Traditionally, the law in Ontario has not provided relief for spouses who have experienced significant post-separation declines in the value of their assets. However, in Serra v. Serra,1 the much anticipated decision of the Ontario Court of Appeal, the court found that a “market driven decline in value of a spouse’s assets post-separation may be considered as a factor in determining whether an equalization of net family property is unconscionable under s. 5(6)”2 of the Family Law Act (“FLA”). Some commentators have heralded this decision as creating a legal free for all. This characterization, however, detracts from the careful reasoning of the Court of Appeal, which clearly demonstrates that Serra must be understood in light of the specific facts of the case.3

In Serra, the parties were married for 24 years, and, throughout the marriage, Mr. Serra carried on a profitable textile business. At the time of separation, Mr. Serra’s shareholdings were valued between $9.5 million and $11.25 million. By the time of the trial, the value had decreased to between $1.875 million and $2.6 million.4 At trial, Mr. Serra argued that equalizing his and his wife’s net family properties on the basis of the separation date value would be unconscionable pursuant to s. 5(6) of the FLA.5 The trial judge ruled that the court could not make a market driven post separation date decline in the value of a spouse’s assets; the trial judge ordered an equalization payment of almost $4.2 million despite the fact that the equalization payment awarded was, at least, equal to 100 percent of his net worth.

The Court of Appeal overturned the trial judge’s decision and reduced the equalization payment owing to Ms. Serra from $3.2 million to $900, 000. The court found that Mr. Serra’s interest in his textile business was his major and only significant income producing asset.7 As such, the market driven decline in the value of Mr. Serra’s interest was held to relate to the disposition, preservation and maintenance of that asset under s. 5(6)(h) of the FLA.8

In its determination of what constitutes an unconscionable division of net family property, the court stated that the threshold is exceptionally high, and that an equal division of net family properties in the circumstances must “shock the conscience of the court.”9 Ultimately, the court held, and Ms. Serra did not dispute, that the decline in Mr. Serra’s assets was through no fault of his own, but rather the result of a collapse of the Canadian textile industry. This point was significant. According to the facts of Serra it was demonstrated that the decline in value of assets was beyond the payor’s control.

It is also significant that Ms. Serra obtained a preservation order which required Mr. Serra to preserve and maintain his business in order to satisfy his interim payment obligations, which limited his ability to mitigate his losses. The judge also took note of the fact that Ms. Serra is not without means.10 These factors, the court held, “point compellingly to the conclusion that the equal division of Mr. and Ms. Serra’s net family properties would lead to an unconscionable result.”11

The scope of s. 5(6) and whether its factors encompass post-valuation date fluctuations in the value of family property assets has been the subject of much controversy.12It is clear that judicial discretion with respect to equalization payments is restricted by statutory construction, but this decision demonstrates that it is not completely eliminated.13It must be emphasized that the argument contained in Serra is not available to all those who have suffered a decline in value of their assets. While there will be creative counsel who argues that s. 5(6) may apply in the circumstances of a particular case, it must be emphasized that the Serra case turns on its unique facts.14 In Ontario, the equalization of net family properties will continue to be determined on the basis of the separation date value unless, as in Serra, exceptional circumstances exist.