Last week, we discussed the consequences of failing to disclose assets when entering into a marriage contract. Justice Pazaratz had found in favour of a wife who wanted her marriage contract set aside on the basis that her husband had not properly disclosed his assets going into the marriage.

The husband appealed, and the Court of Appeal ultimately overturned Justice Pazaratz’s decision.

The Court of Appeal

In the original decision, Justice Pazaratz had found that the husband had failed to properly disclose his assets by failing to indicate that the farm property that he owned was two distinct parcels of land rather than one. Based on this incomplete disclosure, Justice Pazaratz exercised his discretion to have the contract set aside.

The Court of Appeal ultimately found that Justice Pazaratz had erred in setting aside the marriage contract on the basis of failure to make proper disclosure.

Justice Pazaratz had criticized the husband’s trial lawyer, who he found had deliberately suppressed the fact that the property was two parcels in what the Justice had deemed was a deliberate attempt to mislead opposing counsel. The Court of Appeal noted that this was incorrect- both the husband and the wife had initially been under the mistaken belief that the property was one parcel only. Moreover, when the real estate appraiser retained by the husband discovered that the property was actually two separate parcels of land, that information was immediately provided to the husband’s trial lawyer.

This shared mistaken belief was innocent and did not detract from the fact that the wife was aware that she was giving up all claims against the property by signing the contract. The wife had obtained independent legal advice, though she ultimately did not act on it, and she had not been subject to any pressure or duress when she signed the contract. Any uncertainty about the value of the property could not be viewed as a disclosure failure because the wife knew she was giving up any interest in the property, irrespective of its value.

The Court of Appeal noted that:

it is important to keep in mind that courts should respect private arrangements that spouses make for the division of their property on the breakdown of their relationship, particularly where the agreement in question was negotiated with independent legal advice.

The Court of Appeal ultimately set aside Justice Pazaratz’s order and awarded the husband costs of $25,000.

If you are separated or divorced, or in the process of separating and 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.

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.

We previously blogged about the ongoing and very high profile divorce between Eleanor McCain, heiress to the McCain family fortune, and her estranged husband, Jeff Melanson. Their saga has now entered a new chapter after a judge recently ordered Ms. McCain to help pay Mr. Melanson’s legal fees.

Some Context

Ms. McCain and Mr. Melanson married in spring of 2014. At the time of the marriage, Ms. McCain had a net worth of more than $365 million, and an annual income of $4.25 million. Mr. Melanson had an annual income of $400,000, but was in debt, negating this income. They entered into a prenup in which Ms. McCain agreed to pay Mr. Melanson a lump sum of $5 million upon marriage breakdown.

The couple ultimately split approximately nine months after their wedding, at the beginning of 2015. Ms. McCain subsequently applied for an annulment, alleging that Mr. Melanson was a womanizer with a history of workplace harassment and “behind-the-scenes abuses”.

Ms. McCain also filed a motion to have Mr. Melanson’s lawyer, Harold Niman, removed as counsel. Mr. Niman had previously represented the ex-wives of Ms. McCain’s brothers in their respective divorce proceedings. According to Mr. Melanson, a response to Ms. McCain’s motion to remove his lawyer cost him $144,000.

At the time of the costs proceedings, Mr. Melanon had incorporated a consulting company but had not earned any income from it. He argued that the negative publicity surrounding the ongoing court matter with Ms. McCain made him a “less attractive candidate” for work. Mr. Melanson had $205 in his chequing account, and a balance of zero in his savings account, with his only significant asset being his RRSP.

Costs Ordered

Justice Horkins of the Ontario Superior Court ordered Ms. McCain to pay $125,000 in interim costs to Mr. Melanson, stating that “it is clear that he cannot afford to pay his legal fees”.

The Judge went on to say that this amount should eventually either be credited against any claim that Mr. Melanson might obtain from his $5 million pre-nup with Ms. McCain, or be reimbursed if the court ultimately decides that he is not entitled to the money outlined in the marriage contract.

Justice Horkins rejected Ms. McCain’s argument that Mr. Melanson did not deserve to have his legal costs covered as he had gone on a “spending spree” since their court battle began, and had travelled extensively, including to places such as Yukon, British Columbia, and California. The Judge noted that Mr. Melanson had to resign from his former position as CEO of the Toronto Symphony Orchestra due to the publicity around the marital dispute, and consequently, had to tap into his line of credit and sell his Toronto home.  She found that Mr. Melanson’s travels had been reasonable given the nature of his previous employment and his need to actively seek additional employment, to honour board commitments, and to attend speaking engagements across North America. His travel costs had decreased from more than $90,000 in 2015, to approximately $53,000 in 2016.

