Stein v. Stein and the Apportionment of Tax Liability among Divcorced Partners, PART II

As promised, this is an analysis of the dissenting reasons by Abella J. in Stein v. Stein, 2008 SCC 35. The facts of the case can be found here as outlined by Matthew Shogilev. We begin, though, with a quick review of the majority’s reasons for the judgment.

Stein v. Stein revolves around the question of whether an indeterminate amount of liabilities, which cannot be valued at the time of trial, should be equally divided between spouses in the event of a divorce under the provisions of the Family Relations Act RSBC 1996 (the “FRA”). Despite the fact that the issue is portrayed by the majority – Bastarache J. (McLachlin C.J. and LeBel, Deschamps, Fish and Rothstein JJ. concurring) – to be a matter of statutory interpretation, there is a fair amount of law making occurring in this case.

The Supreme Court was presented by opposing decisions on the question. The trial judge did not consider that the impossibility to quantify future liabilities should hinder the judgment to equally divide them between the spouses. On the other hand, the appeal decision determined that the “speculative nature of the liability prevented a rational adjustment of the property to account for the potential liability” [4]. The majority of the Supreme Court judges agreed with the trial judge’s reasoning. Bastarache J. zealously explained that if every time a liability cannot be valued at the time of the initial division of assets and as a result was regarded as a “free standing order” that violated the FRA, then that would be blatantly unfair and contrary to 65(1) of the FRA- reproduced below.

65 (1) If the provisions for division of property between spouses under section 56, Part 6 or their marriage agreement, as the case may be, would be unfair having regard to

(a) the duration of the marriage,
(b) the duration of the period during which the spouses have lived separate and apart,
(c) the date when property was acquired or disposed of,
(d) the extent to which property was acquired by one spouse through inheritance or gift,
(e) the needs of each spouse to become or remain economically independent and self sufficient, or
(f) any other circumstances relating to the acquisition, preservation, maintenance, improvement or use of property or the capacity or liabilities of a spouse,
the Supreme Court, on application, may order that the property covered by section 56, Part 6 or the marriage agreement, as the case may be, be divided into shares fixed by the court.

Bastarache J. utilizes a procedural conception of fairness. He states that just as the courts concluded that “spouses have a right to claim an interest even where the asset itself is “inchoate, contingent, immature, or not vested” (Rutherford v. Rutherford (1981), 23 R.F.L. (2d) 337 (B.C.C.A.), at p. 342. See also Grove v. Grove, [1996] B.C.J. No. 658 (QL) (S.C.), and Webb v. Webb, (1994) 135 N.S.R. (2d) 161 (S.C.))… the principle of fairness requires that debts be considered even where they cannot be fully valued at the time of separation” [11]. In his 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” [Ibid]. Fair enough. However, the complete financial situation of both spouses cannot be considered in a vacuum and that was how Abella J. reached the opposite conclusion to the issue in question.

Abella J. outlines the concept of ‘fairness’ as the “overriding principle” to the legislation [25]. Her understanding of fairness seems to be based on a more substantive and contextual reading of the general and financial situation of the Steins. Abella J. notes that “[b]ased on the dramatic differences in the financial circumstances, sophistication, and experience of the spouses, the trial judge’s equal apportionment of the contingent tax liability is, in my view, manifestly unfair to the wife” [23]. The question that poses itself at this point is how did the majority and minority come to opposite conclusions using the same principle of fairness?

The answer to this question can be found by deconstructing Abella J.’s reasoning. The theoretical tool that can assist in this endeavor is ‘feminist relational theory’. Relational theory is grounded on the idea of social construction. People are ‘relationally embedded’ in their environments. To understand individuals, relational theory advocates a thorough contextual reading of the individual in their environment and within their relationships. In the family context, the courts should scrutinize the concept of autonomy and instead look at the involuntary obligations that arise between people. The principles of relational theory can clearly be detected in Abella J.’s analysis. Her effort to clarify the particular power dynamics between the Steins provides a specific understanding of fairness and the justification for her opposing conclusion.

Abella J. provides a contextual investigation of the Steins’ financial background. In a relational feminist fashion, she did not take the fact of homemaking as evidence of powerlessness. Instead, she scrutinized Mrs. Stein’s economic disadvantage and did not assume it. She notes that “Malka Stein had been outside the paid labour force for 12 years, looking after the home and two children, one of whom requires extra attention. For most of the years of the marriage, she had no personal bank account in her name, no secondary credit card under her husband’s credit card account and no money of her own” [28]. Furthermore, Abella J. clarifies Mrs. Stein’s prospects in a new career, in the words of the trial judge himself, as far from certain [29]. On the other hand, Mr. Stein’s financial situation is “stable and ample” [30]. Abella J. also revealed Mr. Stein’s circumstances in order to juxtapose it with his spouse. “In addition to some investments, he owns one-quarter of a family business, an interest valued by the trial judge at $650,000. An experienced businessman, he took care of all the household finances. The matrimonial home was registered in his name” [Ibid].

Through this contextual relational reading of the financial background of the family unit, Abella J. provided her understanding of fairness. The impact of the indeterminate debt could cost Mrs. Stein her matrimonial home [32] and will affect her ability to enjoy a “relatively comparable standard of living” [33]. “This flies in the face of s. 65(1)(e) of the Act, which states that provisions for division of property between spouses should take account of whether the division “would be unfair having regard to . . . the needs of each spouse to become or remain economically independent and self sufficient” [Ibid]. Abella J.’s substantive vision of fairness is context-based. However, she exclaims, “[t]his is not to say that a court can never make an order for an unravelling family that anticipates a financial contingency. But what a court should strive to avoid, wherever possible, is doing so in a way that undermines the goal of attempting to preserve an economic equilibrium between the resulting households. Sometimes this can be done by an equal distribution of burdens and benefits, and sometimes an equal distribution is destructive of that equilibrium” [36].

In conclusion, the question no longer remains as whether the courts can divide an indeterminate amount of liabilities between divorcing spouses under the FRA, but rather, whether it is fair to divide such liabilities between spouses whose financial circumstance, sophistication and experience are dramatically different. In Abella J’s words:

This is a case where the imposition of the equal responsibility for the tax liability, if and when it materializes, fails to recognize and accommodate the financial repercussions of the division of labour in the Stein household, unfairly disturbs the ability of the wife to plan and arrange her economic future, poses a significant threat to her ability to maintain her economic viability, and makes it far more likely that her and the children’s standard of living will be substantially lower than that of Mr. Stein [37].
All this justifies the Court of Appeal’s decision to set aside the trial judge’s “if and when” order. In my view, it was correct to do so. I would dismiss the appeal [38].

The use of contextualism in this case has provided a rich analysis of the issue in question. Contextualism has also grounded a substantive conception of fairness, which brought Abella J. to a different decision than the majority. This approach to understanding family disputes is not new to the Supreme Court and neither is relational theory (see Leckey, Robert (Winter 1997) Contracting Claims and Family Law Feuds. 57 Univ. of Toronto L.J. 1.). One cannot reiterate enough, the significance of Abella J.’s dissent for providing a space of continuing development in Family Law cases. The issues highlighted in this submission extend to other streams of law and for this reason, Stein v. Stein should not go unnoticed.