2020 NLCA 26, 2020 NLCA 26

Crystalann Quigley-Mckay (appellant) v. Brian McKay (respondent) (19/67) Indexed As: Quigley-McKay v. McKay 2020 NLCA 26 5 C.A.N.L.R. 611 Court of Appeal of Newfoundland and Labrador Fry C.J.N.L., Green and Butler JJ.A. July 24, 2020

Summary: Following breakdown of the parties’ marriage, the trial judge made orders respecting the matrimonial home, parenting, spousal and child support, and division of matrimonial assets. The sole matter appealed was the division of two investment accounts in favour of Mr. McKay. The money in the accounts was from a substantial settlement resulting from a personal injury claim by Mr. McKay. At issue was whether the trial judge erred in law by not applying sections 27(1) and 31(2) of the Family Law Act in assessing division of the investment accounts. Held: Appeal dismissed. The Court: The issues on appeal are

(1) What is the statutory framework to be applied under the Family Law Act on an application to settle ownership, possession and/or division of assets?

(2) Did the trial judge err in the application of this statutory framework?

(3) If there were errors in the application of the statutory framework, did it make a material difference to the result (paragraph 10)? The division of assets acquired by spouses is outlined in

Part II of the Family Law Act , see sections 19 , 21 , 22 , 26 , and 31 (paragraphs 12-21). Three categories of assets exist under the Family Law Act : matrimonial assets ( section 18(1) (c)), business assets ( section 18(1) (a)), and exempt assets ( section 18(1) (c)(i)-(vii)). Personal injury awards are a special case under article 18(1)(c)(ii). An award may be subdivided based on the different types of loss being compensated (paragraphs 22-38).

Section 27 of the Family Law Act is of limited applicability and cannot be used to adjust property interests contrary to existing legal and equitable entitlements.

Section 27 does not have a role to play in the operation in sections 21 , 22 , and 26 , nor is

section 27 applicable once a claim is made under these earlier sections (paragraphs 39-52).

Section 31 of the Family Law Act modified the presumption of resulting trust for jointly held property. The presumption is that each spouse would have a one-half beneficial interest in that property on severance, which may be applicable equally in a

section 27 claim as in a sections 21 , 22 , and 29 claim (paragraphs 53-61). Maloney v. Maloney does not stand for the proposition that once a determination is made respecting any jointly held asset pursuant to section 31(1) the analysis is complete and there is no role for

section 21, 22 or 29 (paragraphs 62-69). There is a 7-step statutory framework to be applied under the Family Law Act on an application to settle ownership, possession and/or division of assets (paragraphs 70-71). Ultimately the trial judge’s analysis did not contain errors which would materially affect the result. There was no error in the trial judge

determining that the ownership of the joint investment accounts fell to be determined under

section 22 of the Family Law Act (paragraphs72-106). Cases cited: Maloney v. Maloney (1997), (NL CA), 156 Nfld. & P.E.I.R. 251 (Nfld. C.A.) Shoal Investments Ltd. v. Murphy, 2019 NLCA 78 Martin v. Martin (1998), (NL CA), 168 Nfld. & P.E.I.R. 181 (Nfld. C.A.) Rawluk v. Rawluk, (SCC), [1990] 1 S.C.R. 70 (S.C.C.) Duff v. Duff (1983), 43 Nfld. & P.E.I.R. 151 (Nfld. C.A.) King v. King (1993), (NL SC), 110 Nfld. & P.E.I.R. 181 (Nfld. U.F.C.) Stanley v. Stanley, 2011 NLTD(G) 4, 303 Nfld. & P.E.I.R. 262 Pettitt v. Pettitt, [1969] UKHL 5, [1969] 2 All E.R. 385 Cook v. Cook (1976), 11 Nfld. & P.E.I.R. 1 (Nfld. Dist.

Ct.) Cook v. Cook (1977), 14 Nfld. & P.E.I.R. 318 (Nfld. S.C.), aff’d (1980), 26 Nfld. & P.E.I.R. 433 (Nfld. C.A.) Pecore v. Pecore, 2007 SCC 17, [2007] 1 S.C.R. 795 Statutes considered: Family Law Act, RSNL 1990, c. F-2, sections 21, 22, 27, 31, 19, 26, 18, 29 Married Women’s Property Act, SN 1883, cap 11,

section 17 Married Women’s Property Act, RSN 1952, c. 143,

section 19 Married Women’s Property Act of 1882, (45 & 46 Vict., c. 75),

section 17 Matrimonial Property Act, SN 1979, c. 32, sections 25(2), 29 Rules Considered: Supreme Court Family Rules, rule F1.03Rules of the Supreme Court, 1986,

Part IV Texts Considered: Julian D. Payne and Marilyn A. Payne, Canadian Family Law, 7th ed. (Toronto: Irwin Law, 2017), at 718-719 Gushue and Day, Family Law in Newfoundland (St. John’s: Division of Printing Services, Department of Supply and Services, 1973 atpages 225-6, 232-3, 282, 241-2 Counsel: Trevor Stagg for the appellant; and Adam Crocker for the respondent. The appeal was heard on March 9, 2020 before Fry C.J.N.L., Green and Butler JJ.A. The following judgment was filed on July 24, 2020 by the Court. ______________________________________________________________ By the Court:

INTRODUCTION [1] Although the trial resulted in orders respecting the matrimonial home, parenting, spousal and child support and division ofmatrimonial assets, the only issue engaged on this appeal is a dispute between separated spouses over two investment accounts. [2] This appeal deals with the interrelationship of provisions of the Family Law Act, RSNL 1990, c. F-2, relating to: • division of matrimonial assets upon marriage breakdown; • claims to ownership of other spousal assets; and • mechanisms for the resolution of such ownership claims. [3] Mr.

