In one of his excellently written decisions, Justice Pazaratz addressed the consequences of a failure to accurately disclose assets when entering into a marriage contract.

The History of the Former Spouses

The former spouses were married for approximately ten years prior to separating. They have two children: an 11-year old daughter, and a 7-year old son.

Following their separation, they continued to live together in the matrimonial home and shared temporary joint custody of the two children. The matrimonial home is located on a  151-acre property. There is another home on that property where the husband’s mother resides.

The Marriage Contract

The largest issue between the former spouses was property division. Two months before they married, the parties had signed a marriage contract that solely addressed property (mostly the 151-acre piece of land owned by the husband).

After the separation, the wife sought to have the marriage contract set aside, arguing, among other things, that there had been inadequate disclosure and misapprehension of facts.

The husband sought to have the contract upheld, seeking to have the equalization obligation significantly limited.

Two Pieces of Property

What neither party realized was that rather than being one large property, the 150-acre property was actually two separate pieces of property, both owned by the husband.  This fact did not arise until the final day of a fairly lengthy trial.

All along, the parties had understood that there were two homes, with two municipal addresses. One of the homes was on a larger parcel of land, separated from the smaller parcel by what had repeatedly been described as a “hydro right of way”. However, at every stage of the proceedings, the land had been described as a single property by both the parties and the various lawyers who had dealt with the property over the years. One of the lawyers had even described the property as “non-severable.”

This was accepted as common knowledge for the duration of the trial, until a real estate appraiser, who was the very last witness, testified. The appraiser had prepared two appraisals to ascertain the value of the 151-acres:

  • One for a 126-acre parcel of farmland where the mother-in-law was living; and
  • Another for a 25-acre parcel of farmland where the former spouses had resided, and continued to live post-separation.

Justice Pazaratz asked the appraiser why he had prepared two appraisals. The appraiser answered “because they are two separate properties”. This was the first time either party, their lawyers, or the judge had heard of this. Nine witnesses had already testified, none of which had identified the property as anything other than one piece of land.

The appraiser clarified that after he was retained to appraise what had been described to him as one 150-acre piece of land, he realized that the property was actually two separate parcels divided by a hydro corridor. The hydro corridor was not a right of way (as originally noted), but a separate strip of land that was actually owned by the hydro company, therefore separating the land into two independent parcels that happened to be owned by the same person (i.e.- the husband). The appraiser noted that the pieces of land were as separate and “independently marketable” as though they had been two different houses in two different cities.

It turns out that the appraiser had actually brought this to the attention of the husband’s trial lawyer (different from the lawyer who had helped the husband with the marriage agreement), long before the trial even began. Unfortunately, not only did the trial lawyer fail to pass this information on to the wife’s trial lawyer, but throughout the trial, he knowingly advanced the proposition that the property at issue was a single, non-severable piece of land.

While the husband’s trial lawyer argued that the property issue was “at most” a “miscommunication” and that nothing turned on whether the husband had owned one property or two, Justice Pazaratz noted that this was actually central to the interpretation of the marriage contract. In 1996 when that contract was signed, the parties believed that there was a single 151-acre parcel of land owned by the husband.

Marriage Contract Interpretation

The wife’s application to set aside the marriage contract relied on s. 56(4) of the Family Law Act, which gives the court the power to set aside either part of, or the entirety of, a marriage contract in specific circumstances:

56(4) A court may, on application, set aside a domestic contract or a provision in it,

(a) if a party failed to disclose to the other significant assets, or significant debts or other liabilities, existing when the domestic contract was made;

(b) if a party did not understand the nature or consequences of the domestic contract; or

(c) otherwise in accordance with the law of contract.

Justice Pazaratz noted the critical importance of the disclosure requirements in family law. Indeed, the case law is clear: proper disclosure requires both parties to disclose the value of their assets. Spouses have a positive duty to make complete, fair, and frank disclosure of all financial circumstances before entering into a contract.

