Judges can take a market-driven economic downturn into account when dividing property between divorced spouses, the Ontario Court of Appeal ruled today in a case that's expected to have a monumental impact on the province's family courts.

In a complex 3-0 ruling, the court set aside a trial judge's decision from 2007 that required Harold Serra to make an "equalization payment" of $4.1 million to his ex-wife, Barbara.

Serra complained that, between the time the couple separated and the time their case got to trial, the value of his Ajax textile business had diminished from $11.25 million to between $1.8 and $2.6 million - a drop of between $8 and $9 million.

The money he was ordered to pay his former spouse would exceed his net worth, Serra contended.

The trial judge, Justice Thea Herman, said she was not permitted under Ontario's Family Law Act to take into account a market-driven decline in the value of his assets.

"In my respectful view, she erred in taking this approach," said Justice Robert Blair, who wrote the appeal court's decision, reducing Serra's equalization payment to $900,000.

James Morton, the lawyer acting for Barbara Serra, said the decision represents a "huge change in family law."

"It's going to mean a lot of family law cases are going to be opened up now, particularly in light of the drop in value of shares and RSPs."

Morton predicted husbands who own businesses will try to stretch out court proceedings and claim it would be unconscionable to have their property divided equally based on its value at the time of separation. On the other hand, in a good economy, spouses, particularly wives, could benefit if their spouses assets spike in value between the time a couple splits up and the time their case gets heard.