Both parties have been ordered to reach a settlement prior to the end of this year.

Costs Consequences in Family Law Cases

There can be significant costs consequences in family law disputes. Judges retain discretion to award costs, pursuant to section 131 of the Courts of Justice Act and Rule 24 of the Family Law Rules. In making a costs determination, court must consider a number of fundamental objectives as set out by the Court of Appeal in Serra v. Serra:

  • to partially indemnify successful litigants for the cost of litigation;
  • to encourage settlement; and
  • to discourage and sanction inappropriate behaviour by litigants.

The court must additionally consider all factors relevant to the circumstances of each specific case.

If you have questions about your rights and obligations in a separation, divorce, or high asset divorce speak with experienced Windsor family law lawyer, Jason P. Howie, at 519-973-1500 or contact us online. We serve clients in Windsor, Essex County and throughout the region.

The recent Ontario decision in Balsmeier v. Balsmeier, illustrates the steps the court will take and considerations that will be made where one party challenges the validity of a pre-nuptial agreement.

The Importance of Having a Pre-Nuptial Agreement

We’ve previously blogged about pre-nuptial agreements, also known as marriage contracts. In short, these agreements allow a couple to outline, in advance, what will happen in a number of critical areas following a divorce, including division of property as well as child support and spousal support obligations. Without a valid pre-nup, most property owned by the spouses will be subject to equalization under the Family Law Act.

Pre-nups are especially relevant where there are complex property matters involved, for instance, if one of the spouses owns a business, has valuable property or pensions, or carries substantial debt, or where the marriage at issue is a second marriage with a blended family.

In general, courts will respect private agreements made between spouses, particularly where each spouse has had a chance to obtain independent legal advice prior to signing the final contract.  In order for a marriage contract to be valid, it must be in writing, properly signed, and properly witnessed.

Setting Aside a Pre-Nup

Pre-nups can be challenged by either of the parties that are subject to them.

Section 56(4) of the Family Law Act, provides that a court can set aside a marriage contract if:

  • If a party failed to disclose significant assets, or significant debts/liabilities that existed when the contract was made;
  • If a party did not understand the nature or the consequences of the contract;
  • If there was any reason to set aside the contract under contract law (including due to fraud, undue influence, duress, or other such issue).

Balsmeier v. Balsmeier: What Happened?

The parties in question met on a dating website in 2008. At the time they met, the husband was 50, wealthy, had been married twice before, and had four children and at least one grandchild. The wife was 42, not wealthy, had never been married, and had no children. She was living with her father in Michigan. The husband resided in Ontario. They pursued a long-distance relationship, during which they broke up and got back together several times.

The parties ultimately got engaged in July 2010, and intended to move into the husband’s home in Markham following the marriage. A wedding date was quickly set for September of that year.

The Pre-Nup

The parties had previously discussed the husband’s desire to protect his assets for his children. In August 2010, the husband met with a lawyer to discuss a pre-nuptial agreement. The wife was provided with a draft copy of the contract, as well as a list of lawyers she could meet with to obtain independent legal advice. At trial, she stated that she was surprised at how “little” she would be entitled to under the draft contract, and had opted to meet with one of the proposed lawyers to see if “maybe there was more” she could obtain, including more spousal support, a 50% share of everything accrued during the marriage, and significant shares in the family home as well as in a condo they had discussed purchasing in Florida.

The wife met with her own lawyer in late August 2010. The wife informed the lawyer that she would not sign the contract under the terms in the draft. In her words, she wanted to ensure that “it would cost the husband” something if he left her.

After significant back and forth negotiations, the parties eventually agreed to:

  • Spousal support of $6,000 per month for 36 months;
  • A 10% interest in the Markham home for the wife;
  • $1,000,000 in RRSP’s to the wife in the event of the husband’s death prior to any potential separation.

No mention was made of anything pertaining to the wife’s share of any potential future condo.

The parties married on September 11, 2010.

Events Leading to the Separation

By October 31, 2010 they separated for the first time, with the husband citing family strain as his children did not get along with the wife. The tumultuous nature of the parties’ relationship continued thereafter. Though the wife could have returned to her Michigan home, the parties continued to live separate and apart in the Markham home. In December of that year the wife pressed harassment and assault charges against the husband and one of his daughters. The parties reconciled by February 2011. The husband purchased the previously discussed vacation home in Florida, to which the wife made no contribution. By March 2012, the husband once again told the wife he wanted a divorce. Each pursued relationships with others. In the interim, the husband accused the wife of credit card fraud. The couple reconciled in July 2012. The couple separated on a final basis on November 1, 2013. The wife moved to the Florida condo where she has remained ever since.

