Preservation Orders: Protecting Property Before It Disappears

In family law, preservation orders are a powerful, but extraordinary tool. These orders are designed to prevent the dissipation or loss of property before a final resolution is reached.

While they are not granted lightly, certain circumstances justify their use, especially when one party has limited access to financial information or there is evidence of funds being moved without explanation.

This was highlighted in the Alberta case of SFM v MRM, 2020 ABQB 302, which provides a clear legal test for when preservation orders should be considered.

The Legal Test:

The Honourable Justice M.J. Lema in SFM v MRM laid out the three-part test to determine whether a preservation order is warranted as per the case of McAllister v McAllister, 1998 ABQB 843:

• Prima Facie Case: There must be a reasonable (not frivolous or unfounded) case to be made by the party seeking the order.
• Real and Substantial Risk of Dissipation: The Applicant must show that, without the order, there is a real and substantial risk that the property or assets in question will be dissipated or lost.
• Undertaking for Damages: The Applicant must provide an undertaking to pay damages if the preservation order causes harm to the other party and is later found to be unnecessary.

The Court emphasized that freezing a party’s assets is an extreme measure and should not be done routinely. In SFM v MRM, the full three-part test was not met, yet the Court still granted a preservation order.

When the Test Is Not Met – But a Preservation Order Is Still Granted

Despite the applicant in SFM v MRM failing to meet all parts of the test, the Court relied instead on section 9(3)(j) of Alberta’s Matrimonial Property Act (MPA). This section empowers the Court to make any order “that in the opinion of the Court is necessary,” particularly to give effect to orders made under section 9.

In this case, the Court recognized that preserving half of the proceeds from the sale of the matrimonial home was necessary to ensure that any eventual division of property would be meaningful. The judge noted that if the proceeds were allowed to evaporate, any award in the father’s favour could become effectively moot. Therefore, the mother was ordered to pay half of the remaining house-sale proceeds into trust pending the outcome of the property litigation.

Common Facts

In a scenario, where one party has limited visibility over family finances and potentially has realized the dissipation of some family funds, this raises serious concerns. Combined with the one party’s reluctance to provide information on the accounts, it creates a factual basis to argue that matrimonial assets are at risk of dissipation.

Available Remedies

Given the facts and legal framework, the Court has several options:

• Freeze the whole account;
• Freeze half the sale proceeds (if identifiable); or
• Transfer the disputed funds into a trust account pending resolution.

Conclusion

Preservation Orders serve as a critical interim measure to ensure that property division under the Family Property Act or Matrimonial Property Act is not rendered meaningless by the disappearance of assets. While courts are cautious in granting such orders, tools like section 9(3)(j) ensure that Justices can act proactively to protect property and ensure fairness in the process.