Decision underlines importance of financial disclosure

The judge in the case upheld a clause in a separation agreement between two former spouses in which they attested that financial disclosure was “irrelevant to the negotiation” of its terms and that any shortcomings in that regard could not be used as grounds for voiding provisions of the contract.

As a result, the applicant — the mother of the couple’s three children — was unable to lay claim to part of the father’s $22,000 income tax refund, which was owing to him, but undisclosed at the time the agreement was signed.

“It is difficult to interpret subparagraphs 13.15(a), (b) and (c) as meaning other than that the parties were made aware, before they signed the Agreement, that financial non-disclosure would not vitiate it, and that they agreed to waive non-disclosure as an invalidating ground,” the judge concluded.

Silbert, principal of Sharon B. Silbert Professional Corporation, tells AdvocateDaily.com that one of her biggest challenges as family law counsel is to convince clients of the importance of adequate financial disclosure.

“There is a tendency on the part of many clients to want to cut corners, but what you have to convey is that it’s about managing risk, ensuring that decisions are being made on a fully informed basis, and making sure you have some recourse if it turns out that all the relevant information was not available to you at the time you signed the agreement,” she says.

“This case provides an illustration of that risk because the wife missed out on more than $10,000 to which she would have been entitled had she known more about the husband’s financial situation. I think it’s fair to infer that she regretted the decision to include the clause waiving financial disclosure in the agreement.”

Silbert says family law litigants frequently view financial disclosure as an inconvenient and unnecessary distraction, especially when relations between the opposing parties are otherwise good.

“When people feel as though they have a decent understanding of the overall financial picture in the relationship, including their former partner’s income and liabilities, they may not see the point in completing formal financial statements,” she says. “They might even view formal disclosure as a way for the lawyers involved to make additional work for themselves and drive up fees, but my job is to explain its importance and underline the risks involved if they choose not to complete the disclosure.”

Despite the wording of the agreement in the recent case, Silbert says she was a little surprised that the judge enforced the financial disclosure provision, considering that s. 56(4) of the Family Law Act provides courts with the jurisdiction to set aside domestic contracts for a party’s failure to “disclose to the other significant assets, debts or other liabilities, existing when the domestic contract was made.”

“But at the same time, just because a court has that authority doesn’t mean they will exercise it in every case,” Silbert adds. “In this instance, the language in the contract was enough to show the judge that the parties had turned their minds to the possibility that there could be information that had not been shared, and that, even if that was the case, they intended to be bound by the terms of their agreement.”