McKay received a substantial settlement of a personal injury claim. After considering how to handle the funds and takingadvice, he placed the majority of the money in two investment accounts held jointly by the husband and his wife (the appellant). [4] On breakdown of the marriage, Ms. Quigley-McKay made the usual application for division of matrimonial assets but, inrelation to the jointly-held investment accounts, claimed at the hearing that they were not subject to the asset-sharing provisions of theFamily Law Act (sections 21 and 22). Instead, relying on the decision of this Court in Maloney v.

Maloney (1997), (NL CA), 156 Nfld. & P.E.I.R. 251 (Nfld. C.A.), she submitted that claims to such assets had to be dealt with under a separate procedureunder

section 27 (which had not been invoked) and determined in accordance with section 31(2) which addresses beneficial ownership offunds held in a joint account. [5] Mr. McKay held a starkly different point of view. As his primary position, he conceded that the investments were matrimonialassets but he claimed an unequal division in his favour pursuant to

section 22. [6] The trial judge sided with Mr. McKay and awarded 90 percent of the funds to him and relied on the income stream generated bythe funds for the child and spousal support orders. (The support orders were not appealed.) [7] On appeal, Ms. Quigley-McKay claimed that the judge erred in law in not accepting her position on the investments assubmitted at trial. [8] There are therefore widely divergent positions of the parties on the relationship of sections 21 and 22, on the one hand, andsections 27 and 31, on the other, as well as their application to the factual circumstances facing the Court.

In light of this and the minimal jurisprudence onthese issues, it is necessary to address the

interpretation and scope of the potentially applicable provisions and to suggest an analyticalframework to be applied to settle ownership and division of assets on marital breakdown. In addition, it is necessary to consider the scopeand application of Maloney in light of Ms. Quigley-McKay’s reliance upon it. [9] The analysis that follows excludes the issue of ownership of the matrimonial home (not an issue on this appeal) which has itsown unique set of rules discussed in this Court’s recent decision in Shoal Investments Ltd. v. Murphy, 2019 NLCA 78.

In addition, theanalysis does not have to deal directly with claims to business assets but, for the sake of completeness, references will be made to claimsto such assets because they are intertwined with the overall general analysis we are describing. ISSUES [10] The following issues must be determined on this appeal: 1. What is the statutory framework to be applied under the Family Law Act on an application to settle ownership, possession and/ordivision of assets? 2. Did the trial judge err in the application of this statutory framework? and 3.

If there were errors in the application of the statutory framework, did it make a material difference to the result? STANDARD OF APPELLATE REVIEW [11] In family law cases a trial judge’s decision should not be interfered with on appeal absent “an error in principle, a failure toconsider all relevant factors, a consideration of an irrelevant factor or a lack of factual support for the judgment.” (Martin v. Martin(1998), (NL CA), 168 Nfld. & P.E.I.R. 181 at para. 5 (Nfld. C.A.)). PRELIMINARY CONSIDERATIONS The Legislative Regime Affecting Division of Assets Acquired by Spouses [12]

Part II of the Family Law Act deals with claims by spouses to sharing of assets. The purpose is stated in

section 19 as follows: 19. The purpose of this

Part is to recognize that child care, household management and financial support are the joint responsibilities ofthe spouses and that there is a joint contribution by each of the spouses, financial and otherwise, that entitles each spouse to an equaldivision of the matrimonial assets acquired during the course of the marriage. [13] Although the purpose of

Part II is stated in

section 19 to apply to division of “matrimonial assets” and the heading of

Part II

references only “Matrimonial Assets”,

Part II in fact also addresses business assets and what we have later described compendiously as“exempt assets.” As a statement of general purpose, therefore,

section 19 is not really helpful to the resolution of all issues ofinterpretation and application encompassed by

Part II. [14] In respect of matrimonial assets,

section 19 is reflected primarily in sections 21 and 22 of the Act: 21.

(1) Where (

a) a petition for divorce is filed; (

b) a marriage is declared a nullity; (

c) the spouses have been separated and there is no reasonable prospect of the resumption of cohabitation; or (d) 1 of the spouses has died, either spouse is entitled to apply to a court to have the matrimonial assets divided in equal shares, notwithstanding the ownership of theseassets, and the court may order that division. … 22. The court may make a division of matrimonial assets that is not equal where the court is satisfied that a division of these assets inequal shares would be grossly unjust or unconscionable taking into account the following factors: (

a) the income, earning capacity, property and other financial resources that each of the spouses has or is likely to have in theforeseeable future; (

b) the financial needs, obligations and responsibilities that each of the spouses has or is likely to have in the foreseeable future; (

c) the standard of living enjoyed by the spouses before the breakdown of the marriage; (

d) the age of each party; (

e) the duration of the marriage; (

f) a physical or mental disability of either of the spouses; (

g) the contributions made by each of the spouses to the welfare of the family, including a contribution made by a spouse in lookingafter the matrimonial home or caring for the family; (

h) the loss of a potential benefit to a spouse by reason of a dissolution or annulment of the marriage; (

i) the unreasonable impoverishment or dissipation of matrimonial assets by either of the spouses; (

j) the length of time that the spouses have lived separate and apart from each other during the marriage; or (

k) the date of acquisition of each matrimonial asset. [15] As has been recognized by previous jurisprudence, sections 21 and 22 provide both the procedural gateway for resolving claimsto matrimonial assets and also the substantive principles for resolving those claims. A presumption of equal sharing “notwithstandingthe ownership of these assets” is subject to limited exceptions after considering factors that would make equal sharing “grossly unjust orunconscionable.”

Section 26 enumerates a court’s power to provide various remedies to achieve the equitable sharing that has beendetermined as being appropriate. [16] The entitlement to remedies under sections 21, 22 and 26 is not determined by reference to pre-existing ownership of the assetsunder dispute.

