Parties Obligated to Seek Value of Family Property for Division

When it comes to a divorce, the family property will need to be divided. One of the key issues concerning family property division is determining the property’s value. To properly value the family property, parties must make appropriate disclosures. However, this is often a difficult process if one or more of the parties do not cooperate. Non-disclosure and hidden assets continue to be significant issues in family law. Therefore, the court has imposed certain disclosure duties and standards to ensure that parties are making appropriate disclosure. In particular, even if a party does not know the value of certain property that they hold, they have an obligation to obtain the value if they can do so. 

In this post, we will discuss the disclosure requirements of spouses for property division. In particular, we will examine the case, Chateauvert v. Chateauvert, 2018 ABQB 2, which illustrates what can happen when a spouse does not disclose the value of their property, claiming that they do not have this information. The court found that the husband, in that case, had made a negligent misrepresentation by failing to seek information about the value of his shares, which were family property. Parties dealing with property division and potential disclosure issues will benefit from this post.

Difficulties of non-disclosure for family property

Non-disclosure of assets in family law remains a significant issue. It has been considered the “cancer” of family law litigation. When family assets are not disclosed, or there is a significant delay in providing sufficient disclosure, the process can become very drawn-out and costly for both parties.  Without proper disclosure, settlement agreements may be challenged in the future. Also, the lack of property disclosure makes it difficult for courts to assess how family property should be divided properly. 

The court may also draw negative inferences against parties who do not properly disclose their assets or the value of those assets. In particular, the court may find that a party fraudulently or negligently misrepresented the value of their assets, as was the case in Chateauvert, which will be explained below. 

When is a party liable for fraudulent or negligent misrepresentation in family law?

Spouses who do not make proper disclosure in the process of settlement agreement negotiations can be found to be liable for fraudulent or negligent misrepresentation. 

Parties in family law have a duty to disclose 

Parties to a family law matter have a duty to disclose their assets and income for division and support determinations. In the context of negotiating a settlement agreement, the parties must make full and honest disclosure of all relevant financial information. This recognizes that one or more of the parties may be in a vulnerable position when negotiating a settlement agreement due to the power dynamics that can exist in the relationship. 

The courts have recognized the following principles for disclosure:

1. The parties owe each other a duty of good faith to make full and complete disclosure when negotiating a settlement agreement; 
2. Spouses have a duty to enquire if they consider disclosure to be inadequate;
3. Even if a spouse is not aware of the value of their interest, they are obligated to determine the value or provide the other spouse with an opportunity to determine the value;
4. Parties are not to spend significant amounts of resources to engage in a scavenger hunt to untangle complex corporate information for the purposes of determining family assets.

Without proper disclosure, it is open to the court to find that a settlement agreement is invalid. 

Fraudulent misrepresentation 

To find that there has been fraudulent misrepresentation, the following elements must be found:

1. The party made a false representation or statement;
2. The representation or statement was knowingly false; 
3. The representation or statement was made with the intention to deceive the other party; 
4. The representation or statement induced the other party to act in a way that caused them damage.

Negligent misrepresentation 

The following elements must be satisfied to find that there has been a negligent misrepresentation:

1. There is a special relationship between the parties such that there is a duty of care; 
2. The representation or statement must be untrue, inaccurate, or misleading; 
3. The party making the representation acted negligently when making the representation; 
4. The other party must have reasonably relied on the negligent misrepresentation; 
5. The reliance must have been detrimental to the person relying on the statement such that damages arose. 

Court finds negligent misrepresentation for failure to seek valuation of shares as family property 

In Chateauvert, the parties entered into a settlement agreement to divide their family property, which was finalized in 1997. Both parties worked during the marriage. Notably, the husband was given an opportunity to purchase shares from the company where he worked, as he was a key employee. He acquired the shares on the day that the parties married. He intended for these shares to be part of his retirement package. 

During the settlement agreement negotiations, the value of the shares was considered to be approximately $50,000. However, a few months after the agreement was finalized, the company was sold, and the husband received $1.9 million for his shares. 

The wife claimed that the husband made either fraudulent or negligent misrepresentation during the settlement agreement negotiations as he did not disclose that the company was to be sold, nor did he properly disclose the value of his shares. 

During the settlement negotiations, the value of the shares provided to the wife was provided directly by the husband. In other words, the value was not based on any financial statements or other company records. There was also evidence that the husband knew that the value of his shares had increased in the years leading up to the settlement agreement. However, he did not update his disclosure before signing the agreement to reflect the increased value, even though he could have obtained that information from the company’s financial statements as a minority shareholder. 

However, the wife could not prove that there had been fraudulent misrepresentation, as the evidence did not show that the husband knew about the sale of the company. The key company individuals involved in the sale, which did not include the husband, had kept the sale information to themselves.

The court found that the husband was not deliberately withholding information but was careless and not responsive to the ongoing requests from the wife’s counsel concerning the value of the shares. Before the agreement was signed, the husband did not have information on the value of his shares, as the annual shareholders meeting had not yet occurred. However, he could have waited for the meeting and updated the wife before signing the agreement. Overall, he failed to update the value before the agreement was signed, even though he should have known that there was an increase. The court found that the husband had negligently misrepresented the value of his shares.

Mincher Koeman Family Lawyers in Calgary Can Assist with High-Value Matrimonial Property Division and Separation Agreements

During the marriage, one or more of the spouses may obtain assets that form a significant portion of the family property to be divided. It may be prudent for the parties to enter into a separation agreement to provide certainty and prevent the need to go to court. However, this requires proper disclosure, or the agreement may not be upheld. To ensure you meet your disclosure obligations, you should speak with one of our family law lawyers at Mincher Koeman, who are experienced in assisting parties with issues involving high-value property division and separation agreements. Our Calgary family law lawyers are dedicated to finding the best resolution for you after your divorce.

To book a consultation, please contact us online or by phone at 403-910-3000.