This article was originally published in Law Times on June 26, 2017.
A short but important decision came out of the Court of Appeal recently. In Ernikos v. Ernikos, 2017 CarswellOnt 6285, the court considered whether Minutes of Settlement relating to, among other things, equalization of net family property continued to be valid and binding on the parties after they reconciled and then separated again.
Very briefly, the facts are that Anastasios and Katherine Ernikos separated in 2006 after nine years of marriage. They resolved all issues through Minutes of Settlement in March 2007. In this regard, pursuant to the equalization scheme, Katherine Ernikos owed an equalization payment to Anastasios Ernikos, among other sums, which was satisfied by her through a transfer of her half interest in the matrimonial home to him.
A few months after the settlement was finalized and the property transferred, the parties reconciled. They separated again in 2013. In 2010, during the period of reconciliation, Anastasios Ernikos transferred his sole title in the matrimonial home to his mother. At trial, he indicated this was due to the fact that he owed money to his mother.
The Minutes of Settlement included something that is standard language in separation agreements relating to reconciliation. That was if the parties reconciled for more than 90 days, “the Agreement will become void, except that any transfers or payments made to that time will not be affected or invalidated.”
Commonly, this is where those clauses stop. However, in the Ernikos’ Minutes, a subsequent paragraph stated that in the event the parties continued to cohabit for more than 90 days, neither party would be entitled equalization of net family property should they separate again. Following the second separation, Katherine Ernikos sought, among other forms of relief, a trust interest in the matrimonial home and named her mother-in-law as an added respondent.
An unfortunate and complicating factor for Anastasios Ernikos is that during the period of reconciliation, Katherine Ernikos received a disability lump sum payment of approximately $135,000 that she put into her husband’s bank account. It would appear, although it is not entirely clear, that part of those funds were used to pay off the balance of the mortgage against the matrimonial home, which, in different circumstances, could have led to a successful constructive trust claim.
The trial judge held that the Minutes, as they pertained to equalization of net family property, were binding as against the parties and her claims were dismissed. The Court of Appeal considered the resulting and constructive trust claims of Katherine Ernikos with respect to the home and also dismissed her appeal.
While the decision is very brief, it appears that had there been better evidence presented by Katherine Ernikos at trial or had she made a trust claim as against the husband’s bank accounts (as opposed to seeking an interest in the home that he no longer owned), her claim may have received some traction.
Unfortunately, Katherine Ernikos was self-represented at trial and seemingly fairly confused.
She did not amend her pleading to claim a trust interest in her husband’s bank accounts, nor did she adduce any evidence about advancing money to her mother-in-law regarding the payoff of the mortgage with her disability settlement. Seemingly, there was also no “tracing” evidence of the money trail.
In large part, on this basis, the Court of Appeal dismissed her appeal on all fronts. I read this case several times over despite how short it is because, at first blush, it really looks like Katherine Ernikos got a bad deal. However, at the end of the day, based on the facts and evidence, both levels of court got this one right. There was no evidence that I could see to support Katherine Ernikos’ claims before the court. Why this is unfortunate is that, in all likelihood, there could have been good evidence in her favour that may well have led to a different result.
Looking at the clauses in the Minutes of Settlement, they only preclude further claims for equalization.
They do not preclude all property claims, such as a constructive or resulting trust. Those are still open to the parties; however, those need to be supported by good, solid evidence.
The result in this case illustrates how important it is that we ensure clients understand these “reconciliation clauses” as they are, in large part, marriage contracts in and of themselves. Clients need to be made aware of just how significant the consequences of these clauses can be if there is a reconciliation and a subsequent separation and just how important it is to keep track of your property, assets and intermingling or transferring of funds/assets to your spouse.