The Supreme Court of Canada has dismissed a leave to appeal application from a man ordered to pay his ex-wife $5.3 million after failing to fully disclose his wealth. It’s a disappointing move in the eyes of family law lawyers hoping to get some clear direction on marriage contract disclosure.
“I can tell you [this case] has changed the way we practise,” says Grant Gold, of McCague Peacock Borlack McInnis & Lloyd LLP, in reference to LeVan v. LeVan.
“Financial disclosure has to be made in a way that is not only complete . . . but it has to be so completely full that it leaves no doubt that anyone would have any questions about one’s financial position.”
Alan Lenczner of Lenczner Slaght Royce Smith Griffin LLP, who represented the husband Richard Bruce LeVan, says the decision is devastating for his client.
Because the value of assets is determined at the time of breakup, and the recent financial crisis has devalued the shares upon which much of LeVan’s wealth was based, “He ends up with zero, she ends up with everything,” says Lenczner.
The wife is owed the $5.3 million equalization payment, and while that amount was based on a time when the family company shares held by LeVan were worth about $18 million, they are now worth about $5 million because of the recent financial crisis, says Lenczner.
“There’s no revaluation, so he has to pay her the value on breakup,” says Lenczner.
Philip Epstein of Epstein Cole LLP, who represented the wife in the case, says LeVan has taught the family law bar an important lesson.
“I think it’s a lesson the bar is taking seriously,” says Epstein. “LeVan is now a couple of years old and I’ve noticed an increased vigilance among family lawyers in terms of what they’re providing when they negotiate a marriage contract.”
Gold says that before the LeVan decision, his approach to financial disclosure was to simply announce the value of shares his client owned. But that’s not enough anymore, he says, with requests for financial statements now being made, requiring the retention of chartered business valuators.
“It’s caused all of us to be more cautious,” says Gold. “I can tell you I know lawyers now who don’t want to do marriage contracts at all because they’re just too concerned about the liability.”
While both the Superior Court and Court of Appeal gave instructions in LeVan on what disclosure should have been made in the case, Gold was looking forward to getting some direction from the top court on the specific issue of whether it’s necessary to hire a valuator to establish clients’interests in a corporation.
“LeVan’s a scary decision for family law lawyers, and I think everybody’s going to say that,” says Gold. “We don’t know the type of disclosure that might be sufficient. So what I think we’re doing is throwing everything out there and giving as much . . . disclosure as possible. Overkill is better. You’re never going to get in trouble for giving too much.”
The Ontario Court of Appeal in May upheld an August 2006 decision by Ontario Superior Court Justice Nancy Backhouse regarding a marriage contract between LeVan and his wife Erika LeVan.
Backhouse ordered the husband to pay the wife the equalization payment, along with retroactive spousal support of $163,340. The judge also ordered LeVan to pay the wife monthly spousal support of $6,640, as well as monthly child support of $4,544 and retroactive child support of $43,792.
Ontario Court of Appeal Justices Stephen Borins, David Doherty, and Jean MacFarland dismissed the husband’s appeal, which argued that Backhouse’s ruling improperly interpreted the Family Law Act, incorrectly assessed the spousal and child support awards, and should not have awarded post-judgment interest on the equalization payment and lump sum spousal support.
The couple signed the marriage contract in June 1996, two days before getting married, noted the appeal court. At the time, LeVan and his three siblings each owned 25 per cent of shares that made up a majority interest in the publicly-traded company Wescast Industries Inc., the world’s largest manufacturer of exhaust manifolds.
The siblings also were the beneficiaries of significant holdings in LeVan Family Trust. At trial, the wife’s valuator estimated LeVan’s personal business assets at over $14 million, a number uncontested by the husband.
LeVan’s father intended to protect the family’s company shares, and instructed his children to enter into pre-nuptial agreements upon marriage. LeVan approached the family lawyers in May 8, 1996, six weeks before the wedding date, regarding the marriage contract.
The initial contract was opposed by the lawyer representing the wife, who had been told by the husband that the marriage wouldn’t go ahead unless the contract was signed.
As the wedding neared and an agreement still wasn’t reached, LeVan “began to undermine the wife’s relationship with, and confidence in” her lawyer, who was eventually fired, the court found.
The husband’s lawyer, Karen Bales, proceeded to ask lawyer Susan Heakes if she would represent the wife on the marriage contract. Heakes, who had represented Bales on her own divorce, agreed to represent the wife, who wasn’t aware of the two lawyers’ previous relationship.
The marriage contract was signed when the wife met with Heakes. The contract “compromised” the wife’s ability to claim spousal support, and she didn’t know his net worth, wrote Borins.
Backhouse, the trial judge, found that the husband failed to comply with the disclosure obligation under the Family Law Act.
In setting aside the contract, she also found that the wife didn’t get “effective independent legal advice,” didn’t understand aspects of the contract, the husband misrepresented parts of the contract to the wife, the husband deliberately failed to disclose his entire assets, and the husband interfered with the wife’s legal assistance, noted the appeal court.
Gold says LeVan threatens to increase costs for clients. He says, for example, that an opposing lawyer recently recommended the retention of a mediator to decide what disclosure materials are necessary in a marriage contract.
“I think it’s causing people to be ultra cautious,” says Gold.