Thursday, January 22, 2009

Equalization: Valuation of all Assetts

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"...[41] Although the general rule is that all property must be valued and included in the net family property calculation, this court has stated that it does not constitute a reversible error to deal separately with an asset omitted from the equalization calculation where doing so does not ultimately give rise to an error in that calculation. (See Arvai v. Arvai 2001 CanLII 24142 (ON C.A.), (2001), 14 R.F.L. (5th) 223 (Ont. C.A.)).

42] The respondent argues that the trial judge’s treatment of the stock options in this case falls within the parameters of the Arvai exception. The respondent submits that, in effect, what the trial judge did was to exclude the options from the net family property calculation and then, with the benefit of hindsight, determine the value as being the amount ultimately realized from the sale of this excluded property. As a result, the respondent argues, there is no error in the equalization calculation. The trial judge simply excluded an asset from that calculation,
something this court found to be permissible in Arvai. The subsequent equal division of the sale proceeds of this excluded asset, the options, could not therefore result in the equalization calculation being in error.

[43] In Arvai, this court found no reversible error because the size of the equalization payment ordered by the trial judge was essentially the same as the one that would have been ordered had the asset, in that case a truck, been valued at the time of separation and included in the equalization calculation. The issue of the use of hindsight evidence was not an issue before the court.

[44] The situation is quite different in the case at bar and, in my view, the Arvai exception ought not to be extended so far as to cover what the trial judge did here. Here, the trial judge did more than exclude an asset from the equalization calculation and account for it separately. She awarded the respondent one half of the profit generated when the options were ultimately exercised several years after separation. By doing so, she relied exclusively on evidence of what the options were worth when they were exercised. This resulted in an equalization payment well in excess of what it would have been if the options had been included in the equalization calculation and valued at the date of separation. In my view, this approach is inconsistent with the scheme of the Family Law Act, is contrary to established jurisprudence and valuation principles and results in an incorrect equalization calculation..."

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