However, in the process of applying these sections it may be necessary for the court to first determine who is thebeneficial owner of particular assets before addressing the issue of equitable sharing “notwithstanding … ownership.” This is becauseknowledge of who owns what in terms of prior beneficial ownership may become important to enable the court to make the necessaryadjustments to the total matrimonial asset pool in favor of one or the other of the spouses to achieve the asset sharing objectives of thelegislation. [17] In this sense, the Family Law Act is not a complete code for determination of property rights and entitlement between spouses onmarriage breakdown; instead, it is overlaid on property law principles applicable to all citizens and modifies that general law in somerespects. [18] Thus, “a determination of the beneficial ownership rights of each spouse is a condition precedent” to division of assets under

Part II of the Family Law Act (Julian D. Payne and Marilyn A. Payne, Canadian Family Law, 7th ed. (Toronto: Irwin Law, 2017) at 718-719). [19] An example given by Payne et al relates to determinations of equitable claims that are not reflected in the formal title: “Evenwhere property is held in the name of only one spouse, the doctrines of resulting and constructive trust may have an impact on thebeneficial ownership of such property” (at 718). [20] This view was accepted by this Court in Martin, where Cameron J.A., citing Rawluk v. Rawluk, (SCC), [1990]1 S.C.R. 70 (S.C.C.), stated:

[35] Since the decision of the Supreme Court of Canada in Rawluk v. Rawluk, it has been settled that married persons to whom a statutefor division of property applies may also have recourse to other common law or equitable remedies. … Rawluk directs that, as a firststep, a court in a matrimonial case should determine ownership of the property which is subject to division. It is at this stage that theconstructive trust should be dealt with.

The “benefit” to a “non-titled” spouse of a constructive trust is that it gives the non-titled spousean interest in the property. [21] Determination of beneficial ownership by the application of any common law, equitable or statutory principle that might affectbeneficial ownership is therefore the starting point in the analysis. This would include, for the reasons given later, consideration ofsection 31 of the Family Law Act relating to beneficial ownership of jointly-held property. The Three Categories of Assets [22] The legislative regime set out in

Part II of the Act operates once ownership under general property law principles has beendetermined and may modify the parties’ rights in property “owned” by spouses by ordering sharing and transfers between them. [23] The Family Law Act effectively divides property owned by one or both of the spouses into three different categories(matrimonial, business and exempt assets) each of which is treated differently under the legislation. This division of categories isachieved by

section 18, which reads in pertinent part: 18.

(1) In this Part (a) “business assets” means property primarily used or held for or in connection with a commercial business, investment or profitproducing purpose; … (c) "matrimonial assets" includes all real and personal property acquired by either or both spouses during the marriage, with theexception of, (

i) gifts, inheritances, trusts or settlements received by 1 spouse from a person other than the other spouse and an appreciation in valueof them during the marriage, (ii) personal injury awards, except the portion of the award that represents compensation for economic loss, (iii) personal effects, (iv) business assets, (

v) property exempted under a marriage contract or separation agreement, (vi) family heirlooms, and (vii) real and personal property acquired after separation. Matrimonial Assets [24] In the case of matrimonial assets, (which, subject to the exceptions listed in

section 18, essentially includes all real and personalproperty acquired by either or both spouses during the marriage), section 21(1) allows the court to divide them “notwithstanding theownership of those assets”. Property acquired during the marriage and held by one or both parties presumptively falls within thecategory of matrimonial assets. The burden is on the party claiming otherwise to demonstrate that the property is either a business assetor an exempt asset. [25] Characterization of the asset as matrimonial is made as of the date of the event triggering the entitlement to make a

section 21application (section 21(1)(a)-(d)). It is therefore possible that between the date of its acquisition and the relevant triggering date, thecharacterization of an asset originally acquired as a business asset or an exempt asset may, by virtue of its subsequent use, purpose ortreatment by the spouses, change and become a matrimonial asset (Duff v. Duff (1983), 43 Nfld. & P.E.I.R. 151 at 156 (Nfld. C.A.); Kingv. King (1993), (NL SC), 110 Nfld. & P.E.I.R. 181 at paras. 27-29 (Nfld. U.F.C.)). Therefore, when such a claim ismade it is required to be addressed by the trial judge.

Business Assets [26] The focus, in the case of business assets, is not on their acquisition during marriage but on the commercial, business, investmentor profit-producing purpose of the asset. Such an asset could have been acquired by one spouse prior to the marriage. [27]

Section 29 defines the scope of entitlement: 29. Where one spouse has contributed work, money or money's worth in respect of the acquisition, management, maintenance, operationor improvement of a business asset of the other spouse, the contributing spouse may apply to the court and the court shall by order (

a) direct the other spouse to pay an amount that the court orders to compensate the contributing spouse; or (

b) award a share of the interest of the other spouse in the business asset to the contributing spouse in accordance with the contribution, and the court shall determine and assess the contribution without regard to their spousal relationship or the fact that the acts constitutingthe contribution are those of a reasonable spouse in the circumstances.

[ 28 ] In the case of business assets owned by “the other spouse”,

section 29 (

b) allows the court to award a share to the other spouse if contribution to the acquisition, management, maintenance, operation or improvement of those business assets is established. [ 29 ] Although the test for remedial entitlement is different in respect of matrimonial assets and business assets, the effect of the application of the relevant provisions is a transfer of property to the spouse who, until that time, was not regarded as the “owner” under general principles of property law (or alternatively, an order for compensation in place of such a transfer).

