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.

Helpful Decision on Finality of Divorce Act Orders Released

Mr. Justice Grauer of our Supreme Court has recently published his decision in Pozzobon v. Pozzobon. The case concerns a father's application to have the primary residence of his daughter moved from her mother's house in Alberta to his house in British Columbia. This case continues and to some extent clarifies the discussion begun in Yu v. Jordan about when a Divorce Act order is a final order.

The relevant facts are these. In 2010, the parties agreed to an order at a judicial case conference dealing with custody, guardianship and access. They agreed that the daughter's primary residence would be with the mother, and they believed that the JCC order was a final order. In 2011, the parties agreed to an order varying the JCC order to allow the mother and child to move to Alberta. In 2013, the father applied to vary the JCC order to give the child's primary residence to him. The parties had not yet been divorced at the time of the application.

The importance of the finality of the JCC order concerns the test that must be met to vary the order. To answer this threshold question, the court was required to determine whether the order had been made under the Divorce Act or the old Family Relations Act, and then whether the order was an interim order or a final order.

Prior to the new Family Law Act coming into force, the question of whether an order about children between married spouses was a Divorce Act order or a Family Relations Act order rarely mattered. Because the two laws talked in about the care of children in a compatible manner, it was commonplace for an order to simply grant custody without being more specific. This issue could sometimes become important, however, if a spouse applied to change the order.

Under s. 20 of the Family Relations Act, the court could vary an order if there had been a change in circumstances since the order was made:

Subject to this Act, if a court has made an order under this Act ... the court may, on application, vary or rescind the order if circumstances have changed since the order was made or last varied.

Under s. 16 of the Divorce Act, however, the court may vary an interim order without needing proof of a change in circumstances:

(1) A court of competent jurisdiction may, on application by either or both spouses or by any other person, make an order respecting the custody of or the access to, or the custody of and access to, any or all children of the marriage.

(2) Where an application is made under subsection (1), the court may, on application by either or both spouses or by any other person, make an interim order respecting the custody of or the access to, or the custody of and access to, any or all children of the marriage pending determination of the application under subsection (1).

Sections 17(1) and (5) of the Divorce Act concern the varying of final orders, and do require a change in circumstances:

(1) A court of competent jurisdiction may make an order varying, rescinding or suspending, prospectively or retroactively, ... a custody order or any provision thereof on application by either or both former spouses or by any other person. 

(5) Before the court makes a variation order in respect of a custody order, the court shall satisfy itself that there has been a change in the condition, means, needs or other circumstances of the child of the marriage occurring since the making of the custody order or the last variation order made in respect of that order, as the case may be, and, in making the variation order, the court shall take into consideration only the best interests of the child as determined by reference to that change.

Did you catch the reference in s. 17(1), about an application by a "former spouse"? In order to be a former spouse entitled to apply to vary an order the spouse must be divorced, of course, and until the spouse is divorced the requirement of a change under s. 17(5) isn't required.

In other words, if you want to change an order about the care of children, if the order is an interim order under the Divorce Act, you just get to apply and the court will usually consider the question of custody and access anew. If the order is a Family Relations Act order or a final Divorce Act order, you must first prove that there has been an important change in circumstances before the court can hear your application. As a result, the status of the order and the law it was made under were critical to the father's application.

The court resolved the question of the order's status by referring to the recent decision of our Court of Appeal in Yu v. Jordan, and quoting from paragraph 47:

"It is common ground that an order for corollary relief in a divorce action that pleads both the Divorce Act and the [Family Relations Act] cannot be a final order for corollary relief under the Divorce Act absent the granting of an order for divorce. Such an order will remain an interim order under the Divorce Act until the divorce is granted. Final corollary relief under the Divorce Act can be granted only upon the granting of an order for divorce..."

In other words, when a claim asks for orders about the children under both the Divorce Act and the provincial legislation, the order will never be a final order until a divorce is granted, regardless of the intention or understanding of the parties to the order. As Mr. Justice Grauer put it, "because no order for divorce has been pronounced, any order under the Divorce Act is perforce an interim order no matter what the parties contemplated or the order states."

My thanks to my colleague Kathryn Robinson for bringing this case to my attention.