Understanding your financial rights and obligations in a divorce or separation requires a full and frank exchange of financial information. When a financial claim is advanced in a family court proceeding a duty of financial disclosure is imposed on the parties through Rule 13 of the Family Law Rules. The opposing party does not need to request the information, disclosure is triggered automatically as it is recognized as being relevant to some family law claims. The disclosure rules and sanctions for non-compliance have been described as the centrepiece of the Rules, with the Ontario Court of Appeal stating “the most basic obligation in family law is the duty to disclose financial information”. The failure to meet disclosure obligations impedes the progress of the action and disadvantages the opposite party.
The extent of financial disclosure that is required can vary, in some cases encompassing business valuations, income analysis and the production of expert reports. The owner of an asset will carry the burden of establishing a value for that asset just as an income earner must establish the level of income earned. There is no automatic obligation for a party to produce expert reports, consequently, an individual seeking information that is not required under the Rules must initially establish that the disclosure would be relevant in that there is a connection between the information requested and the issues that are to be determined. Courts also evaluate the proportionality of disclosure requests, weighing the burden of time and expense on the disclosing party against the relevance and importance of the information within the dispute.
How Does a Marriage Contract Impact Financial Disclosure?
In Tonogai v. Tonogai, the Applicant wife sought the production of an expert business valuation and an expert income report to establish values for the Respondent husband’s interests. The Applicant advanced property and support claims thus the value of the Respondent’s business holdings and income appeared relevant. However, the parties had entered into a marriage contract that purported to limit the Applicant’s right to any interest in the Respondent’s businesses and to receive spousal support. At issue was the impact the marriage contract might have on the obligation to produce financial information.
For Justice Bale, the party seeking production of cost-prohibitive financial disclosure such as multiple expert reports must first establish that it is more likely than not that they will succeed in advancing their position. For the Applicant in this case that meant setting aside the marriage contract entirely, successfully alleging that the marriage contract never restricted her claim for equalization, or overriding the spousal support waiver contained in the contract. While the court will evaluate the prospect of success, they will not make a final determination on the question, leaving the detailed fact-finding for trial. This approach balanced the objectives in the Rules by considering both the expense and importance of expert reports, while acknowledging that it would be unjust to require a party to produce expert disclosure if the Applicant cannot show that the materials are likely to be relevant and probative to the litigation.
On the issue of whether the Applicant would likely succeed in setting aside the marriage contract and advancing her claim that the contract did not bar equalization, Justice Bale found without making a final determination that it was at least equally possible that the provisions of the contract would be upheld. However, on the question of whether the Applicant might succeed in arguing the provisions of the contract limiting spousal support lacked compliance with the Divorce Act, the court found that it was more likely that a complete waiver of support in this case no longer complied with the objectives of the Act. The Respondent’s ability to generate an income during the years surrounding separation was also relevant. The court was satisfied that an expert report on the Respondent’s income was proportionate. The same was not true of the request for business valuation reports, which would entail expense for reports that may not be necessary.
Improper Disclosure can be Costly
At times, an expert valuation of property may be necessary, but merely producing a valuation report may not fully discharge disclosure obligations, as courts have acknowledged several standards of valuation among different types of valuation reports. In Caskie v. Caskie, Justice Price noted that a Comprehensive Valuation Report is given the highest level of assurance, with a Calculation Evaluation Report given the lowest level. An Estimate Valuation Report falls in between the two, which is based on “limited review, analysis and corroboration of relevant information.” In Caskie, the wife alleged she had received inadequate disclosure, with the husband arguing he had complied with his disclosure obligations, pointing to the Estimate Valuation Report he produced. Justice Price disagreed, finding the report had limitations, relied heavily on representations made by management, which in effect meant the husband, with some of the data provided underestimating the value of the business. The report was no substitute for full disclosure.
Failure to meet the obligation to provide full financial disclosure can result in a costs sanction when courts find parties improperly withholding information. Justice Price saw a pattern of the husband providing inadequate and incomplete disclosure which left the wife to investigate and piece together his financial circumstances. The wife spent over $20,000 seeking disclosure and making independent inquiries. As a consequence, the husband was ordered to pay $20,000 in costs as reimbursement as well as a further $10,000 to recompense the wife for the costs of the Case Conference in which the parties made little progress due to the husband’s strategy which delayed resolution.
The divorce lawyers at Boulby Weinberg LLP in Toronto focus exclusively on family law matters and are experienced working with clients with complex business assets and family property. We will work with you to determine equitable valuations and tailored financial solutions. To discuss your matter further or arrange a consultation please complete our online questionnaire or contact the firm online or by phone at 647-494-0113 ext. 102.