Setting Aside a Separation Agreement For Non-Disclosure of Assetsedit
As we have explained here, a separation agreement is a kind of domestic contract which can be used to decide how to deal with issues upon separation, whether you were married or lived in a common law relationship. A separation agreement can deal with issues relating to custody and access for children, financial support (including spousal and child support), and how property will be divided.
To be valid, a separation agreement must be in writing, signed and witnessed. Independent legal advice is not a formal requirement, but is recommended to prevent challenges to the agreement on other grounds such as understanding the nature and consequences of the agreement and duress.
Setting Aside a Separation Agreement
The most common grounds relied upon to set aside a domestic contract are:
- Failure to disclose a significant asset or debt in existence when the agreement was formed;
- Failure to understand the nature and consequences of the agreement; and
- Any other ground upon which an ordinary contract may be attacked.
The Ontario Court of Appeal recently decided a case in which the wife sought to set aside a separation agreement by alleging that her husband had failed to disclose significant assets during the negotiation of the agreement. The question turned on whether the assets were considered “significant”.
The couple was married for nearly 19 years and had two children. Following their separation in 2008, they resolved all financial issues through a lengthy course of mediation in which both parties were represented. The resulting separation agreement was executed in April 2010 and the parties divorced approximately six months later.
The terms of the separation agreement included provisions that the husband pay the wife $10,000 per month in child and spousal support, and pay all of the children’s s. 7 expenses. The wife agreed to pay the husband an equalization payment of $181,578.
However, four years later, the wife sought an order setting aside the separation agreement under s. 56(4) of the Family Law Act on the basis that the husband failed to disclose significant assets. Section 56(4)(a) states that:
“A court may, on application, set aside a domestic contract or a provision in it,if a party failed to disclose to the other significant assets […] existing when the domestic contract was made”.
The trial judge found that the husband had failed to disclose interests in certain family businesses that he had acquired during the marriage and had also failed to disclose payments that he received on a shareholder loan, as well as capital income from the sale of shares by a corporation he controlled.
Even though the trial judge concluded that the non-disclosure was blameworthy, she dismissed the application, finding that while the value of the non-disclosed assets may have been considerable, they were not “significant” in the sense required by s. 56(4). The trial judge found that the wife had obtained a very favourable settlement and that the husband had agreed to provide spousal and child support far in excess of what the wife could likely have achieved at trial based on the husband’s actual income. In addition, the trial judge found that the husband had made substantial concessions in the mediation, such that it would not be reasonable to simply input the value of the non-disclosed assets and assess the impact on the equalization payment or support.
The Court of Appeal agreed with the trial judge, stating:
“The trial judge is said to have answered the wrong question – whether the non-disclosure was significant – instead of whether the non-disclosed assets were themselves significant. But this seems to be a purely semantic distinction. It is the significance of the non-disclosed assets that makes the non-disclosure itself significant. Determining the significance of non-disclosed assets is not, as the [wife] argued, the purely mathematical exercise of comparing the value of the non-disclosed assets against the value of the disclosed assets. Rather, the trial judge appropriately relied on case law finding that “the term significant must refer and be measured in the context of the entire relationship between the parties” […] and that significance “should not be considered in isolation of all of the surrounding circumstances”.”
The Court of Appeal agreed that the disclosure would not have changed the outcome of the wife’s entitlement with regards to equalization or support and that the assets that the husband did not disclose were not significant. Additionally, the court stated that the finding of significance is only the first step in the analysis; the court must then determine whether it should exercise its discretion to set aside the agreement. The findings concerning the absence of duress and the substantial benefits that the wife received under the separation agreement indicated that the trial judge would not have exercised her discretion to set aside the agreement.
As a result the appeal was dismissed and the separation agreement was not set aside.
Separation and divorce are challenging for everyone involved. When dealing with custody or access disputes, matters involving spousal and child support, the division of assets, and other family issues, emotions can be your worst enemy. Having an experienced family lawyer on your side can help you stay focused and resolve disputes as quickly and amicably as possible.
At Campbell Bader LLP, our team of exceptional family law lawyers offer cost-effective advice for couples considering a marriage contract and can help you draft an agreement that helps provide financial security, and peace of mind. Contact us online or at 905-828-2247. We look forward to speaking with you and going through this process by your side.