Am I Responsible For My Spouse’s Bad Investments If We Divorce?

In the event of a marriage breakdown (not applicable to common law relationships), spouses undergo a process to equalize their assets and liabilities, as well as to share, with some exceptions, the increase in their net worth during the marriage. Delve deeper into the concept of “Equalization of Net Family Property” by watching the informative video below.

Many separating spouses can feel that the equalization process can be unfair – particularly where one spouse has spent money on stupid things, gambled it away, is getting a windfall due to the division of the matrimonial home, or it has been a very short marriage. In these and other situations, dividing up all property “50/50” can seem unfair. 

Section 5(6) of Ontario’s Family Law Act does allow a Court (or Family Arbitrator) to deviate from the usual equalization of Net Family Property and divide the family’s wealth another way. It accommodates all of the scenarios above and a few others. 

However, the test that the Family Court (or arbitrator) has to use is not whether the normal “equalization” would be unfair. Section 5(6) says that to deviate from the normal equalization, the Court must be “of the opinion that equalizing the net family properties would be unconscionable.” “Unconscionable” is much more than just unfair. The case law says that it means that the usual result must be “shocking to the consciousness of the court.” That is much more than just unfair. One spouse spending a lot of money on an affair is not enough. A spouse spending too much is not enough. Justice Jennings put it this way: 

The result must be more than hardship, more than unfair, more than inequitable. There are not too many words left in common parlance that can be used to describe a result more severe than unconscionable.

Specifically on the issue of investment losses, the Courts have held that improvident (stupid) investing is not enough to justify an unequal division of net family properties. The investment must have been made recklessly or in bad faith. That means the spouse must have known or should have known, that the investment would become worthless. Risky investing is not enough. The spouse must have acted deliberately to lose money or known that he or she was likely to lose money.

That can definitely seem unfair – especially when one spouse is a conservative investor and one spouse is a high-risk investor, or where one spouse’s savings have done really well and the other spouse’s investments have done poorly. But, fairness is not the test. There are many ways that Family Law operates that people think are unfair, especially with regard to money. This podcast explains some of the bigger ways to lose money in Family Law. Regardless of how the law works, when spouses have different opinions on financial matters, that can cause stress in, or even cause the end of, their marriage.

Where spouses have significant differences of opinion about money, they should consider getting a marriage contract. Spouses can get a marriage contract at any point during the marriage. They can keep a marriage together if one spouse wants to do something risky and the other one wants financial protection. The video below explains how to protect yourself and save your marriage with a marriage contract.

But, if spouses are already separated because of money issues, it is likely too late for a marriage contract. Once separation occurs, things crystallize so it is difficult to fix things. The best time to see a Family Lawyer about financial problems in a marriage is before separation. The video below explains some other common family law mistakes that a family lawyer may be able to fix. 

Still, even after separation, it is worth speaking to an excellent Family Law Lawyer. It may be possible to correct an unfair financial situation through spousal support, as section 15.2(6)(a) of the Divorce Act allows a judge to address the economic consequences of the marriage and its breakdown through spousal support. That can be through either awarding spousal support or reducing the amount of spousal support to reflect how the marriage affected the spouses financially.