Foreign Assets and Property Distribution: Options for Consideration

Kathryn Tweedie

With globalization and an increasingly mobile population, it is becoming more common for people to own assets outside of their jurisdiction of residence.  It has been clearly established that Canadian courts do not have jurisdiction over foreign assets, especially foreign land, by the Supreme Court of Canada case of Duke v. Andler [1932] S.C.R. 734, [1932] 4 DLR 529 [BC].  In the event of marriage/relationship breakdown, what can be done when one or both spouses owns assets outside of the jurisdiction in the distribution of property and the court does not have authority over these foreign assets?  Is the non-owning spouse simply out of luck in relation to the foreign property or perhaps subject to the local law in force in the foreign jurisdiction, which maybe significantly less favourable than the law of their jurisdiction of residence?

Canadian courts have jurisdiction to consider foreign assets in the distribution of property upon marriage and relationship breakdown.  Under the Matrimonial Property Act of Alberta, R.S.A. 2000, c. M-8 (the “MPA”), section 31(1), there is a duty to disclose the particulars of all property, including assets and debts, wherever located.  Section 9(1) of the MPA states that if part of the property of the spouses is situated in Alberta and part elsewhere, the Court may distribute the property situated in Alberta in such a way as to give effect to the distribution under section 7 of all the property wherever it is situated.  Stated another way, the MPA gives the court authority to distribute the property located in Alberta unequally or in whatever way it deems appropriate to give effect to a just and equitable distribution of all property, including property located outside of Alberta and/or Canada.  Moreover, sections 7(3) and 8 of the MPA directs the Court to take into consideration “other financial resources” , which presumably would include foreign assets, in determining a distribution of property that is just and equitable.  Accordingly, the court could vest all local assets in one spouse, excluding the other spouse, to effect a just and equitable distribution of all property, both local and foreign.

However, how do you effect a just and equitable distribution of non-exempt property when the value of the locally owned property is less than that of the foreign property?  There are a some options established/available to assist the court in this regard, including:

1. “In Personam” Order – the Court could grant an order directing the spouse, over whom the court does have jurisdiction, to do something in relation to the foreign property;
2. Deference – the Court could simply defer to the jurisdiction of the court where the foreign property is located, leaving it up to the foreign court to make a determination of ownership interest and/or distribution, if any, as between the spouses in accordance with the applicable laws of that foreign jurisdiction; and
3. Compensation Order – directing one spouse to pay to the other an amount of money to compensate that spouse for his/her interest in the foreign property in the just and equitable distribution of all property.

It is settled law that the court does not have authority to make “in rem” orders, being those that affect title to property located in a foreign jurisdiction, as opposed to “in personam” orders based on the court’s legitimate authority over the spouse as a person. Historically, the courts have enforced rights affecting real property in foreign jurisdictions when the defendant resided locally, within the court’s jurisdiction, and those rights sought to be enforced were based on contract, contract, fraud or trust.  This historical approach was reviewed by  the Ontario Court of Appeal in the case of Cantania v. Giannattasio, 1999 CanLII 1930, which determined that the option of an in personam order is available to the court when the following four criteria are met:

1. the court must have in personam jurisdiction over the defendant, such that the plaintiff must be able to properly serve the defendant with initiating court documents to commence a legal action or the defendant must submit to the jurisdiction of the court;
2. there must be some personal obligation existing between the parties, in that jurisdiction cannot be exercised between strangers to the obligation unless he/she has become personally affected by the obligation;
3. the local court must be able supervise the execution of its judgment; and
4. the local court will not exercise jurisdiction when its order would be of no effect in the foreign jurisdiction where the property is located, but failure of the foreign court to recognize the personal obligation is not in and of itself a bar to granting an in personam order.

The difficulty with these sorts of orders is that the lines between in rem and in personam orders are easily blurred and if the line is crossed, the order will ultimately be unenforceable.

Deference may be more appropriate when foreign owned property is owned in the spouses’ joint names, thereby making an order unequal distribution of local property or compensation unsuitable due to the potential for double recovery.

Compensation Orders can be effective to compensate a spouse for his/her interest in foreign property provided that adequate security is available to secure payment of the amount owing until the total amount is paid in full.  The risk associated with compensation orders is that the creditor spouse may be unable to collect because the majority of assets and/or valuable assets are located in the foreign jurisdiction, thereby making the compensation order unenforceable, from a practical perspective.  Moreover, the compensation order is only valid for a maximum of 20 years and may be extinguished by a discharge in bankruptcy, unless those orders direct a specific interest property held by the debtor party.

In light of the foregoing, the best option for remedy in relation to foreign property appears to be unequal division of local property in one spouse’s favour when the value of local property exceeds the value of foreign property, failing which creativity and attention to detail will be required to formulate a viable option for recovery, if any, under the circumstances.