Justice Pazaratz identified two fundamental questions that had to be asked in this case:

  • Was the disclosure provided in 1996 (before the marriage contract was signed) accurate and complete?
  • If there was non-disclosure, to what extent would the undisclosed information have been material to the negotiation of the marriage contract and the final agreement?

Justice Pazaratz noted:

There can be little doubt the [husband’s] disclosure in 1996 was neither accurate nor complete.  Some of this may have been through inadvertence.  As it turns out, neither the [husband] nor his [original] lawyer…knew the [husband] owned two severable properties rather than a single parcel of 151 acres.

But the majority of the inaccurate disclosure set out in the marriage contract…must be attributed to either advertence from the [husband’s] perspective, or a woeful lack of precision on the part of [his original lawyer].

The husband’s trial lawyer argued that even if the husband’s disclosure had been inaccurate, the wife had “every opportunity to protect herself” because she had obtained independent legal advice.

On this note, Justice Pazaratz stated that:

…I agree that on the face of it, this should provide an extra layer of assurance, particularly since the Family Law Act does not actually require independent legal advice as a pre-requisite to a domestic contract.  But the quality of a lawyer’s advice is based upon the quality of the information the lawyer is given.   If both the [husband] and [his original lawyer] unwittingly gave [the wife’s lawyers] inaccurate information, a fundamental issue arises as to the extent to which (a) her lawyers were able to give proper advice, and (b) the [wife] was in a position to make a truly informed decision. 

Justice Pazaratz went on to say:

The problem, of course, lies in [the husband’s trial lawyer’s] self-serving assumption that even if the [wife] had known the true facts – individually and/or cumulatively – she still would have signed exactly the same contract.  It is obviously difficult to speculate about what people likely would or wouldn’t have done if they’d known the true facts.  But it is reasonable to presume that the magnitude of the misrepresentation bears at least some relationship to its materiality.  You cannot really give up rights unless you know what you are giving up. And you can only know what you are giving up if the other side makes full, complete, and accurate financial disclosure.

Justice Pazaratz ultimately concluded that the marriage contract had failed to meet the disclosure requirements under the Family Law Act. This non-disclosure was “material to the property determinations which were the one and only purpose of the marriage contract”. Overall, the inaccuracies in the contract were so serious that they completely undermined the factual basis for the agreement.

Justice Pazaratz stated:

It would be manifestly unfair to allow a party seeking to uphold a contract to suppress potentially damaging information, and then gain an advantage from that distortion of the evidence.

The Finding

Justice Pazaratz agreed with the wife’s position that the marriage contract should be set aside due to material misrepresentation. At the time that the contract was drafted and signed, the wife and her lawyer had been misled into believing there was only one property.

Ultimately, Justice Pazaratz ruled that the wife was permitted to proceed with her equalization claim.

This decision was appealed, and later reversed by the Court of Appeal, which we will address in next week’s blog.

In the meantime, if you have questions about complex property division, 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.

A recent decision from the Ontario Court of Appeal analyzed whether an Ontario court has the jurisdiction to make decisions regarding child support, spousal support, and equalization of net family property after a foreign court has granted a divorce.

The Facts

The Court of Appeal referred to the facts of this case as “unusual”, and they warrant a thorough review.

The father, an engineer, is a Canadian citizen who has resided in Mississauga since approximately 2005. All of his assets, property and sources of income are in Canada. The mother resides in Tai’an City, China where she works as an office clerk. She has never been to Canada.

The parties were married in China in August 2006, and had a daughter in February 2007. The daughter has resided with her mother in China for her whole life. For most of the marriage, the father lived in Canada and the mother lived in China. They separated in late 2007/early 2008.

The mother brought a divorce application in an Ontario court in March 2009, seeking divorce, spousal support, child support, custody of the daughter, and equalization of net family property.

