Cheaters Never Prosper: Why Deception in Disclosure Can Cost You
Virc v. Blair, 2017 ONCA 394
This case serves to expand upon the standard of disclosure required in a separation agreement for it to withstand s. 56(4)(a) of the Family Law Act.
The parties started cohabiting in 1993 and married on September 14, 1994. They have three children together. The husband was a business man and the wife was a lawyer; they met when she was a junior lawyer on one of his company's files. The parties were married for 14 years and separated in May 2008. In May 2008, the husband sent the wife a net family property statement that revealed she owed him an equalization payment of approximately $954,000. This was based on expert appraisals and input from accountants. The wife did not retain legal counsel to review this information because the husband was an experienced business valuator, they had been audited and he was confident in the accuracy of the assessments. On May 31, 2008, the parties signed the separation agreement. The agreement released her from the $954,000 payment and declared that neither party would be entitled to child support.
When the parties got married, the husband had a controlling interest (60%) in a holding company. He listed the marriage date value of this asset as $7,603,685 - the "book value" (the assets minus the debts) of the company. By using this value instead of the market value of his share (what is could be sold for), the husband significantly overvalued the company. By claiming a larger marriage date value, he was able to deduct more from his net family property. In fact, the discrepancy that resulted from this act of creative accounting was in excess of $16 million. This meant that the husband ought to have owed the wife money in equalization, not vice versa.
Section 56(4)(a) of the Family Law Act states that the court may set aside a domestic contract if a party fails to disclose significant assets or debts when the contract was made. The motion judge originally denied the wife's motion to have the separation agreement set aside. Even though the valuations for the company were deliberately false and the wife had received far less than her entitlement, the judge stated that the wife couldn't rely on her failure to investigate in order to set aside the agreement. Given that the wife was a shareholder and officer of the company, she had several opportunities to review its books.
However, the wife successfully appealed and the agreement was set aside by a trial judge. The trial judge concluded that the husband had deliberately over-estimated the value of the company and that these representations were material. It was found that the motion judge had erred in shifting the onus to the wife to enquire as the truthfulness of the husband's financial statement. Inherent to the duty to disclose if the duty to fairly value assets. The law does not allow a fibber to succeed simply because the receiver of these lies has not dug them out. The Court of Appeal upheld the trial judge's decision to set aside the separation agreement.