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Separation agreement not automatically invalidated by non-disclosure

Inadequate financial disclosure will not always be enough to set aside a separation agreement, Toronto family lawyer Gary Joseph tells AdvocateDaily.com.

In a recent Court of Appeal case, a unanimous three-judge panel upheld a trial judge’s decision to enforce a separation agreement even though the husband failed to declare certain income and business interests to his wife during negotiations.

“This is a really important case that reminds us that not every instance of non-disclosure will result in the agreement being set aside,” says Joseph, managing partner of MacDonald & Partners LLP, who notes that the parties were involved in long and contentious court proceedings following their separation in 2008 after 19 years of marriage.

“These are wealthy people with significant assets and top-notch counsel. While there may have been a large amount of money involved, the decision shows us that determining the significance of non-disclosure is not a purely mathematical exercise,” says Joseph, who was not involved in the matter and comments generally.

According to the decision, both parties signed the separation agreement in 2010 after resolving their financial issues via a lengthy course of mediation, resulting in monthly payments from the husband to his former wife of $10,000 for spousal and child support, plus a one-off $180,000 equalization payment.

However, the wife moved to set aside the agreement in 2014 after discovering her former spouse failed to declare interests in family businesses he had acquired during their marriage, as well as payments he received on a shareholder loan and capital income derived from a share sale involving a corporation he controlled.

The trial judge characterized the husband’s non-disclosure of considerable assets as “blameworthy,” but ruled the breach did not meet the threshold in s. 56.4 of the Family Law Act, which allows domestic contracts to be set aside only when a party fails to disclose to the other “significant assets.”   

The trial judge explained that she reached her decision after accepting evidence from the wife’s former lawyer, who said the separation agreement represented a very favourable settlement since it was based on an average income much higher than the husband’s actual earnings at the time.

In addition, the trial judge found that the husband had made such large concessions at the mediation regarding net family property deductions and s. 7 expenses that it would be unreasonable to simply add in the value of the non-disclosed assets.

The appeal court panel found no errors in the trial judge’s reasoning.  

“While incomplete disclosure rightfully attracts the risk that an agreement might be set aside, s. 56(4) makes it clear that failure to disclose even a significant asset does not necessarily attract that consequence,” the panel wrote.

“In short, the trial judge correctly stated and applied the law. She made no error in assessing the significance of the assets within the context of the surrounding circumstances that she detailed. She concluded that more disclosure would not have changed the outcome of the mediation for the appellant, and that the assets that the respondent did not disclose were not significant. That finding was available on the record before us, and there is no basis for us to interfere with it,” the ruling continues.

“There is a feeling for some that as soon as you’ve shown non-disclosure, the minutes of  settlement have to be set aside,” Joseph says. “But it’s not automatic — the courts will look at the whole context when deciding whether the non-disclosure is significant enough to warrant setting aside the agreement.”

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