Exempt Assets [ 30 ] Assets not constituting matrimonial assets or business assets are what we term compendiously as “exempt assets”. They are listed in the exceptions in section 18(1)(c)(i)-(iii) and (v)-(vii). In addition, assets acquired by one spouse prior to marriage are also exempt if they are not business assets. Exempt assets are not subject to sharing under

Part II of the Act . [ 31 ] Entitlement to exempt assets is determined by application of general property law principles, whether common law, equitable or statutory. That would include – as discussed later – the application of

section 31 of the Family Law Act . [ 32 ] As noted previously, the character of exempt assets can, however, be changed following acquisition. Applying the principles in Duff and King , they could become matrimonial assets as a result of changes in use, intention and treatment and thereby (notwithstanding prior ownership) become liable to sharing under either

section 21 or 22. [ 33 ] In the majority of cases on an application under

Part II, a court will simply determine whether an asset is exempt as part of the exercise of dividing matrimonial assets and (where relevant) considering claims to contribution to business assets. The Special Case of Personal Injury Awards [ 34 ] The key sub-category of exempt assets for the purposes of this case is 18(1)(c)(ii) which reads: Personal injury awards, except the portion of the award that represents compensation for economic loss [ 35 ] Any portion of a personal injury award relating to compensation for economic loss is regarded as a matrimonial asset.

When such an issue is raised an inquiry is required to determine whether there is compensation for economic loss. An example of an approach to this issue is found in Stanley v. Stanley , 2011 NLTD(G) 4 , 303 Nfld. & P.E.I.R. 262 . [ 36 ] If a portion of the award is found to constitute compensation for economic loss, the personal injury award will have to be sub- divided. The portion regarded as a matrimonial asset (economic loss) will be treated under sections 21 and 22.

The portion regarded as an exempt asset (the remainder of the award) would require first a determination of beneficial ownership according to ordinary property ownership principles (including, if applicable section 31(2)) unless the asset has by virtue of subsequent use, treatment or purpose been re-characterized as a matrimonial asset. [ 37 ] There may, of course, be a dispute between the spouses as to whether a particular asset falls into the exempt category.

If the court ultimately determines that the asset is exempt, the question arises as to whether entitlement to such an asset should be determined in the course of the existing property proceeding or in a separate application. [ 38 ] This brings us to consideration of the role and application of

section 27 of the Family Law Act . This is particularly relevant to the result in this case because of Ms. Quigley-Mckay’s position that the asset-sharing provisions in sections 21, 22 or 26 have no application to this case. Instead, she argues that the issues respecting claims to the investment accounts should have been dealt with by an application under

section 27 and by the application of the property ownership rules in

section

Section 27 [ 39 ]

Section 27 of the Family Law Act provides a mechanism for spouses to resolve disputes as to ownership or possession of property even when disputes regarding sharing of matrimonial and business assets are not engaged. It deals with resolution of ownership issues of any property, including exempt assets located within

Part II. It reads: 27.

(1) A person may apply to the court to decide a question between that person and his or her spouse as to the ownership or right to possession of property, except where an application or order has been made with respect to the property under this Part or

Part I.

(2) Where an application has been made under subsection (1) the court (

a) may make a declaration as to the ownership or right of possession in the property; (

b) may, where the property has been disposed of, order that a spouse pay compensation for the interest of the other spouse; (

c) may order that the property be partitioned or sold; and (

d) may order that either or both spouses give the security, including a charge on property, that the court orders, for the performance of an order under this section, and may make those orders or directions that are ancillary to the application. (Emphasis added.) [ 40 ]

Section 27 does not invest the court with power to alter pre-existing property interests; it merely grants jurisdiction to declare ownership or make consequential orders based on the interests so declared. The reasons for this are historical.

[ 41 ] Subsection 27(1) of the Family Law Act has its genesis in

section 17 of the Married Women’s Property Act, SN 1883, cap 11 (for its most recent iteration see RSN 1952, c. 143,

section 19). Although not identical in wording,

section 17 was essentially based on

section 17 of the English Married Women’s Property Act of 1882, (45 & 46 Vict., c. 75). [ 42 ] Both the Newfoundland and English sections cited above provided a procedure to enable a spouse to apply to court to settle disputes that might arise between two spouses as to title to or possession of property. In pertinent part,

section 17 of the Newfoundland legislation read: In any question between husband and wife as to title to or possession of property, either party … may, on giving notice to the other party, apply to a Judge of the Supreme Court, and thereupon such Judge shall make such order, direct such enquiry, and award such costs as he shall think fit … [ 43 ] This provision on its face allowed a court to determine ownership of property held by one or both spouses applying ordinary principles of property law.

It was initially considered by some English courts as a substantive provision allowing a court to adjust beneficial ownership to achieve a fair and just redistribution of spousal assets on marriage breakdown. However, the House of Lords in Pettitt v. Pettitt , [1969] UKHL 5 , [1969] 2 All E.R. 385 , held, amongst other things, that

section 17 of the English legislation was a procedural provision only and did not confer on the court a jurisdiction to reallocate the assets of spouses contrary to existing ownership rules. [ 44 ] This view has been accepted and applied in this jurisdiction in two separate cases coincidentally bearing the same name ( Cook v. Cook (1976), 11 Nfld. & P.E.I.R. 1 (Nfld. Dist. Ct.) and Cook v. Cook (1977), 14 Nfld. & P.E.I.R. 318 (Nfld. S.C.) , aff’d (1980), 26 Nfld. & P.E.I.R. 433 (Nfld.

