Hiding assets can result in calamitous circumstances

Failure to fully disclose assets could leave a divorce settlement open to attack by an ex-spouse, says Toronto family lawyer Michael Stangarone.

“Non-disclosure discourages settlement and results in further litigation later on,” says Stangarone, a partner with MacDonald & Partners LLP. “We see this in a lot of cases. If there’s a material non-disclosure, that bad faith approach allows for a settlement to be attacked."

The governing federal and provincial legislation allow for the equalization of the net family property, child support and spousal support, explains Stangarone. But a court can revisit the settlement if it’s determined that it’s based on inaccurate information.

Stangarone points to a recent case in Britain in which two women were able to have their property settlements re-opened when they discovered their former husbands hadn’t completely divulged all their financial information. As a result, the U.K. Supreme Court awarded the women larger divorce settlements because their husbands had hidden their true wealth.

In handing down the ruling in one of the cases, the British judge said the husband’s fraud deprived the wife of her right to a full and fair hearing of her claims. There were suggestions that the decision could open the floodgates for previous divorce agreements to be revisited.

“The onus is on the payor to prove his income or her income,” says Stangarone, pointing to what Justice Sherrill M. Rogers said in the seminal case Chernyakhovsky v. Chernyakhovsky, 2005 CanLII 6048 (ON SC): “Obtaining the factual evidence is no longer a game of hide and seek."

Stangarone says hiding assets could end up costing more down the road. If one party is later found to have provided a false financial statement, their credibility could well be questioned in all future dealings or negotiations involving the case. Complete and correct information provided early on in the process will simplify the situation and keep costs down.

But, he adds, a litigant’s quest for full and complete disclosure must be balanced with what is reasonable and necessary in the circumstances. Approaches that include requests for third-party information that is not in the control of the payor could be perceived to be unnecessary fishing expeditions.

“Litigants must adhere to the principles of proportionality and disclosure requests need to be reasonable, necessary and relevant to the issue,” adds Stangarone. “A recipient can’t present a shopping list of disclosure and expect it all to be produced if the relevance of the requests is suspect.”

A fundamental aspect of family law is ensuring that the parties have the ability to analyze the information and entitlement in order to negotiate a fair settlement. Transparency is key. When these fundamental aspects are not followed, Ontario’s Family Law Rules allow for remedies and consequences, says Stangarone.

A court can throw out the deal if it finds there has been non-disclosure, it was unconscionable or made under duress, he adds.

Stangarone tells his clients at the outset that full disclosure must be exchanged in order to properly negotiate. A deal deemed unconscionable and unfair will send the parties back to the drawing board.

That, he says, only extends the process and ends up being more expensive.

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