The father brought a divorce application in China, seeking a divorce, custody of the daughter, and equalization of net family property. In the interim, the mother sought a motion for temporary child support in the amount of $825. The father brought a motion, heard by Justice Baltman, seeking to have the Ontario court proceedings halted so the matter could continue in China. The mother sought to have her application heard in Ontario.

Justice Baltman’s Decision: Support Proceedings in Ontario Should be Halted

On the father’s motion to halt proceedings, Justice Baltman noted the short length of the marriage, found that the crucial issue was child support, and concluded that, logically, child support should be decided in the same jurisdiction as custody and access. Therefore, she held that China was the more appropriate forum for the proceedings, and the hearing in Ontario should be halted. Justice Baltman wished to ensure that any child support order made in China could be enforced against the father and his assets here in Canada and ordered that “the husband…be held to his undertaking to this court to abide by Chinese court orders”.

The Chinese Family Court

The proceedings continued in China, where the Chinese family court granted the divorce, awarded custody of the daughter to the mother, and granted sole ownership of real property purchased in China pre-marriage to the mother.

The Chinese court was unable to reach a decision on support and equalization, since the mother had not been given full financial disclosure prior to the divorce and custody decision. The Chinese court directed that if the parties could not reach an agreement on these issues, an application could be brought in Canada to finalize matters.

The father appealed the Chinese family court decision in China. The Chinese appellate court decided that Chinese system was not the best forum in which to decide the remaining issues since all the father’s assets and properties were in Canada. The father applied again for a retrial, and his application was dismissed on the same basis (that all relevant property and assets were in Canada).

The mother subsequently brought a motion to the Ontario Superior Court requesting that the proceedings here be reinstated because the father had failed to make full financial disclosure and had therefore breached the original trial judge’s order.

The Ontario court ordered the issues to be divided so that the preliminary issue of jurisdiction could be decided first. If the court concluded that it had jurisdiction, a trial could then be held to decide the outstanding issues of spousal support, child support, and equalization.

The Jurisdiction Decision

The original trial judge held that the Ontario Superior Court did have the necessary jurisdiction to hear a claim for relief under the Divorce Act, despite the fact that the divorce had been granted in China.

In coming to this decision, the judge distinguished the case from Okmyansky v. Okmyansky, a landmark decision on foreign divorce, and one in which the court reached the opposite conclusion (that an Ontario court could not make decisions about support where a divorce had been granted outside of Canada).

The judge provided a number of reasons why the facts in this case were sufficiently different from those in Okmyanski, such that the court could assume jurisdiction to hear the respondent’s application for support and equalization, despite the fact that the divorce was granted in China:

  • The mother had commenced her proceedings in Ontario before the father commenced his proceeding in China, and long before the Chinese court granted the divorce;
  • The Ontario court had halted the mother’s application, on conditions that the father subsequently breached;
  • The father obtained his foreign divorce in a proceeding that misled the Chinese court by making a false declaration about his income, which prevented that court from being able to determine the issue of support;
  • The Chinese court explicitly declined to exercise its jurisdiction over outstanding economic issues, including support and division of property, and explicitly left those issues for a Canadian court to determine;
  • Without the Ontario court assuming jurisdiction over the issues of support and equalization of property, the mother will be left without any forum in which to pursue her claims.

The father appealed the finding of jurisdiction.

The Court of Appeal

On appeal, the father conceded that the Ontario court system did have jurisdiction to decide on outstanding issues of net family property, but wanted a decision on the following issues:

  • Does an Ontario court have jurisdiction to hear and determine corollary relief (i.e- child or spousal support) under the Divorce Act following a valid divorce in another jurisdiction?
  • Does an Ontario court have jurisdiction under the Family Law Act to determine the issue of child support following a valid foreign divorce?
The Divorce Act

The Court of Appeal acknowledged that the unique facts in this case were significantly different than those in Okmyansky. Specifically, here, the mother’s application for relief in Ontario predated the Chinese divorce application. In Okmyansky, the application for relief in Ontario was not commenced until after the foreign divorce was issued. However, Okmyansky is clear and unequivocal authority that an Ontario court does not have jurisdiction to hear and determine a claim for corollary relief under the Divorce Act once a foreign divorce has been granted. The original trial judge erred in attempting to distinguish the facts in this matter from that case, nothing in the unique circumstance of this case provides jurisdiction where a statute (i.e.- the Divorce Act) does not do so.