C.A.) . [ 45 ] It is settled law therefore that the historical equivalent of the current section 27(1) was not applicable to adjust property interests contrary to existing legal and equitable entitlement. [ 46 ]

Section 17 of the 1883 Newfoundland legislation was addressed in the Gushue Family Law Study (Gushue and Day, Family Law in Newfoundland (St. John’s: Division of Printing Services, Department of Supply and Services, 1973) at pages 225-6, 232-3. The current section 27(2) resulted from recommendations made therein. The recommendations were first enacted as section 25(2) of the Matrimonial Property Act , SN 1979, c. 32, which ultimately became

section 27 of the Family Law Act , SN 1988, c. 60. [ 47 ] There are two items of note about the current provision. First, like the original

section 17, no attempt was made to confer jurisdiction on the court to adjust property interests (nor had the Gushue Study recommended such); the role of the court was limited to declaring existing property entitlements but provided additional remedies based on those existing interests. Therefore,

section 27 did not have a role to play in the operation of the new provisions (now sections 21, 22 and 26 ) allowing for equal or unequal division of matrimonial assets or their value between spouses. [ 48 ] Secondly, the lack of a role for

section 27 was confirmed by the wording of section 27(1): it could not be relied upon “where an application or order has been made with respect to the property under”

Part I or II of the Act (the matrimonial asset-sharing and business asset-compensation provisions are located in

Part II). [ 49 ] We conclude that there is no need to invoke

section 27 and that it has no application once an application is made to share either matrimonial assets or business assets. It does not serve as a jurisdictional gateway on the division of those assets on marriage breakdown. Its role is limited to the relatively rare circumstances where it is necessary to resolve issues relating to ownership of exempt property or alternatively to address a third party’s question of title to an asset in any of the three categories. One example would be where title to property held jointly by two spouses is questioned by a third party, such as a bank. In such a case the third party’s question would require one of the spouses to make application under

section 27 for a declaration as to ownership or possession. [ 50 ] In

summary,

section 27 serves a very different purpose from sections 21, 22, 26 and 29 .

Section 27 permits a declaration of ownership or right of possession; sections 21, 22, 26 and 29 provide jurisdiction to modify the parties’ rights in property “owned” by spouses by or directing sharing and/or transfers between them. [ 51 ] Furthermore, once an application is made invoking sections 21, 22, 26 or 29, issues of ownership of assets may have to take place as a prelude to determination of how assets are to be equitably divided under those sections. This does not mean, however, that the only way to determine ownership is to first bring an application under

section 27 for a declaration of who owns what. The necessity of first determining beneficial ownership when considering an application to share matrimonial or business assets is inherent in the sections 21, 22 and 29 process. This explains why

section 27 expressly says that an application cannot be brought under it once an application under sections 21, 22 or 29 is brought. In such circumstances, ownership issues will be resolved as part of the asset-division process. [ 52 ] We would also add that during the asset division process relating to matrimonial and business assets, determinations might have to be made that certain assets fall into the exempt category and are not subject to sharing. Again, this does not mean that final entitlement to exempt assets in these circumstances would have to await a separate and subsequent application under

section 27. The court can – and should – proceed to make the proper entitlement determinations to exempt assets at the same time. This would be consistent with the overall objective in family matters of promoting “just, timely and cost effective” resolution of a proceeding ( Supreme Court Family Rules, r. F1.03, under

Part IV of the Rules of the Supreme Court, 1986, SNL 1986, c. 42,

Schedule D ).

Section 27 would therefore only have to be invoked where sections 21, 22 and 29 are not engaged.

Section 31 [ 53 ] Ms. Quigley-McKay’s submissions (that the asset sharing provisions of

Part II of the Act have no application) are based in large part on

section 31 which provides: 31.

(1) The rule of law known as the presumption of advancement is abolished in respect of the ownership of property as between spouses and in its place the rule of law applying a presumption of resulting trust shall be applied in the same manner as if they were not

married.

(2) Property, including money on deposit, held in the name of both spouses is, in the absence of evidence to the contrary, proof that each spouse is intended to have a 1/2 beneficial interest in the property on severance of the property. … [ 54 ] Ms. Quigley-McKay’s argument is essentially that, with the exception of the portion relating to economic loss, the settlement funds were excluded as a matrimonial asset by virtue of section 18(1)(c)(ii) and were not therefore subject to division under either

section 21 or 22. They were exempt assets. She then submitted that the subsequent placement of the exempt assets in the jointly-owned investment accounts resulted, by virtue of section 31(2) , in her becoming entitled to a one-half beneficial interest in the funds because there was no “evidence to the contrary” within the meaning of section 31(2) . [ 55 ]

Section 31 modified the equitable doctrines of advancement and resulting trust as they applied between spouses. For a discussion of these doctrines see Pecore v. Pecore , 2007 SCC 17 , [2007] 1 S.C.R. 795 at paras. 20-23 .

Section 31 also resulted from recommendations of the Gushue Study . It had recommended, amongst other things, that the presumption of advancement in favour of a wife (on the establishment by the husband of a joint bank account, on transfer of property to the wife without consideration, or where title to property purchased by the husband is placed in the wife’s name) be abolished. [ 56 ] The Gushue Study recommendations were reflected in

section 29 of the Matrimonial Property Act , SN 1979, c. 32, which ultimately became

section 31 of the Family Law Act . The result of the abolition of the presumption of advancement as between spouses in section 31(1) would have meant the uniform application of the general law regarding the presumption of resulting trust, unaffected by the fact that the parties were married. If the property was in the name of a spouse who gave no value for the property, the spouse was under an obligation to return it. Rebuttal would require proof that a gift was intended. [ 57 ] Section 31(2), however, modified the presumption of resulting trust for jointly held property.

Instead of a resulting trust arising on placement of property by one spouse in joint spousal names, the presumption would be that each spouse would have a one-half beneficial interest in that property on severance. In other words, there was a presumption that a gift of a one-half interest was intended. This was particularly relevant in the case of money held on deposit, which was something that the Gushue Study had specifically recommended (at 282). Relationship Between Sections 27 and 31 [ 58 ] The parties differed on the nature of the relationship, if any, between sections 27 and 31. [ 59 ] Ms.

