Unjust Enrichment

An Article by Len Fishman

(NOTE: This article was written for a Law Society of Manitoba 
Continuing Legal Education Seminar on March 5, 1996
 and has not been updated)

 

(Table of Contents)

E. Use Of Trust In Cases Governed By The Marital Property Act

The Marital Property Act apples only to the married. It declares in its preamble:

Whereas marriage is an institution of shared responsibilities and obligations between parties recognized as enjoying equal rights;

Whereas it is advisable to provide for a presumption in the event of the breakdown of the marriage or the death of a party to the marriage, of equal sharing of the family and commercial assets of the parties to the marriage acquired by them during the marriage;

This seems like a codification of constructive trust principles, and that equity will flow on the dissolution of marriage, but much that is promised is illusory. Contrary to its stated objectives, The Marital Property Act does not deliver equality in many cases.

The Act provides a scheme for the former spouses to share the net wealth of the marriage, but it is not expressed to be a code, excluding other relief. For most cases it will do. The scheme requires each spouse to add up the fair market value of the shareable assets in his or her name as of the closing date and deduct the allowable debts. The parties' net assets are then equalized by a judgment for cash equal to one half the difference.

One must always be vigilant to remember that the Act divides the aggregate net value of the assets which are to be included, not the assets or liabilities themselves, and that as of the closing date. No proprietary interests are divided or allocated, except perhaps as a function of the court's authority to enforce its money judgment by adjudicating the method by which it will be satisfied.

1. Two Problems With The Marital Property Act

Two problems are evident. Firstly, value is shared as of the closing date determined in accordance with the Act. Secondly, property owned by one of the parties is treated significantly differently than jointly held property.

Unless the parties otherwise agree, the closing date for valuation of their assets and liabilities is fixed by the statute as the date proceedings were begun, if they have not separated, or the last day of cohabitation. This magic date may precede the trial by years, so that the asset carefully and perhaps expensively valued on the date of separation might have an unrelated worth years later when the accounting has been finalized. It might be more and it might be less, and this change could be significant enough to create inequity.

Where the property is jointly held it falls outside the Act. Section 10 of The Marital Property Act reads:

This Act does not apply to any asset that has already been shared equally between spouses, or that is acquired by one spouse from the other by virtue of a sharing of assets under this Act.

According to Isbister v. Isbister, assets such as a jointly held marital home or a joint bank account are excluded from the accounting as they are deemed to have been already shared pursuant to s. 10.

If the parties cannot agree, jointly held real property is dealt with under The Law of Property Act, that is, by a claim for partition or sale. Generally, subject to issues concerning competing claims for occupation rent or expenses, the property is sold with the assistance of the court and the net proceeds divided equally between the parties as and when realized. The significance of this is that the parties share the variations that might occur, up or down, in the value of the property in the post separation period.

2. Remedies within The Marital Property Act

The Act's only balancing tools are the unequal division provisions and the ability to award interest. The first of these, the power to divide the assets of the parties unequally is circumscribed by tests that so far have admitted of little real application.

For "family assets" the court's discretion to depart from equality is to be exercised:

... if the court is satisfied that equalization would be grossly unfair or unconscionable having regard to any extraordinary financial or other circumstances of the spouses or the extraordinary nature or value of any of their assets.

For "commercial assets", the test is not as onerous and the court is given some guidelines, two of which would seem promising in the context of constructive trust analysis:

... if the court is satisfied that equalization would be clearly inequitable having regard to any circumstances the court deems relevant including

(g) the nature of the assets; and

(h) the extent to which the financial means and earning capacity of each spouse have been affected by the responsibilities and other circumstances of the marriage.

The case law that has developed is sparse and not of much assistance. The occasions when a court has made an unequal allocation are few. While it is often pleaded, it has not historically been of much use to redress the problems created by the Act itself. Whether dealing with "family assets" or "commercial assets", neither test openly declares a change in value post separation as a basis for the unequal division remedy, and it would seem, given the general reluctance to rely on hindsight in these matter, it would not be appropriate to do so.

The interest provisions are, despite liberalization in recent years, not universally applied and not necessarily sufficient as a remedy. The power to award interest is discretionary and subject to the court being "satisfied that it is equitable under the circumstances". The case law that has developed has tended to tie the award of interest to the payment of support in the pre-trial or interim period. Conduct of the parties vis-a-vis the litigation, resulting in delay or unfairness, is also relevant. It may depend on whether the payor himself would have earned interest on the equalization payment, whether he had the assets and when he had the ability to pay it. An award of interest need not be with respect to all of the award and may be subject to timing issues.

Secondly, there is no clear mechanism to predict the rate of interest that might be allowed. The award of interest, even at the highest rate, may do little to redress the inequity that might arise where an asset changes value significantly between the date of valuation and the day of reckoning.