Many parties choose to negotiate a separation agreement when their relationship ends. While these are private contracts among the parties, courts can scrutinize the content of these contracts. And in some cases, they can be vulnerable to being set aside based on how the contract was negotiated and for lack of honest disclosure. Whether a court will set an agreement aside depends on each case’s circumstances. Accurate financial disclosure by the parties is a key obligation, but what inaccurate disclosure can challenge a prior agreement? And can parties assume that the information provided is true, and what should they be expected to know about the facts underpinning a negotiated agreement?
Incomplete Disclosure May Not Justify Setting Agreement Aside
Section 56(4) of the Family Law Act permits courts to set aside a domestic contract if a party fails to disclose significant assets, debts or liabilities when the contract was made. In Shinder v. Shinder, the wife sought an order setting aside a separation agreement that the parties had entered into following their separation. She claimed that when she entered the separation agreement, she did not know that her husband’s father had established a trust and that her husband was a beneficiary, and this interest was never disclosed. Although the parties exchanged financial statements, the husband disclosed that he was a beneficiary of another trust but withheld that he had an interest in a second trust. He identified his excluded property as having a value of zero. Before the Court of Appeal, the husband argued that the motion judge made an error in finding that he intentionally failed to disclose his interest in the trust when the separation agreement was being negotiated. He also challenged the suggestion that the wife did not know of his interest in the trust.
The Court of Appeal concluded that the husband should have disclosed that he was a named beneficiary of the trust in his financial statements. However, following their mutual disclosure obligations, the parties’ counsel and financial advisors exchanged correspondence encompassing details about the trust. This included providing the wife’s advisors with the trust indenture, which described the husband’s interest in the trust. Due to this disclosure, the motion judge was incorrect in finding that the wife lacked knowledge of the trust. The court looked to an earlier case which held that an agent’s knowledge can be imputed to their principal, as there is a “presumption that an agent will communicate his knowledge to the principal because it is his duty to do so.” There was no doubt that disclosure was made to the wife’s counsel and advisors, and the trust was specifically mentioned, so the wife was deemed to know. The Parties settled the issues arising from their separation with the aid of the advice that they received. In their separation agreement, both stated that they investigated the other’s financial circumstances to their satisfaction. The husband’s omission of the trust details in the financial statement did not alter these facts. The failure to list the information on the financial statement was not sufficient to turn the actual disclosure into non-disclosure that could set aside a separation agreement under section 56(4).
Does the Disclosure Recipient Have a Duty to Question its Accuracy?
When a party provides disclosure in negotiating a separation agreement, can the recipient assume the truth of the information, or do they have an obligation to examine the veracity of the information? This was at issue in Virc v. Blair. The appellant wished to set aside the separation agreement that she struck with her former husband. She alleged that the financial disclosure provided by the husband contained errors and omissions, left out assets, and used inconsistent valuation methods. However, the respondent brought a summary judgement motion to dismiss the application. The motion judge heard that valuations of the husband’s business interests were completed shortly after the parties signed the separation agreement. These valuations were materially different from the values provided by the husband while the parties were negotiating the agreement. The motion judge accepted that the husband overvalued his date of marriage assets, which let to a miscalculation in his net family property resulting in an inaccurate equalization payment.
Despite accepting that the husband had misrepresented his assets in the disclosure during the negotiation of the separation agreement, the motion judge found that the appellant should have questioned the values provided. The wife had an opportunity to examine the truth of the financial disclosure, but she did not take that opportunity. And her failure to do so precluded her from setting the agreement aside. Essentially the motion judge believed that the appellant should have known that the values the husband attributed to his assets on the date of marriage were inaccurate, and she should have questioned the disclosure. The motion judge looked to a prior case which accepted that knowledge of the untruth of a representation is a complete bar to relief since the plaintiff cannot assert that he has been misled by the statement, even if the misstatement was made fraudulently.” On this basis, the motion judge imposed an onus on the recipient of information to question the information if they have reason to doubt its veracity.
On appeal, the Court found that the motion judge improperly shifted the onus onto the recipient of information. In looking at the prior caselaw, the motion judge failed to appreciate that there must be clear proof that the recipient had actual and complete knowledge of the facts. Moreover, the onus remained on the information provider to prove that the recipient had such knowledge. The fact that there was an opportunity to investigate or verify a representation would not deprive the recipient of a remedy in the face of a misrepresentation. There was insufficient evidence to find that the wife knew of the misrepresentations.
Financial Disclosure Key in Negotiating a Separation Agreement
When courts evaluate whether to set aside a domestic contract, they may look at whether there was a failure to disclose information. But even when there has been a failure to provide complete disclosure, courts must also use their discretion in deciding whether to set the agreement aside. The recipient’s knowledge and understanding of the contents of the disclosure can become significant. Where a financial statement contains minor omissions, but the recipient receives disclosure, setting aside the entire agreement may not be appropriate.
Contact the Windsor Family Lawyers at Johnson Miller Family Lawyers For Assitance With Your Separation Agreement
The lawyers at Johnson Miller Family Lawyers in Windsor focus exclusively on family law matters. We can provide you with valuable information tailored to your unique situation so that you know what to expect and can understand your rights and obligations. To discuss your matter further or arrange a consultation please contact the firm online or at 519-973-1500