Quigley-Mckay argued that if section 31(2) was engaged, the issues of ownership had to be dealt with in an application under

section 27; in other words, that sections 27 and 31 were intertwined in their application and effect. Mr. Mckay’s position was that the two sections had no interrelationship. [ 60 ] There is nothing in the Gushue Study recommendations or in

section 31 to suggest that an application is required under

section 27 to resolve all questions of beneficial ownership of property held jointly between spouses. As the Gushue Study acknowledged (at 241- 242), questions of ownership may occasionally arise outside of a dispute between spouses on marriage breakdown and in such cases,

section 27 provides a mechanism for their determination. [ 61 ] However, it does not follow that

section 31 has no relevance to an application under sections 21, 22 or 29 . As has already been stated, on such applications, the court must first apply the general law relating to property ownership.

Section 31 expresses the current law relating to the presumptions of advancement and resulting trust and shall be considered whenever a question of beneficial ownership must be resolved. Maloney v. Maloney [ 62 ] In support of her position on the relationship between sections 27 and 31, Ms. Quigley-McKay cited and relied on the decision of this Court in Maloney . [ 63 ] The facts in Maloney are distinguishable ; there, the husband sought a one-half interest in a property held in joint names and consisting of a residence and a personal care home which the trial judge had found was a business asset subject to an application for an interest under

section 29. The trial judge awarded the husband significantly less than half the value. [ 64 ] On appeal, this Court found “the trial judge was in error in invoking s. 29 to resolve the dispute over the matrimonial/personal care home property” (para. 37) because entitlement to the property could be determined on the basis of the modified presumption of resulting trust stated in section 31(2) . Since the property was held jointly, it was in the absence of evidence to the contrary, proof that each spouse was intended to have a one-half beneficial interest. This Court made a declaration (whether at common law or under

section 27 is unclear) and allowed the wife to purchase the husband’s one-half interest. [ 65 ] Ms. Quigley-McKay suggested that Maloney stood for the proposition that once a determination is made respecting any jointly held asset pursuant to section 31(1) the analysis is complete and there is no role for either

section 21, 22 or 29 to play (appellant’s trial brief at paras. 64-68). [ 66 ] We disagree. Maloney addressed a jointly held commercial property and the potential application of

section 29 relative to sharing of business assets. We do not view Maloney to stand for the broader proposition that in determining entitlement to any asset jointly held, neither

section 21, 22 or 29 have application. [ 67 ] First, at most Maloney applies only to jointly held commercial assets, entitlement to which is not engaged on this appeal.

[ 68 ] Secondly, even in this area, we question whether Maloney properly reflects the reality of ownership of business assets in modern marriages (whether the distinction drawn between solely or jointly held assets of this category should be the determining factor on whether

section 29 applies). However, it is not necessary to resolve this question on this appeal and in the absence of comprehensive submissions on whether this conclusion should be revisited, we make no further comment in this regard. [ 69 ] Although the application in Maloney was brought under

section 29 , we conclude that on the unusual facts of Maloney , this Court made the determination necessary to avoid the parties being without a remedy which is a reasonable and practical approach to a family law problem. As this Court has recently noted in Shoal Investments Ltd. , in the family law context there should be less emphasis on the formalities of pleading so long as the essence of the claims is evident and no party is prejudiced by surprise (paras. 109-111). In such cases, it is not necessary to require the claimant to commence an entirely new proceeding under

section 27. ANALYSIS What is the statutory framework to be applied under the Family Law Act on an application to settle ownership, possession and/or division of assets? [ 70 ] In its simplest form, the framework to be applied in each case is to determine what property is beneficially owned by each or both of the spouses, characterize the assets as matrimonial, business or exempt, value the respective assets, and provide the appropriate remedy. However, within each step there may be common law, trust, statutory and/or jurisprudential principles which affect the statutory framework to be applied.

The framework is not meant to be applied rigidly and some steps may have no relevance depending on the factual circumstances and issues in each case. [ 71 ] To assist, we provide the following guidance: Step 1 : Identify what property is beneficially owned by each or both of the spouses by asking two questions with respect to each item of disputed property: Step 1A: Applying common law property ownership principles, in whose name or names does the property formally reside?

This would in the normal course be determined by examining any documentary evidence or inquiring into the source and manner of acquisition of the property in question. In most cases, the answer to this question will end the inquiry. Step 1B: Notwithstanding the manner in which the property is formally held, is the property in fact beneficially owned in some other manner?

This step is rarely required but where the issue is engaged by the nature of the claims being asserted and argued by the parties, it will be necessary to address whether, as a result of other statutory provisions or equitable principles, the property is in fact beneficially owned differently than what is apparent from how the title is formally held. Step 2 : Characterize each asset as either (

i) matrimonial; (ii) business; or (iii) exempt. This involves a number of sub-steps. Step 2A: Apply the

definitions and exemptions in section 18(1)(

a) and (

c) to the asset in question . The initial focus, in the case of matrimonial and exempt assets, will be on when the asset was acquired. In the case of business assets, the focus will be upon use for a commercial, business, investment income or profit-making purpose during the period for which the spouse is making a claim. Exempt assets will constitute what is left over. Step 2B: In the case of personal injury awards, which are prima facie exempt (section 18(1)(c)(ii)), consider whether and to what extent a portion of the settlement was for economic loss.

The portion related to economic loss must be treated as a matrimonial asset and the remainder, at least at the time of the receipt of the award, treated as exempt. Step 2C: Consider whether, notwithstanding the initial characterization of the asset, its subsequent use, purpose or treatment has resulted in a change in the initial characterization by the time the claims are under consideration. This analysis would apply to property initially characterized either as an exempt or a business asset. Step 3 : Assign a value to each of the matrimonial and business assets.