Ultimately, an Ontario court does not have jurisdiction to make a decision about child or spousal support if a divorce has been granted in another jurisdiction.

The Family Law Act

Unlike the issue of corollary relief under the Divorce Act, there was no disagreement here between the parties about the issue of equalization of net family property under the Family Law Act. The law is also clear that an Ontario court can do so, notwithstanding a foreign divorce.

An outstanding question, however, was the issue of child support under the Family Law Act in light of the foreign divorce.

The Court of Appeal recognized that there is a line of caselaw that holds that where a provincial court has issued a divorce, but not addressed the issue of child support, the courts in another province have jurisdiction to order child support under their provincial legislation.  For instance, in Pageau v. Szabo, the judge stated that a court acting under provincial statute would be unable to deal with the issue of child support if:

  • The divorce court (i.e. the court granting the divorce) has granted child support, no matter how limited in time or amount;
  • The divorce court, after considering the issue of support, has refused to grant it;
  • The divorce court has reserved its right to make subsequent decisions on support.

However, where the divorce court has not dealt with the issue of child support in any of the above three ways, then there is room for a court acting under provincial law to make a support decision.

The Court of Appeal found that this line of cases is equivalent to a situation in which a foreign court grants a valid divorce but does not deal with child support, such as here, where the divorce was dealt with by Chinese family court, and that court specifically indicated that support issues would be better addressed in Canada.

The Court of Appeal concluded that Ontario courts have jurisdiction to award child support under s. 33 of the Family Law Act, and there is nothing in the legislation that restricts this authority in situations where a foreign divorce has been granted. Relying on the Family Law Act where a remedy is not available under the Divorce Act is not problematic; rather, the two statutes operate in harmony to ensure that a remedy for child support is always available.

The Court of Appeal ultimately held that the Ontario Superior Court of Justice has jurisdiction under the Family Law Act to make decisions on child support and equalization.

If you have questions about divorce or separation, particularly complex asset division cases, or matters involving foreign jurisdictions or assets in other countries, contact Windsor divorce lawyer Jason P. Howieonline or at 519-973-1500.

Last week we blogged about unequal division of family property. This week we explore this topic in more detail.  A recent decision from the Ontario Court of Appeal illustrates the challenges that parties seeking unequal division of property under the Family Law Act face, largely due to the difficulty in meeting the test for “unconscionability” under s. 5(6) of the Act. 

What Happened?

The spouses in question separated in January 2010 following approximately 15 years of marriage. The family had resided in a matrimonial home which had been purchased with funds provided jointly, but which had thereafter been maintained by the husband’s income as a lawyer. The home was registered in the wife’s name.

At the initial trial, the wife’s claim for unequal division of net family property was dismissed. Instead, the trial judge granted the husband’s claim for a 50% beneficial interest in the matrimonial home on the basis of a resulting trust (i.e- he had made financial contributions to the home while the family resided there).

On appeal, the wife did not contest the trial judge’s finding about the husband’s beneficial interest in the matrimonial home, nor did she contest the dismissal of her claim for unequal division of property. However, she argued that the trial judge should have awarded her a 50% interest in the husband’s RRSP based on the same resulting trust/beneficial interest principles used to grant him the 50% interest in the matrimonial home.

The Court of Appeal dismissed the wife’s Appeal.

The Court’s Reasoning

The Court raised two concerns with the wife’s claim for interest in the husband’s RRSP. The first was related to procedural fairness, and the second was related to the “integrity of the net family property regime under the Family Law Act.”

