In a recent decision, the Ontario Court of Appeal relied on documents and financial disclosure from a husband’s first divorce proceedings in order to come to a conclusion about his net worth during his second divorce proceedings, following the end of his second marriage.

The Parties

The parties met in the early 1990’s. At the time, the wife worked as a lawyer in a Toronto litigation firm where the husband and his businesses were clients. The wife was 26, and the husband was 46 and separated from his former wife of 27 years. The wife eventually left the firm and began to work for her husband, advising him on litigation and other matters. The couple were married for 14 years and had three children together before their relationship ended.

The Husband’s Dishonesty

Following their separation, the husband provided the wife with a draft separation agreement, which indicated that she owed him just over $950,000, but that he was willing to forego this amount, and that no child support would be payable since the children would spend equal time with both parents. The wife signed the agreement without retaining independent legal counsel, thinking that she was getting a good deal.

However, after the wife signed the agreement she became concerned that the husband had misled her about the value of his businesses as of the date of the marriage. She filed an application to set aside the Separation Agreement, recalculate the equalization payment, and review the child support arrangements. In response, the husband brought a motion for summary judgment to dismiss the wife’s requests.

Previous Decisions

The motion judge granted the husband’s motion for summary judgment, concluding that there was no genuine issue for trial and stating that the party who seeks to set aside a separation agreement (in this case, the wife) cannot rely on the fact that they failed to do their due diligence and investigate the value of assets when they had the chance to do so. Here, the wife had been a shareholder and officer in one of the husband’s businesses and had full access to books and records, but chose not to review them. She likewise did not retain outside advice.

The wife appealed the decision and was successful, with that judge finding that the motion judge had made an error in shifting the responsibility of inquiring about the husband’s financial disclosure to the wife, and stating:

In the face of a deliberate material misrepresentation, the onus is not appropriately placed on the recipient spouse. Rather, the burden is on the party disclosing to establish actual knowledge of the falsehood by the recipient…[t]he law does not entitle a liar to succeed just because the recipient of the falsehoods has not ferreted them out.

A full trial was ordered. After a 19-day trial, the trial judge set aside the Separation Agreement, ordered retroactive child and spousal support, and recalculated the equalization payment.

The Appeal Decision

The husband appealed, seeking to rely on fresh evidence, and brought in an expert witness to attest to his business valuation figures. The husband continued to maintain that he had been honest about the value of his assets, and that the trial judge had erred in concluding that he had misrepresented the value of his business at the date of marriage. The expert testified that the value of the husband’s business at the date of marriage was $7.6 million.

The Court of Appeal found that the expert witness lacked independence and was closely associated with the husband, and therefore his evidence could be excluded.

In addition, the Court of Appeal concurred with the trial judge’s findings that the representations that the husband had made to his former spouse did not reconcile with the representations that he had made to the wife. The representations made to the wife dramatically increased his net worth as of the marriage date, reducing the value of his net family property, and therefore reducing his exposure to equalization.

Throughout the various proceedings in this case, the husband had produced several financial documents that he had provided the court in his previous divorce proceedings. These statements showed that he had essentially brought zero assets into his second marriage. The trial judge had relied on these documents in making the decision to set aside the separation agreement. The Court of Appeal concluded that there had not been anything improper about this decision:

The documents the husband relied on must be read in their entirety and in the context of all of the representations the husband made to his former spouse. The trial judge did just that. The trial judge had, and relied on, extensive disclosure, testimony, and representations that the husband made in the prior proceedings with his former spouse. The evidence disclosed that some seven months before his marriage to the respondent-wife, the husband had told his former spouse that Renegade was essentially insolvent. His net family property statement to the respondent-wife, however, set Renegade’s date of marriage value at $7.6 million.

Ultimately, the husband was found to have intentionally misrepresented the value of his assets as of the date of marriage by telling his wife that they were worth several million dollars, when, in fact, the court determined that they were not. The Court of Appeal upheld the trial judge’s decision to set aside the Separation Agreement.

Lessons Learned

If you are separating for the second time, you may be facing a number of distinctive challenges and financial risks. Your financial obligations towards your first spouse and any financial calculations that were undertaken during your first divorce may have an impact on your second divorce, or vice-versa. These risks can be managed through careful planning and consultation with a knowledgeable divorce lawyer, who understands the legal and financial implications of second or further marriages and divorces and who can advise clients accordingly.

The family lawyers at Gelman & Associates are experienced in advising on multiple marriages and will work on your behalf to achieve the best possible resolution to your matter. With six locations in Toronto and the surrounding areas, our offices are easily accessible by transit and off-highway. Call us at (416) 736-0200 or 1-844-736-0200 or contact us online for an initial consultation.