Jurisprudence has established valuation dates for the various categories of assets. Step 4 : With respect to matrimonial assets, apply

section 21 or 22 to determine how and in what proportion they should be shared between the parties and what remedies under

section 26 may be appropriate to achieve such sharing. The starting point is equal sharing and it is only where it is grossly unjust or unconscionable to do so that the court will order a disproportionate division. Step 5 : With respect to business assets, apply

section 29 to determine whether the claiming spouse is entitled to a remedy and, if so, determine whether the claiming spouse should be awarded either a share of the assets or, alternatively, be compensated in respect of the contribution made by that spouse to the acquisition, management, maintenance, operation or improvement of the assets. (In this regard our views on Maloney have already been expressed). Step 6 : Apply the appropriate remedy derived from sections 21, 22, 26 and/or 29. Step 7 : With respect to exempt assets, make the appropriate declarations based on general property law principles.

ISSUE TWO - Did the trial judge err in the application of this statutory framework? [ 72 ] Application of common law principles to the determination of beneficial ownership of the joint investment accounts was the starting point. The trial judge was aware that common law principles were incorporated into the Family Law Act and referenced this at paragraph 135 as part of his analysis on the validity of the parties’ marriage contract. [ 73 ] Although the trial judge referenced Ms. Quigley-McKay’s submission on section 31(2) at paragraph 172, he initially drew no

conclusion on the meaning or effect of the section. Instead he moved directly to whether “evidence to the contrary” had been established and concluded that none had been presented. Later in his decision, however, he concluded that section 31(2) merely reiterated the concept set out in

section 19 (para. 186). As explained later, this was incorrect. [ 74 ] Step 1 of the statutory framework required the trial judge to apply general property principles to his determination of beneficial ownership of the joint investment accounts. This would include consideration of both the meaning and effect of section 31(2) and the position taken by Ms. Quigley-McKay on the role of

section 27 and its relationship, if any, to

section 31. [ 75 ] Step 2 required the trial judge to characterize the joint investment accounts as either exempt or matrimonial assets (or a combination of both) and to consider whether, notwithstanding their initial characterization, their use, purpose or treatment had resulted in a change in character. The trial judge’s reasoning on this step is found at paragraphs 183-187 of his decision; he concluded that the accounts had in fact acquired the character of matrimonial assets. [ 76 ] Steps 3 and 4 required the trial judge to assign a value to the joint investment accounts and consider whether they should be shared under

section 21 or 22. Their value and valuation date were agreed upon and the trial judge relied on

section 22 for their unequal division. [ 77 ] On the facts, neither step 5 nor 7 had relevance and the trial judge made a conclusion on the appropriate remedy under step 6. [ 78 ] The trial judge’s error was in his failure to consider each of the necessary steps in the statutory framework and in particular not to address all relevant factors respecting Ms. Quigley-McKay’s submissions on sections 27 and 31. The appropriate analysis follows.

Step 1 Identify what property is beneficially owned by each or both of the spouses by asking two questions with respect to each item of disputed property [ 79 ] Under step 1A, documentary evidence established that the investment accounts were held in joint names. As explained earlier, the effect of section 31(2) was a presumption of a gift of a one-half interest to Ms. Quigley-McKay. The onus was then on Mr.

McKay to rebut the presumption of a gift by evidence to the contrary. [ 80 ] Relative to step 1B, the trial judge’s comments on the effect of section 31(2) are at paragraph 186 of his decision where he states: … Subsection 31(2) is a presumption that applies to all property held in the names of both spouses. Essentially, evidence of any property held in the names of both spouses is proof, or in the absence of evidence to the contrary, that each spouse is intended to have a one-half beneficial interest in the property. In my view, the wording of subsection 31(2) reiterates the concept set out in

section 19 , that is there is an equal division of all matrimonial assets however acquired during the marriage. [ 81 ] The trial judge’s conclusion on the similarity of sections 19 and 31(2) is incorrect. Section 31(2) sets out a presumption of beneficial ownership applicable to Step 1 of the analysis.

Section 19 merely states the purpose of

Part II of the Family Law Act and applies after beneficial ownership is determined. This statement of purpose is reflected in

section 21 of the Family Law Act and is relevant to Step 4 of the analysis. [ 82 ] Pecore suggests examples of evidence to the contrary that may rebut the presumption of beneficial ownership set out in section 31(2) , including control and use of funds, the existence of any power of attorney and the tax treatment of income from the account (see paras. 56-70). [ 83 ] Albeit in the context of whether the joint investment accounts should be divided equally under

section 21 or unequally under

section 22, the trial judge summarized the evidence presented at trial relevant to the intention, purpose and use of the joint investment accounts (paras. 156-168 and 188-194). [ 84 ] This evidence supported the following conclusions: • Before depositing the funds in the joint investment accounts, Mr. McKay bought a truck for himself and a car for Ms. Quigley- McKay, as well as tools and a snowmobile for himself and a snowmobile for his brother. • Initially Mr. McKay wanted his father’s name on the accounts but Ms. Quigley-McKay requested that she be added instead. Mr.

McKay discussed this with his father and ultimately agreed to Ms. Quigley-McKay’s request. • The financial advisor had prepared a net worth statement and cash flow statement. She wrote to the parties, summarized their discussions and made suggestions on the investments. • Before the funds were created, the parties attended on the financial advisor who completed the appropriate forms, noting (amongst other things) that both parties had novice investment knowledge. • There were five accounts created; a tax free savings account for each, a registered disability saving plan for Mr.

McKay and two joint investment accounts. The larger investment account was for the purpose of a lifetime (tax free) source of income for Mr. McKay (the “income account”). The smaller account was designated for savings. Monthly payments of approximately $3,000 were to come from the income account. Mr.

