessity for her to deal with the difficult issues of asset division and parenting issues on an equal basis with the claimant. Given the equity in the matrimonial home, the length of the marriage, and the assets to which the claimant has access, it is, even at this early stage, sufficiently clear for me to say that it would not be harmful to the claimant’s interests for such an interim distribution to take place by March 31, 2014. Whether the source of these funds is from the equity in the home or other assets over which the claimant has control is up to the claimant. If obtained from the equity in the home, the parties will co-operate in securing the funds. The claimant shall be responsible for all costs, including interest, if any loan needs be taken out to secure the interim distribution subject to determination at trial of who should bear the responsibility for these costs."
From this I take the following principles
  1. The amount of the proposed interim distribution must be necessary to enable the applicant to continue the litigation on an equal footing with the respondent.
  2. The amount sought must reasonable in light of the anticipated cost of the litigation to the applicant.
  3. The amount sought must not impinge upon the property interest the respondent is likely to receive as a result of the eventual trial.
  4. An asset should not be liquidated to satisfy an interim distribution when there is doubt as to the extent of each party's interest in that asset.
It seems to me that the family law bar of British Columbia owes a debt to counsel for the applicant, Vincent Pigeon, for being the first to bring a successful application under s. 89.

My thanks to Agnes Huang and Todd Bell for bringing this interesting case to my attention.