Ex-Husband’s Failure to Disclose Trust Interest Not Sufficient to Set Aside Separation Agreement
The Ontario Court of Appeal recently ruled that even though an ex-husband had failed to disclose, through two financial statements, his significant interest in a family trust, this did not constitute a failure to disclose under s. 56(4) of the Family Law Act such that a Separation Agreement should be set aside.
A History of the Marriage
The parties were married in July 1996, had two children, and were married for approximately 13 years before separating in September 2009. They entered into a Separation Agreement, and later a Minutes of Settlement which modified the Agreement.
While the parties had been married they ran several businesses that marketed and developed beauty products. These ventures were very successful and the parties were worth tens of millions of dollars.
In 2016, the ex-wife sued the ex-husband and his father seeking, among other things, an order setting aside the Agreement and Minutes of Settlement. She argued that, at the time she had signed the two documents, she had been unaware that the ex-husband was the beneficiary to a large family trust established by his father.
The ex-husband and his father filed a motion for summary judgment requesting the ex-wife’s application be dismissed.
Section 56(4) of the Family Law Act
Section 56(4) of the Family Law Act (FLA) states that a court may set arise a domestic contract (i.e. separation agreement, pre-nup, etc.) where one party has failed to disclose significant assets existing at the time the agreement was made to the other party. In exercising its discretion, the court must also consider whether it would be appropriate to set the agreement aside.
This emphasizes the importance of accurate disclosure and the need to make accurate and complete Financial Statements.
The Summary Judgment Motion
The motions judge dismissed the ex-husband’s motion for summary judgment, ultimately finding that:
- The ex-husband had failed to disclose his interest in the trust to the ex-wife; and
- his defense that the ex-wife knew about his interest could not succeed because the wife did not have actual knowledge of the non-disclosure when she entered into the agreements.
The motions judge left open for further hearing, whether the ex-husbands failure to disclose that he was a beneficiary of the trust was material or significant non-disclosure within the meaning of s. 56 of the FLA.
The ex-husband was ordered to file a sworn Financial Statement and to produce documents requested by the ex-wife.
The Court of Appeal Decision
One of the issues on appeal was whether, despite the ex-husband’s failure to disclose his interest in the family trust when he exchanged Financial Statements with the ex-wife, his interest had nonetheless been disclosed.
The Court of Appeal found that the ex-husband’s interest in the family trust as a named beneficiary should have been listed on his sworn Financial Statements.
However, the Court also noted that, subsequent to the exchange of Financial Statements by the parties, the ex-wife’s lawyer had been provided with a document outlining the ex-husband’s interest in the family trust.
The Court emphasized that the motions judge had found that the ex-wife had been unaware that the ex-husband was a named beneficiary and had further found that, given the circumstances, it had not been necessary for the motion judge to review what the ex-wife’s lawyer and accountant “did or did not know”. The Court found that this conclusion on the part of the motion judge had been an error.
The Ex-Wife’s Knowledge
Caselaw has long established that the knowledge of an agent (in this case the ex-wife’s lawyer) is imputed to the agent’s principal (in this case, the ex-wife) as there is a “presumption that an agent will communicate his knowledge to the principal because it is his duty to do so.”
The Court of Appeal noted that disclosure about the family trust had been made to the ex-wife’s lawyer and financial advisor. They were provided with, among other things, a document that identified the ex-husband as beneficiary. This was “not disclosure that was in any way buried.” The Court of Appeal therefore found that the ex-wife was deemed to have knowledge of the husband’s interest in the trust due to her lawyer’s knowledge of it.
The Court of Appeal went on to note that the ex-husband’s omission of his interest in the family trust in the Financial Statements does not change the fact that the parties both received advice from highly experienced advisors, and had indicated in the separation agreement that they had each investigated the other’s financial circumstances “to his or her satisfaction”.
The Court concluded:
Although [the ex-husband] ought to have included [his] interest in that portion of the Financial Statement that addresses excluded property, its omission cannot serve to turn actual disclosure and Randi’s knowledge into non-disclosure for the purposes of s.56(4) of the Family Law Act.
The Court ruled that the ex-wife’s claim that the Separation Agreement and Minutes of Settlement be set aside on the basis of non-disclosure should itself be set aside.
If you are a high-net worth individual and/or business owner and have questions about your obligations to ex-spouses or other matters related to separation or divorce, or have questions about enforcing your rights in an estate dispute, contact Financial Litigation in Toronto.
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