Property Division and Fully Disclosure in Family Law Settlements

lorisa stein property division and fully disclosureIn the family law field, clients are asked and expected to produce documents demonstrating their income from all sources, the property of all sorts and debts and liabilities. The probable value and currency, accuracy and completeness of the disclosure are paramount. Why? For a family law lawyer to be able to provide comprehensive legal advice to a client about property division and support obligations, the ‘intel’ must be reliable and forthcoming. The disclosure is presented as a bound book with an index and description of the document.

Property has been given a very broad definition under the Family Law Act. Production will be expected and provided whether the clients are entering into a relationship and preparing a cohabitation agreement, getting married, or upon the breakdown of their relationship or marriage.

Property Division – Obligation to Full Disclosure during Divorce or Separation

Judges have been faced with the question of whether or not there is an obligation or positive duty when clients are negotiating a marriage contract on the asset holding spouse to produce full financial disclosure or, whether the obligation rests with the other to make specific demands or requests for disclosure.
The Newfoundland Court of Appeal in the case of Freake vs. Freake decided in June 2004 held that the asset holder was obliged to fully disclose without receiving a specific request from the other spouse.

In a simultaneous decision of the Ontario Superior Court of Justice in the case of Reinhardt vs., Reinhardt decided two months later in 2004 held that the non-asset holding spouse did not have to pursue all avenues of inquiry to obtain proper disclosure. In having to meet such a high level of accuracy in the detail of the requests made, the requesting spouse could risk their rights and entitlement to spousal support or property division. For example, if an area of inquiry was lacking or the request failed to sufficiently relate to the identification of a beneficial interest in an asset situate in a foreign state, the recipient spouse would lose entitlement to a share in the value of that asset or its income.

The Need for Full Disclosure in a Collaborative Family Law Settlement

Considering the purpose behind the financial disclosure adds clarity to why the exercise of disclosure is necessary. A young family who finds themselves in the middle of the separation with a child with a serious learning disability or a spouse who has succumbed to a debilitating illness needs financial support. The law requires that a family member be the first resource for support before looking to a government agency such as welfare for assistance.

The disclosure requirements for child and spousal support can be found in the Child Support Guidelines and the Spousal Support Advisory Guidelines. These references are quite similar and are applicable for common-law partners, married couples and spouses with children.

For those clients negotiating a domestic contract, the honest and complete disclosure of significant assets, debts and liabilities existing at the time when the domestic contract is signed is required is to be provided to the other spouse.

Income Sources & Documentation Required for Full Disclosure

Negotiating and understanding the nature and consequences of the terms of the domestic contract is the name of the game. The disclosure must be material and complete such that relying on a different set of circumstances would give rise to the negotiation of a different contract.

Financial disclosure includes income from all sources. All sources? Offshore income streams, gambling proceeds, all forms of remuneration from employment, investment income, and rental income to name a few. Documentation should be provided voluntarily by both spouses.

A good start to understanding the scope of income includes a request for complete copies of the last three years corporate, trust and personal income tax returns filed with the government, . Reviewing these documents carefully may show investment accounts, equity investments, remuneration for consultation, board position honorariums, and pre-tax corporate income.

Consequences of Misrepresentations & Disinterest in Family Law Settlements

While there is a positive duty to provide disclosure, the spouse who acts with disinterest cannot later claim that they did not receive full disclosure. Similarly, the spouse who is actively involved in the business of the other is aware through general knowledge and discussions of the assets and debts of the other will not be seen as credible if they later protest the consequences of the agreement they signed.

Likewise,  the client who deliberately or intentionally misstates or misrepresents their net worth or income risks losing the exemptions and restrictions on the sharing of property they fought so hard to include in the marriage or prenuptial contract should there be a breakdown of the relationship or marriage of current and future.