McKay and the financial advisor were clear that this income was designed to provide for his care and the support of his family due to his disability. • This established intended use of the income account was in fact reflected in the practice followed by the parties after it was created. [ 85 ] The evidence as a whole was sufficient to rebut the modified presumption of a gift of a one-half interest to Ms. Quigley-McKay (resulting trust) and supported the conclusion that it was never intended that, on severance, half of the funds would be owned by Ms.

Quigley-McKay and half by Mr. McKay. The established intention of a lifetime replacement source of income for Mr. McKay was inconsistent with the presumption of a gift of a half interest to Ms. Quigley-McKay. [ 86 ] It was not necessary for Mr. McKay to make application under

section 27 to resolve ownership of the joint investment accounts as sections 27 and 31 are not intertwined. Further,

section 31 does not end the analysis. [ 87 ] The result was that, under Step 1B of the statutory framework, notwithstanding the manner in which the property was formally held and the presumption stated in section 31(2) , the joint investment accounts were in fact beneficially owned by Mr. McKay. Step 2 Characterization of the Joint Investment Accounts [ 88 ] Step 2 required the trial judge to characterize the joint investment accounts as matrimonial, exempt or a combination thereof.

Applying section 18(1)(c)(ii), the evidence supported the conclusion that a portion of the joint investment accounts represented compensation for economic loss and a smaller portion was for pain and suffering, however, the parties disagreed on the calculation of the proportionate shares. [ 89 ] An approach to the apportionment of such funds was set out in Stanley at paragraphs 52-60.

However, here the trial judge concluded that apportionment was unnecessary; in light of what follows, we conclude that the trial judge’s failure to apportion was not material. [ 90 ] Had the trial judge applied Stanley and apportioned the joint investment accounts into exempt and non-exempt shares, the next step would be to determine if the character of what was otherwise an exempt portion of the joint investment accounts had, through use over the course of the marriage, changed.

Although his reasoning on this issue is sparse, the trial judge concluded that the character of the complete balance of the joint investment accounts was matrimonial because the use that had been made of the asset since its creation had been for family purposes. [ 91 ] We find no palpable or overriding error in the trial judge’s conclusion that the joint investment accounts were matrimonial assets. Step 3 Valuation [ 92 ] As to valuation of the joint investment accounts (Step 3), the date of valuation for savings is the date of separation ( Stanley , at para. 59). This is the approach that the trial judge took.

The income account held $455,812.78 and the savings account held $50,645.87 on the relevant date. Step 4 Equal or unequal division [ 93 ] Finally as to Step 4, in determining how the joint investment accounts (as matrimonial assets) were to be divided between the parties, the onus was on Mr. McKay to establish a ground for an unequal division in his favor pursuant to

section 22 of the Family Law Act . Where

section 22 is applied, the focus will be on the weight to be given to one or more of the factors itemized in that section. [ 94 ] Unlike the exercise in determining “evidence to the contrary” under section 31(2) , the factors in

section 22 can be used as justifications in themselves for varying existing ownership entitlement, whereas the focus under section 31(2) is on evidence that indicates intention as to actual ownership. [ 95 ]

Section 22 entitles a trial judge to divide matrimonial assets unequally where it would be “grossly unjust or unconscionable taking into account” the eleven factors earlier enumerated. [ 96 ] The trial judge’s reasons reflect his consideration of each of these factors (to the extent that they were relevant) at paragraphs 192-194. [ 97 ] He found that Ms. Quigley-McKay had “the ability to be gainfully employed”, that she had been employed on a sustained basis at various times in the past and did not suffer from any disability. [ 98 ] In contrast, he found that both Mr.

McKay’s current and future income and earning capacity (section 22(a)) and his physical disability (section 22(f)) were particularly relevant because his injuries were serious and had lessened his opportunity to obtain employment. [ 99 ] He considered Mr. McKay’s receipt of a Canada Pension Plan disability benefit to be confirmation of his status as a person with a severe and prolonged mental or physical disability. He found that the evidence supported the conclusion that Mr.

McKay’s limitations included mobility issues, cognitive impairment and a reduced level of psychological functioning, and that “the effects of [Mr. McKay’s] injuries had been severe, prolonged, ongoing and devastating in terms of his quality of life and will continue to be” (para.193). [ 100 ] These findings were amply supported by the evidence of both parties and Mr. McKay’s parents. [ 101 ] The trial judge confirmed that he had considered all of the factors set out in

section 22. It was not necessary for him to enumerate each of them in his reasoning provided that his conclusion was consistent with the evidence presented. [ 102 ] His ultimate conclusion that the apportionment of the funds in the joint investment accounts should be 90 percent in favor of Mr. McKay and 10 percent in favor of Ms. Quigley-McKay, is discretionary.

It is based upon the trial judge’s consideration of the relevant identified factors, his assessment of the weight to be assigned to each, and the benefit given to the trier of fact of having the opportunity to consider all the evidence, make credibility findings and resolve discrepancies as necessary during the trial. In such circumstances, we

would defer to the trial judge’s conclusion. CONCLUSION [ 103 ] We conclude therefore that despite the identified errors in the approach adopted by the trial judge, the errors made no material difference to the result. Had the proper analysis been conducted, on the evidence, the joint investment accounts would still have been characterized as matrimonial assets. [ 104 ] The trial judge did not err in concluding that ownership of the joint investment accounts fell to be determined under

section 22 of the Family Law Act . [ 105 ] His apportionment of 90 percent to Mr. McKay and 10 percent to Ms. Quigley-McKay does not reflect either “an error in principle, a failure to consider all relevant factors, consideration of an irrelevant factor or a lack of factual support for the judgment” ( Martin , at para. 5 ) and is entitled to deference from this Court. [ 106 ] Having found no error in the trial judge’s decision that would have a material effect on the result, we would dismiss the appeal with costs to the respondent to be taxed on Column 3. Appeal dismissed.