Position of the Parties Post-Separation

Following the end of the relationship, the wife argued that the marriage contract ought to be set aside based on all of the grounds set out in s. 56(4) of the Family Law Act, and that the spousal support should be amended.

The husband sought to uphold the contract and relied upon the fact that he had honoured the terms of the contract by paying spousal support to the wife as required.

The judge considered each of the factors in s. 56(4), and made a number of conclusions.

Failure to Disclose Assets
  • While the husband ought to have voluntarily disclosed all details of his income, his failure to do so was not sufficient to allow the wife to set aside the marriage contract. She was well-aware that he was wealthy, and did not rely upon the disclosure he did make to her to detriment.
  • The wife made material misrepresentations about her own financial circumstances, including an alleged, but non-existent job offer in the U.S
Failure to Understand the Nature of the Pre-Nup
  • The wife had received independent legal advice. She acknowledged that her lawyer had reviewed the terms of the agreement with her, and that she had understood them (though was not happy with what she was going to receive in the event of marriage breakdown).
  • The wife understood the nature and consequences of the marriage contract before she signed it.
Fraud, Undue Influence, Duress or Other Factors
  • The wife had not established that the husband took advantage or her or that she was vulnerable in any way. She had worked for many years in leadership and management positions, and described herself as having “excellent negotiation skills” and “sophisticated business acumen”.
  • It is well established that the emotional stress from separation or divorce does not give rise to a presumption that a party is incapable of agreeing to a binding contract. In the same vein, the emotional stress of planning a large wedding very close in time to the contract being signed does not mean that the wife was incapable of understanding and agreeing to the contract.
  • The husband did not attend any meetings the wife had with her lawyer, and there was no suggestion that he interfered with her obtaining independent legal advice.
  • In signing the marriage contract, both the wife and her lawyer confirmed that she had not been subject to coercion or undue influence.

In addition to the above, the court also commented on the wife’s credibility throughout the trial stating that she:

…tried to tailor her evidence to fit what she may have learned about the law as it relates to marriage contacts and spousal support…her evidence in many important respects was contradictory or simply not credible

The court ultimately found that the original marriage contract as between the parties was “valid and binding in all respects”. The court further found that at the time of the trial, the husband had fully satisfied his spousal support obligations to the wife under the terms of that contract, and that no additional payments were to be made.

If you have questions about prenuptial agreements or marriage contracts, please contact experienced family lawyer Jason P. Howie, online or at 519-973-1500.

A prenup, or prenuptial agreement, is a contract that two people will enter into before marriage, which sets out the rules about their marriage and what will happen in the event of a relationship breakdown. In Canada, these types of agreements are more commonly referred to as domestic contracts or marriage contracts.

Under the Family Law Act in Ontario, a domestic contract is a catch-all phrase that can refer to a number of different types of agreements, such as a marriage contract, a cohabitation agreement or a separation agreement.

A marriage contract, on the other hand, is specifically defined in section 52(1) of the Family Law Act. It is an agreement entered into by two people who are married to each other or intend to marry and which sets out their rights and obligations during the marriage or on separation, annulment or death including property ownership or division, support obligations, the education and moral training of the children or any other matter that they choose to include. The only thing that cannot be stipulated in a marriage contract is the right to child custody or access. In addition, if a marriage contract limits a spouse rights regarding the matrimonial home, that provision will not be enforceable.

Many people tend to associate prenuptial agreements with celebrity marriages, as they are popular among spouses with substantial assets or family fortunes that they wish to protect. And many people think that having a prenuptial agreement is a precursor for divorce because they contemplate the end of the marriage. But marriage contracts are not only for the rich and famous and they can be useful for couples from all different socio-economic and cultural backgrounds.

Marriage is a partnership, and anyone entering into a partnership should understand the terms and expectations of the relationship and take steps to protect their rights. To some people it might sound like a sure-fire way to kill the romance, but the unfortunate truth is that many marriages do end in divorce these days. Having an agreed-upon contingency plan is never a bad idea. Many time-consuming and expensive court battles could have been avoided if the spouses couple had sat down and drafted a proper marriage contract at the start of the relationship, when they still loved each other.

If you have questions about prenuptial agreements or marriage contracts, please contact experienced family lawyer Jason P. Howie, online or at 519-973-1500.

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