In Ontario, parties in most separation cases have a legal obligation to provide full and frank financial disclosure to one another. When an Application is issued, an Automatic Order issued by the court outlines all the documents necessary to meet a party’s financial basic disclosure obligations. These documents are outlined in each party’s Financial Statement and facilitate the exchange of information regarding income, expenses, assets, and debts. This is an essential requirement of the family law process to achieve a fair and cost-effective outcome. This type of disclosure is intended to be ongoing as opposed to fulfilled at the first instance of filing and serving the first Financial Statement.
The importance of the financial disclosure obligation in the eyes of the court can be illustrated by the widely cited quote from Leskun v Leskun 2006 SCC 25: “non-disclosure of assets is the cancer of matrimonial property litigation”. Unfortunately, in some cases, spouses attempt to hide assets to create an advantage in the litigation or reduce their financial obligations. This can take many forms including depleting the value of bank accounts, transferring property to other friends or relatives, undervaluing business interests, and opening undisclosed bank accounts.
Although it may seem enticing to attempt to gain a litigation advantage in this way, this unethical behaviour can have counterproductive legal consequences. Given the importance that the court places on financial disclosure as a means to ensuring a fair process for division of property, parties attempting to conceal assets should be weary of the possible penalties including:
- Setting Aside Agreements or Orders
- Pursuant to section 56(4) of the Family Law Act, if a separation agreement or court order was based on incomplete information or disclosure that is fraudulent, the court can set aside such an agreement or order, and the issues previously perceived to be ‘dealt’ with become live issues once again. This can include support obligations and division of property.
- Unequal Property Division
- Although the default equalization regime divides matrimonial property equally between the parties, section 5(6) of the Family Law Act provides that “a spouse’s failure to disclose to the other spouse debts or other liabilities existing at the date of marriage” can constitute an “unconscionable” outcome. In this circumstance, the court may use its discretion to award unequal equalization to the parties.
- Costs
- Spouses who engage in dishonest behaviour with respect to financial disclosure can be ordered to pay the other party’s legal costs. It is also within the court’s discretion to award “punitive damages” for particularly egregious conduct.
- Contempt of Court
- If a spouse disregards court orders to produce specific financial disclosure, there is a possibility that the court may find the individual in contempt of court. The consequences of being held in contempt include fines or even jail time.
- Striking of Pleadings
- When other efforts to compel disclosure have failed, deliberately failing to disclose relevant assets can result in a party’s pleadings being struck. The court has authority to strike pleadings for non-compliance with orders pursuant to Rule 1(8)(c) of the Family Law Rules. This effectively prevents that party from participating in the court process and allows the court to make decisions on the matter without their input.
The court has made it clear that there is no tolerance for hiding assets. If your spouse is failing to disclose relevant assets in your family law matter, a lawyer can assist you in bringing a motion to compel your spouse to produce the financial information that you are entitled to.