Canada - Divorced Couples Must Share Marital Debt

DIVORCED COUPLES MUST SHARE MARITAL DEBT

JustĀ as divorced couples sometimes share future assets, they also should have to share future debts tied to the marriage, the Supreme Court of Canada ruled yesterday (2008).

The 6-1 decision puts a Vancouver woman on the hook for part of her former husband's unascertainable tax liability arising from tax shelters he bought during their marriage.

"It seems self-evident that, generally speaking, both assets and debts need to be considered in order to ensure fairness upon the breakdown of a marriage," Justice Michel Bastarache wrote for the majority.

"In my view, the fact that it is not feasible to precisely value an asset or debt at the time of separation does not alter the principle that the complete financial situation of both spouses needs to be considered in order to ensure a just result."

The decision, which overturns the British Columbia Court of Appeal, was the high court's first look at the post-divorce division of contingent debts related to the marriage.

The court sided with Wayne Stein, who was married to Malka Stein for 12 years before they separated in 2003 and divided $1.7 million in family assets. Wayne Stein, part owner of a family lumber business, purchased four tax shelters in motion picture limited partnerships during the final years of marriage. The shelters, which brought the couple tax breaks, carried with them contingent future income tax debt.

Nothing in the B.C.'s Family Relations Act precludes the division of contingent liabilities after divorce, concluded the judge. He also noted there are already rulings on the books that allow for the division of future assets that are "inchoate, contingent, immature, or not vested" -- and that there's no reason the concept shouldn't apply to debt. "However, in the event that the impact of the future liability on one of the parties results in an unfairness, that individual may have to apply to the court for adjustments," he wrote.

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