The Court stated that the wife had, at the original trial, failed to establish unconscionability under s. 5(6) of the Family Law Act, and that it would be “unfair to permit her to seek essentially the same relief, dressed up as a different claim on appeal”. The Court was concerned that this was an attempt by the wife to

…recast her unsuccessful claim for an unequal division of net family property- ostensibly in part to balance out the trial judge’s fining that the [husband] is entitled to a 50% beneficial interest in the matrimonial home, based on their joint contributions- in the guise of a different claim for a post-separation proprietary remedy and adjustments for the same kind of contributions and payments that would justify a s. 5(6) order.

The Court concluded that it would be impermissible and “wrong in principle” to permit the wife to “accomplish indirectly what she failed to do directly under the Act. 

What Does this Mean?

It is challenging to meet the test to establish unconscionability, and therefore to obtain an order for unequal division of family property. Where such a request is made, and not granted, it is unfair to attempt to achieve the same result using an alternative approach on appeal.

Here, the wife had not been successful at obtaining an unequal division of property at the original trial. Even though the matrimonial home was in her name, and she and the husband had contributed equally at the time it was purchased, he had been able to obtain a 50% interest in it due to the money he had contributed to the upkeep of the home while they were living there.

On appeal, the wife attempted to offset the loss she suffered through the husband receiving the 50% interest in the home by arguing that she ought to receive a 50% interest in his RRSP savings. The Court was not impressed with her attempt at a “second kick at the can” and dismissed her appeal.

If you have questions about separation, divorce, or equalization of property please contact Jason P. Howie, online or at 519-973-1500. We have experience advising on complex property division matters, including on unequal division of family property.

What happens in a divorce when the family home is registered in only one spouse’s name? Do both spouses get an equal share if they contributed equally to the purchase and maintenance of the home? In the recent Court of Appeal decision in Korman v Korman, 2015 ONCA 578, this very issue was considered.

In Korman, the husband and wife were married in 1988 and separated in 2009. They had two children. At the time of the separation, the couple lived in a house they had purchased in 2002 using funds from the sale of their first home, and funds gifted to them from their parents – $150,000 from the husband’s parents, $50,000 from the wife’s parents, and the couple’s joint savings. At the time of purchase, they had no mortgage. The title to the home was place entirely in the wife’s name.

At the trial, the wife stated that she and her husband had jointly decided to place title to the home in her name only to protect it from potential claims against the husband arising out of his employment as an investment advisor. The wife argued that since she was the sole registered owner of the home, she was entitled to the post-separation increase in its value. She accepted that the husband is entitled to The husband argued that he was entitled to an equal share in the value on the date of separation and in any post-separation increase in the property’s value because he had put the title in his wife’s name to protect it from potential creditors.

The trial judge found that the husband was entitled to share in the value of the home at the date of separation. However, “while he may have made further contributions to the running costs of the property after the date of separation, those contributions… would fall into the category of support payment belonging to the [wife]” [para 10]. However, the trial judge found that the husband was not entitled to a share in the post-separation increase in the value of the home.

The Court of Appeal disagreed and found that the trial judge’s decision was unstainable. The issue before the Court of Appeal was whether the husband intended to gift his interest in the house to the wife when they purchased the house in 2002.  The Court of Appeal found that the wife failed to meet her burden at trial to prove that the husband was not the beneficial owner of half of the home. The wife never said that the husband gifted his interest in the home to her. She did testify, however, that although the home was put in her name to protect it from claims by creditors, the husband still had a full interest in the home. The Court of Appeal found the husband to be the beneficial owner of one half of the home whenever the value crystallizes.

The above summary does not cover all aspects of this lengthy decision and is not intended to be construed as comprehensive legal advice. To speak with an experienced family lawyer, please contact Jason P. Howie online or at 519-973-1500.

To read the full decision click here.

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