The decline in the value of a spouse's assets following a couple's separation may play a role in the final divorce settlement, the Ontario Court of Appeal says in a decision that could have implications on similar cases during hard economic times.

"In my opinion, a court may take into account a post-separation date change in the value of a spouse's assets, and the circumstances surrounding such a change," Justice Robert Blair wrote on behalf of the court.

The case centres on Barbara and Harold Serra, who were married in 1976, separated in November 2000 and divorced in 2003.

At the time of separation, shareholdings in Harold Serra's textile business were valued at between $9.5 million and $11.25 million. But by the time of trial, the value had dropped to somewhere in the range of $1.875 million and $2.6 million.

Harold Serra argued that it wasn't fair to make him pay a settlement based on a valuation of his company that was now out of date.

Market forces taken into account

As the court ruling points out, the general practice in Ontario has been to use the date of separation as the valuation date of assets.

Both the trial judge and the Court of Appeal agreed that the drop in value was not the fault of Harold Serra, but due to market forces.

Yet despite the drop in value, the trial judge awarded Barbara Serra $3.3 million, ruling that her settlement shouldn't be based on a market-driven decline in the value of assets following the separation date.

But in a 3-0 ruling, the Court of Appeal disagreed, saying that in this case, it would be "unconscionable" to order a settlement based on the separation date valuation.

"To do so would be to require [Serra] to make an equalization payment that exceeds his total net worth, perhaps significantly," Blair wrote.

The court ruled Barbara Serra's payment should be reduced from 3.3 million to $900,000.

However, Blair noted that the threshold of "unconscionability" is "exceptionally high."

"The jurisprudence is clear that circumstances which are 'unfair,' 'harsh' or 'unjust' alone do not meet the test. To cross the threshold, an equal division of net family properties in the circumstances must 'shock the conscience of the court.'"