Non-Disclosure in Separation Agreements Can Be Costly

When parties are facing a divorce, separation agreements can be a helpful way to set the terms for how to proceed. They can provide some certainty during a time of uncertainty and discomfort. Separation agreements can cover various issues, including parenting time, child support, spousal support, and property division. It is often helpful for the parties to receive independent legal advice on the separation agreement. Also, in order to be effective, the parties must make proper disclosure so that each party knows what is at stake before signing. If the court finds that there has been deliberate non-disclosure, there can be significant and costly consequences.

This post will discuss disclosure requirements for a separation agreement during a divorce. We will also touch on the consequences if a separation agreement is signed without full disclosure from one or more parties. For example, we will discuss the case Brown v. Silvera, 2009 ABQB 523, in which the court ordered the husband to pay the wife approximately $14 million for property division, as he deliberately did not disclose his assets during negotiations of the separation agreement. You will find essential insights in this article if you are considering a separation agreement, especially if there are valuable assets to divide.

What disclosure is required during negotiations of a separation agreement?

To determine what disclosure requirements are necessary for a separation agreement, one should first look at the terms of the separation agreement. There may be clauses that refer to what kind of disclosure is required. Typically, the agreement would require both parties to provide full, fair, and complete disclosure, for example.

Outside of the agreement, there is also a legal requirement to disclose one’s assets for matrimonial property division. The courts have recognized that it is an emotional negotiating environment in the family law context. Therefore, ensuring that the negotiations to divide the assets are free from informational and psychological exploitation is essential. According to the case law, each party has “a duty to make full and honest disclosure of all relevant financial information” during negotiations of a separation agreement (Rick v. Brandsema, 2009 SCC 10, at para 47).

To ensure appropriate disclosure, the financial information provided should be clear, non-cryptic, and not require additional investigation. Generally, there is no rule that there is a duty for the other party to inquire about non-disclosed property, as they would not be in a position to know what has yet to be disclosed. Parties are not expected to spend significant amounts of time, effort, and funds on investigating undisclosed assets. The courts highly discourage concealing assets.

What are the consequences of a separation agreement signed without full disclosure?

Beyond disclosure requirements, there may also be clauses in the separation agreement that refer to what will happen if non-disclosure exists. For instance, if it is found that one or more of the parties, either deliberately or inadvertently, hides, does not reveal, or changes any disclosure information in such a way that misleads the other party, then the agreement may be invalid. The parties may need to divide their assets through a different method, such as through court.

Relatedly, there may be a clause in which the parties acknowledge that they entered the contract without undue influence, fraud, coercion, or misrepresentation. However, this can still be revealed later if one of the parties was unaware they were being misled due to non-disclosure or inaccurate disclosure.

If there is non-disclosure, a separation agreement may not match legislative objectives for property division and may be considered unconscionable by the court. In such a case, the agreement will not be enforced.

Husband to pay wife $14 million despite separation agreement due to non-disclosure

In the Brown case, the parties were married for approximately 11 years. They had two children together. During the marriage, the husband had significantly increased the value of his company.

The parties had negotiated Minutes of Settlement that addressed property division, amongst other issues. Neither party took issue with the fact that the Minutes met the requirements of a separation agreement. The agreement contained clauses that the parties would provide full, fair, and complete disclosure of their assets for property division. The agreement specified that if a party deliberately or inadvertently concealed or altered any material information disclosed, then the agreement would be vacated so that property division rights could be determined differently (i.e. through the court).

The wife claimed that during negotiations of the Minutes, the husband did not appropriately disclose his corporate assets as he suggested his company was going through financial difficulties.

The court found that the husband had an obligation to fully disclose all of his corporate interests, including the value of his interests. Even if he was unaware of the value, he was obligated to determine those values or allow the wife to determine the value. The court also found that he was obligated not to mislead his wife about his corporate interests’ existing or future value. He was required to disclose all relevant information and cooperate with his wife in determining the value of his corporate assets.

The court determined that when the Minutes were finalized, the husband knew that it was very likely that the lawsuit against his company would be favourable, in contrast to what he had been telling his wife. Shortly before and during negotiations, the husband led his wife to believe that the company was in financial jeopardy due to legal issues, which was untrue as the companies were doing well. This information led the wife to sign the Minutes quickly without full disclosure, as she believed she needed to protect what little would be left of the husband’s company for herself and the children.

The court found that there was misrepresentation from the husband, and he breached the agreement’s terms and his common law duty to disclose. Therefore, the court reversed the division of corporate assets in the agreement and made a separate analysis of property division.

The court ordered that the wife would receive approximately $15 million for her share in the family property. This amount was reduced to approximately $14 million in the appeal of this case due to calculation errors.

Key takeaways

Spouses need to provide full disclosure when negotiating a separation agreement and ensure that statements are not made to mislead the other regarding the value of the assets. This is an essential duty for spouses who control a significant portion of the family assets, as they are in a position to know the financial circumstances of a corporation they control, for instance. If the court finds that there has been non-disclosure or misrepresentation, they may refuse to rely on the terms of the separation agreement. They may conduct a separate analysis of property division, which can be very costly, as seen in the Brown case.

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

During the marriage, one or more spouses may operate a business comprising 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.