When Are Undisclosed Matrimonial Assets Significant Enough to Set Aside a Separation Agreement?

The Ontario Court of Appeal (“ONCA”) recently reviewed a decision of the Ontario Superior Court of Justice (“ONSC”) which dismissed a wife’s request to have a separation agreement set aside despite the Court’s findings that her husband had not disclosed substantial assets during the negotiation of the separation agreement.

The Facts:

A marriage of 19 years which produced two children broke down in 2008. Counsel represented both spouses. A lengthy mediation process produced a separation agreement that was signed in 2010. A divorce followed six months later.

The husband agreed to pay $10,000 a month in spousal and child support, to pay all of the children’s section 7 expenses under the Federal Child Support Guidelines and made an equalization payment of $181,578.

Four years later, the wife sought to set aside the separation agreement because the husband had failed to disclose significant assets during the negotiation. Section 56(4)(a) of Ontario’s Family Law Act states as follows:

“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;”

Trial Decision:

The trial judge found that the husband failed to disclose his interest in certain family businesses, loan payments he had received, and capital income he received from a sale of shares by a corporation he controlled, all of which he had acquired during the marriage. The trial judge was critical of this non-disclosure, which reflected the husband’s ongoing indifference to his familial obligations. She also found that the value of these assets was considerable.

Despite these findings, the wife’s application was not successful. Although the trial judge determined the husband’s non-disclosure to be of considerable value, she held that the undisclosed assets were not “significant” within the meaning required by s.56 (4)(a) of the Family Law Act in the context of the negotiation of the separation agreement.

This result was based on two findings. First, the settlement was very favourable to the wife in that the husband agreed to pay far more support than would have been the case if the matter had gone to trial. Second, the husband made substantial concessions and compromises during the mediation which greatly benefited the applicant with respect to the amount of the equalization payment.

As a result, the trial judge found that it would be unfair and unrealistic to simply add the value of the undisclosed assets and then adjust the amount of support and the equalization payment accordingly. The trial judge was also unwilling to assume that if the parties had introduced these other assets into the negotiation process that all other terms of the separation agreement would have remained the same. In other words, the amount of support agreed to, along with the concessions made, balanced the impact of the undisclosed assets.

The Appeal:

The wife appealed unsuccessfully to the ONCA.

Her first argument was that the trial judge had made an error in placing an onus on her to investigate the assets of her husband. The ONCA agreed with the trial judge that the failure to disclose carries with it an obvious risk, but the act of non-disclosure of even substantial assets does not necessarily mean an automatic setting-aside of a separation agreement.

Secondly, and related to the first argument, the ONCA held that the trial judge was not in error to look at the term “significant” in reference to the entire context of the negotiations between the parties. The ONCA held that determining significance is not merely a mathematical exercise of measuring and comparing the value of the disclosed and undisclosed assets.

In the opinion of the trial judge, the most important circumstance was that more disclosure would not have affected the outcome. She found that the non-disclosed assets would have had no bearing on equalization and were also irrelevant to the quantum of support.

In any event, even where there is a determination of significance under s.56(4), the court must then determine if it should exercise its discretion to set aside the separation agreement. The factors to be considered when doing so include:

“(a) whether there had been concealment of the asset or material misrepresentation;

(b) whether there had been duress or unconscionable circumstances;

(c) whether the petitioning party neglected to pursue full legal disclosures;

(d) whether he/she moved expeditiously to have the agreement set aside;

(e) whether he/she received substantial benefits under the agreement;

(f) whether the other party had fulfilled his/her obligations under the agreement.”

The ONCA concluded that the trial judge correctly stated and applied the law, that her conclusion was available on the record before them, and that they had no basis to interfere with her decision.

As a result, the appeal was dismissed, and the separation agreement remained intact.

Family law issues, including issues of spousal support, child support, and equalization, can be thorny and emotional and can significantly add to the stress of the breakdown of a marriage. Consulting an experienced, compassionate family lawyer can significantly ease the process. As the oldest independent law firm in Waterloo Region, and one of the oldest in the province, Duncan, Linton LLP has been providing clear, effective and strategic legal advice to clients for over a century. Call us at 519-886-3340 or contact us online for a consultation.