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All too often, separated couples go to great lengths to minimize or hide assets that would otherwise be divided in a divorce. When those efforts are deemed to be in “bad faith,” the cost orders imposed by courts can make the financial pain much worse.

That’s a lesson an Ontario man discovered recently after Justice Erika Chozik of the Ontario Superior Court of Justice found that he had “fraudulently” transferred his home to his brother in order to argue he could not pay his former wife what she was owed.

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Following a seven-day trial, Justice Chozik ordered the husband and his brother to pay costs of $150,000 to the husband’s former wife, a significant amount that reflected the pair’s efforts to make it impossible for the wife to collect money owed to her. According to the judge, those efforts amounted to bad faith.

The couple involved in the case married in Portugal in 1988 and immigrated to Canada. The wife was a cleaning lady, a homemaker and cared for the couple’s two children. The husband was a construction labourer. By all accounts, the couple worked hard and saved their money. They owned their $850,000 home outright and a condominium in Portugal. After 30 years of marriage, the couple separated in 2018.

Two years prior to separation, the husband retired, at which time he had accumulated 39 years of service. Because of his lengthy service, the husband’s pension was worth nearly $800,000. 

One year after the couple separated, the wife agreed to sell her interest in the home to the husband. The husband paid the wife $425,000 and the wife’s interest in the home was transferred to the husband. All other issues arising from the couple’s separation remained unresolved.

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One year later, the wife told the husband she wanted to resolve the remaining issues. If successful, the wife would be entitled to a payment of $360,000 which, to a great extent, is a result of the value of the husband’s pension. In jurisdictions across Canada, a pension is considered property and is subject to sharing in the event of separation. The husband resisted the wife’s claim.

But the husband’s efforts to avoid paying his wife went well beyond the courtroom. Just two months after he received notice that the wife intended to pursue the $360,000 payment, the husband transferred the home to his brother. Since that was the husband’s largest asset, he was left with no resources from which to pay the wife.

Wife sues brother

Seeing the writing on the wall, the wife sued the husband’s brother in the divorce proceedings. Doing so ensured the equity in the home would be available to satisfy any amounts owed to the wife.

The transfer of the home to the husband’s brother was front and centre in the seven-day trial. Without hesitation, the judge found the transfer was fraudulent. According to Justice Chozik, the transfer “was made with the intent to defeat or hinder (the wife’s) claims to the division of the pension by way of a lump sum payment and to frustrate her ability to collect that payment.”

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The judge went on to find the husband “acted in bad faith when he fraudulently conveyed the matrimonial home to (his brother) to try to frustrate (the wife’s) ability to collect an equalization payment and then deliberately told lies at the trial and conspired with others to lie to try to cover up the purpose of that transfer.”

The husband was ordered to pay the wife $360,000 on account of sharing of property. The judge also ordered that if the husband does not make payment to the wife within 60 days, the home is to be transferred back to the husband and sold. The wife is to be paid the money owed to her from the proceeds of sale.

When asked to determine if the wife was entitled to her costs of the trial, Justice Chozik began her analysis by pointing to the husband’s and his brother’s bad faith. The judge found their conduct was “an affront to the administration of justice” and that it “showed a total disrespect for the court and the administration of justice.” According to the judge such conduct “is the epitome of bad faith.”

In Ontario, when there is a finding of bad faith in a family law proceeding, a judge is required to order full recovery of costs and immediate payment. While the wife’s costs totalled nearly $300,000, Justice Chozik ordered the husband to pay costs of $150,000. In doing so, the judge agreed with the husband that the wife’s legal fees were unreasonable since they were “essentially equivalent to the financial result she was ultimately seeking or got at trial.”

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According to the husband, he should not have to pay the wife’s costs, or should pay a reduced amount, because he could not afford to make payment. The judge disagreed. Justice Chozik acknowledged that after making payment to the wife of $360,000 “whatever is left of his equity in the home will be eaten up by legal costs — his costs and his share of (the wife’s) costs.” The judge added “it is very sad that after working hard and saving money for most of his life, he is left in this financial position.”

Given the husband’s brother’s participation in the fraudulent transfer of the home, the husband and his brother are jointly and severally liable for the payment of costs to the wife.

This case serves as a reminder to separated spouses that courts will not tolerate efforts to dodge legitimate claims, with significant orders for costs a distinct possibility.

The decision is currently under appeal.

Adam N. Black is a partner in the family law group at Torkin Manes LLP in Toronto.

ablack@torkinmanes.com

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