High Net Worth
Considering the “Significance” of Non-Disclosure When Negotiating a Separation Agreement
When a couple parts ways they may choose to enter into a separation agreement, which is a written contract dealing with the division of property, assets, debts, support obligations and more. Ontario’s Family Law Act allows one party to a separation agreement (or domestic contract) to apply for it to be set aside in a handful of circumstances. One of these is if a “party failed to disclose to the other significant assets or debts that existed when the contract was made.” But how significant must the value of the assets or amount of debt be? That was the issue leading to a recent decision from Ontario’s Court of Appeal.
The parties were married for nearly 19 years and had two children before separating in 2008. Their financial issues were resolved through what was described as a lengthy course of mediation. It resulted in a separation agreement (“the agreement”) in April 2010, and the parties were divorced six months later.
The agreement required the husband to pay $10,000 per month in child and spousal support as well as all of the children’s s. 7 expenses. In exchange, the wife paid the husband a $181,578 equalization payment.
The discovery of undisclosed assets
Four years after the divorce, the wife sought an order setting aside the agreement under s. 56(4) of the Family Law Act on the basis that the husband failed to disclose significant assets. The section specifically states the court “may, on application, set aside a domestic contract or a provision in it if a party failed to disclose to the other significant assets…existing when the domestic contract was made.” The remedy sought by the wife included various orders equalizing net family property (NFP), imputing income to the husband, and increasing both child and spousal support amounts.
The trial judge agreed that the husband had failed to disclose interests in family businesses he had acquired during the marriage as well as payments, shareholder loans, and capital income he received from the sale of shares by a corporation he controlled. While the trial judge found the husband to be blameworthy, and the assets “considerable,” she did not find them to be “significant,” as required by the Family Law Act.
In addition to this, the trial judge accepted evidence that the husband had agreed to provide spousal and child support payments far in excess of what would have likely been awarded at trial. This was despite his family business having failed and his income having dropped from an average of $421,000 per year to $180,000, which he received as an annual gift from his father. Secondly, the judge highlighted the substantial concessions he made during mediation, stating “too many monetary compromises were made during the mediation” for the wife’s request to be a realistic approach.
The wife appealed the decision, arguing the trial judge by determining whether the non-disclosure of the assets were significant rather than the value of them. The court found this to be a “purely semantic distinction.” The court wrote,
“It is the significance of the non-disclosed assets that makes the non-disclosure itself significant. Determining the significance of non-disclosed assets is not, as the appellant argued, the purely mathematical exercise of comparing the value of the non-disclosed assets against the value of the disclosed assets. Rather, the trial judge appropriately relied on case law finding that “the term significant must refer and be measured in the context of the entire relationship between the parties.”
The court also referenced the trial judge’s finding that the disclosure of the assets would not have “changed the outcome” for the wife. The court agreed, finding “The non-disclosed assets were also irrelevant to support because the parties had agreed to a level of support that was not based on actual income, but on an amount much higher than what would be warranted by actual income.”
The court ruled in favour of the husband, including a costs award of $25,000.
If you are going through a separation or divorce and have questions related to it or related matters including spousal support or division of assets (particularly in a high net worth divorce), contact Windsor family lawyer Jason P. Howie. With more than 25 years of experience guiding clients through the stress and strain of separation, divorce, support and custody, we understand your frustrations and fears. We have seen all of the possible permutations when it comes to separation and divorce. Call us at 519-973-1500 or contact us online. Many of our clients are referred to us by former and current clients, as well as by lawyers, accountants and other professionals.