How Do Courts Determine “Significant” Non-Disclosure in a Separation Agreement?

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Ontario’s Family Law Act permits courts to set aside a domestic contract in certain circumstances. One of the common grounds parties raise when seeking to set aside a contract is that there has been incomplete financial disclosure and that the other party failed to disclose a significant asset or debt. This is important as the parties need accurate information to understand what rights may be waived by the agreement. But how do courts recognize a “significant” asset or debt in a party’s non-disclosure context?

Courts Can Set Aside Agreements for Non-Disclosure

Section 56(4)(a) of the Family Law Act (FLA) enables courts to set aside a domestic contract if a party failed to disclose to the other significant assets that existed when the domestic contract was made. The significance and extent of the non-disclosure are key considerations. In Dochuk v. Dochuk, the judge explained that the significance of any non-disclosure of an asset can be assessed by measuring the asset’s value against the party’s net assets. However, in Turk v. Turk, the court made clear that “determining the significance of non-disclosed assets is not … [a] purely mathematical exercise of comparing the value of the non-disclosed assets against the value of the disclosed assets. Courts have also stated that the significance of non-disclosure needs to be measured in the context of the relationship between the parties.

Does the Failure of Disclosure Give a Party a Financial Advantage?

In Rempel v. Smith, the parties separated after a marriage of sixteen years and proceeded to negotiate and sign a separation agreement without any involvement of legal counsel. The husband later sought to set aside the agreement because the wife failed to disclose significant assets that she owned at the time they entered into the agreement. The agreement was meant to list all the assets and liabilities used to calculate the parties’ net worth. They also agreed that each would retain their assets and liabilities and would have no claim against the personal property of the other. The judge found two concerns with the wife’s disclosure of assets that could engage section 56(4)(a) of the FLA. The first concerned the valuation of her pension. As a longtime employee, she had accumulated an interest in her employer’s pension plan, and in the separation agreement, she listed the value at $24,000. However, a letter from her employer listed the commuted value of her pension at $98,000. Also, a pension valuator valued it at either $83,537 or $52,380, depending upon her retirement date. Clearly, she had undervalued the pension by a minimum of $28,000.

A second concern related to the wife’s four assets that were never listed on the separation agreement. These included a mutual fund valued at $7,423, stock options of $9,442, and bank accounts of $9,197 and $2,636. The judge noted that if the wife had included these assets, her net worth would have been $28,000 greater than provided for under the agreement. And as Justice Henderson explained, “if the parties wish to leave certain items out of the equalization calculation, their agreement to do so must be made in writing in order to be binding in accordance with the provisions of the Family Law Act.” Overall, the cumulative non-disclosure of the pension and other assets was an advantage to the wife, between $56,000 to $102,000. This was significant in view of the parties’ net worth as set out in the agreement. The judge also determined that the under-valuation was a material inducement and that if the husband had known of the wife’s assets and the valuations, it would have impacted his decision on whether or not to enter into the agreement. The wife avoided making full disclosure of her finances, knowing that she could obtain a monetary advantage. Consequently, there was a very strong case to set the agreement aside.

Courts Look at the Entire Relationship Between the Parties

In Aubin v. Koerber, the applicant sought an order setting aside a cohabitation agreement the parties entered into, which would prevent the applicant from obtaining any interest in the respondent’s property. The applicant argued the agreement should be set aside under section 56(4) of the FLA because the respondent did not disclose significant assets when the agreement was made. However, the applicant testified that before their marriage, while they were dating, she did know that the respondent owned a home and that he worked in his family’s business, which was later gifted to him prior to their marriage. She claimed that the respondent did not provide a list of his assets and debts and that she had no idea of the value of the respondent’s assets when she signed the agreement.

The applicant had the onus of demonstrating that section 56(4)(a) of the FLA was met. In the judge’s view, the applicant failed to meet that test. The applicant claimed that the respondent failed to disclose significant assets. However, in Justice Broad’s view, the applicant was aware of the respondent’s assets at the time that the parties entered into the agreement. She knew that the respondent owned the home and also knew its purchase price and that it had a mortgage. She also knew that he owned a business that had been gifted to him by his parents. She was also familiar with the building in which the business operated and that another corporation he held owned the building.

The home, business, and building were not appraised, so the applicant needed to know their precise value. But, in previous cases, courts have emphasized that for non-disclosure to ground a claim to set aside a separation agreement, it must relate to significant assets “measured in the context of the entire relationship between the parties” so that the effect would have caused the applicant to rethink their position. Given the parties’ relationship, the judge did not believe that disclosure of asset values with supporting appraisals would have led to the applicant re-thinking whether to enter into the agreement. She introduced no evidence that pointed to that outcome. Moreover, she did not contribute anything to the acquisition of the assets by the respondent. There was no basis for the court to set aside the agreement. Ultimately, the applicant had significant financial information, the respondent was not asked to make additional disclosure, and he did not conceal any financial information. It was likely that the applicant would have signed the agreement in any case, even if she had full disclosure.

Non-Disclosure Can Put a Party at a Disadvantage

When weighing whether to set aside a domestic contract for non-disclosure, courts look at the asset’s or liability’s significance in relation to the parties’ net assets. However, courts also look at the significance of the defective disclosure in the context of the entire relationship. Not every case of non-disclosure will be material and impact the parties’ choice to enter into an agreement.

Contact The Windsor Family Lawyers At Johnson Miller Family Lawyers For Help Protecting Your Rights And Your Interests

The lawyers at Johnson Miller Family Lawyers in Windsor, Ontario, focus exclusively on family law matters. We can provide valuable information tailored to your unique situation so that you know what to expect and understand your rights and obligations. To discuss your matter further or arrange a consultation, contact the firm at 519.973.1500 or contact us online.

 

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