Executive Summary: Key Legal and Evidentiary Issues

• A credit union sought to recover mortgage debt from a spouse who received the sale proceeds of her husband's mortgaged property.
   
• Fraudulent intent was inferred from a series of circumstantial "badges of fraud" rather than proven through direct evidence.
   
• Three successive separation agreements were scrutinized for whether they reflected a genuine equalization payment or disguised an asset transfer.
   
• Ongoing mortgage payments made after the property's sale factored into the court's assessment of intent to conceal the transaction.
   
• Tracing provisions under the Assignments and Preferences Act permitted recovery even though the original proceeds had since been spent or redistributed.
   
• Costs were later addressed in a separate decision assessing the appropriate scale and quantum following the fraudulent conveyance finding.
   

Facts of the case

FirstOntario Credit Union Limited advanced $470,960.00 to Kevin Carmichael, secured by a mortgage registered on November 29, 2016 against his condominium at Unit 318, 200 Stinson Street, Hamilton (the Stinson Property). On December 7, 2016, the Land Registry Office mistakenly deleted the mortgage from title. Carmichael married Aria Sage Tesolin on May 18, 2019, and the couple lived together in the Stinson Property until its sale in August 2020 for $730,000.00. On August 11, 2020, Carmichael directed his real estate lawyer to deposit the net sale proceeds into Tesolin's TD Bank account; the following day, $687,291.69 (the Stinson Proceeds) was deposited there, with no portion applied to the mortgage. Despite the sale, Carmichael continued making monthly mortgage payments of $1,843.21 to FirstOntario for eighteen months until he defaulted in February 2022.

Tesolin and Carmichael signed a Separation Agreement on January 7, 2021 stating they had separated on September 1, 2020 and that Tesolin's receipt of the entire Stinson Proceeds constituted an equalization payment under the Family Law Act. A second agreement, the Amending Agreement, was signed on August 19, 2021 according to one part of the judgment [the judgment also states elsewhere that this agreement was signed on August 13, 2021 — the source document is internally inconsistent on this date], changing the stated separation date to May 31, 2021 and altering the division of other assets. On May 18, 2022, the parties signed a Revocation Agreement reinstating the original Separation Agreement. Tesolin and Carmichael divorced on December 20, 2022. FirstOntario, having discovered the deleted mortgage only after Carmichael's default, commenced its action on November 16, 2023, seeking to recover the debt from Tesolin on the basis that the transfer of the Stinson Proceeds to her was a fraudulent conveyance.

Policy and legislative provisions at issue

Section 2 of the Fraudulent Conveyances Act voids any conveyance made with intent to defeat, hinder, delay, or defraud creditors, while section 3 exempts conveyances made for good consideration and in good faith by a person without notice of that intent. FirstOntario relied on section 2, arguing that Carmichael transferred the Stinson Proceeds to Tesolin to place them beyond FirstOntario's reach, and that no genuine consideration passed given the absence of any calculated equalization amount and the lack of Family Law Act financial disclosure between the spouses. Section 12(1) of the Assignments and Preferences Act allows a creditor to trace and recover proceeds where an underlying transfer is invalid against creditors, even after the property itself has been sold or spent. FirstOntario invoked this provision to pursue the Stinson Proceeds notwithstanding that they had already been disbursed among various expenses and subsequent property purchases. The plaintiff expressly abandoned reliance on conspiracy, unjust enrichment, and section 4 of the Assignments and Preferences Act, narrowing the case to sections 2 and 12 alone. Costs were later governed by section 131(1) of the Courts of Justice Act and Rule 57.01 of the Rules of Civil Procedure, which set out the discretionary factors and tariff-based approach for fixing costs.

Reasoning and analysis

The court assessed fraudulent intent as of August 12, 2020, the date of the impugned transfer, applying the "badges of fraud" doctrine described in Purcaru v. Seliverstova and Tsui-Wong v. Xiao. Justice MacNeil identified thirteen circumstances supporting an inference of fraudulent intent on Carmichael's part, including his knowledge of the mortgage debt, the ongoing Ontario Securities Commission investigation into his company, the freezing of his other bank accounts, the availability of an operating FirstOntario account into which the proceeds could have been deposited instead, and the absence of any consideration from Tesolin at the time of the deposit. The court rejected Tesolin's position that the transfer represented a bona fide equalization payment, finding that the spouses were not separated on the date of the transfer, that no financial disclosure had been exchanged, that the Stinson Proceeds had already been substantially spent by the time the Separation Agreement was signed, and that Tesolin continued sharing bank account access and returning funds to Carmichael long after their purported separation. These findings led the judge to conclude that Tesolin's evidence lacked credibility on the central question of consideration. Having found no good consideration was given, the court held it unnecessary for FirstOntario to separately prove Tesolin's own knowledge of fraudulent intent, and distinguished the matrimonial-settlement cases she relied upon, such as Royal Bank v. Morrison and Austin Marshall Ltd. v. Bennie, on the basis that those cases involved genuine consideration in the form of relinquished support claims. On the tracing question, the court followed Westinghouse Canada Ltd. v. Buchar, Allen v. Hennessey, and Pilot Insurance Co. v. Foulidis in holding that section 12 of the Assignments and Preferences Act permits recovery of proceeds even after the underlying property has been disposed of. In the subsequent costs decision, the court considered the factors under Rule 57.01, including the result of the proceeding, its complexity, and the absence of any finding that Tesolin personally acted with fraudulent intent, in determining that an elevated costs scale was not warranted despite FirstOntario's request for substantial indemnity costs.

Ruling and overall outcome

The court declared Carmichael's transfer of $687,291.69 to Tesolin void under section 2 of the Fraudulent Conveyances Act and ordered a tracing order under the Assignments and Preferences Act. FirstOntario was the successful party, obtaining judgment against Tesolin for $467,945.69, together with prejudgment interest from October 1, 2023 and postjudgment interest calculated under sections 128 and 129 of the Courts of Justice Act rather than at the mortgage's contractual rate, since Tesolin had not signed the mortgage. In the later costs decision, the court again ruled in FirstOntario's favour, rejecting its request for substantial indemnity costs and instead fixing costs on a partial indemnity basis at $62,000.00, inclusive of HST and disbursements, payable within thirty days of the decision.