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SCC: make full disclosure in separation agreements

|Written By Robert Todd

The Supreme Court of Canada gave family law practitioners a stern reminder last week of just how important it is to ensure clients offer full and honest disclosure when putting together separation agreements.

Nitya Iyer

“It reaffirms that, for family law cases, courts want everybody to come in with wide open eyes,” says family law practitioner Grant Gold, of McCague Peacock Borlack McInnis & Lloyd LLP.

“Yes, you can make a decision that might give you less than you might otherwise get, if that’s what you choose to do, but you have to know the facts coming in.”

The court’s 7-0 ruling in Rick v. Brandsema orders Berend Brandsema to pay his former wife Nancy Rick $649,680 because their separation agreement was “unconscionable.” The pair married in 1973 and separated in 2000, and had five children together.

During the marriage, they acquired a dairy farm, real property, vehicles, and RRSPs, noted the court. Rick was originally set to receive a $750,000 equalization payment through the separation agreement.

But the court found that Brandsema failed to make full and honest disclosure, knew the contract negotiations were based on flawed financial data, and was aware of his wife’s fragile mental state during the talks.

The decision overturns an Alberta Court of Appeal decision, which ruled that professional assistance Rick received during the negotiations compensated for her mental instability.

Heenan Blaikie LLP lawyer Nitya Iyer, who worked the case pro bono for the intervener Women’s Legal Education and Action Fund, says the decision is groundbreaking in terms of the development of common law principles.

Iyer says it “takes into account the specific vulnerabilities that exist between separated spouses. We’ve had the principle of unconscionability for some time, but it’s a pretty minimal idea. The notion that it has more weight and takes on a particular content in the context of family law contract negotiations, I think is an interesting and new development.”

Gold notes that, unlike many other Canadian jurisdictions, Ontario’s family law legislation specifically talks about financial disclosure. The Family Law Act says that a court can set aside a domestic contract if a party fails to disclose significant assets or debts or other liabilities existing when the contract was made, notes Gold.

Moreover, says Gold, the decision signals the court’s intention of protecting vulnerable parties.

“It’s the Supreme Court of Canada saying, ‘We’re not going to let people take advantage of, in this case, a wife in a vulnerable position,’” says Gold.

The decision also asserts the fact that family law contracts are dealt with differently than commercial contracts, he says. The SCC’s rejection of the Alberta Court of Appeal’s stance in ruling that the wife’s vulnerabilities were not compensated for by advisers demonstrates that, says Gold.

For family law lawyers who haven’t already learned that it’s best to err on the side of providing too much disclosure, this case should hammer that need home, says Gold.

“If you’re a family law lawyer doing a contract, if you want to make a mistake, make a mistake by erring on the side of excess disclosure,” he says. “Give somebody too much and let them sort it out, as opposed to giving them too little.”

That can sometimes be a hard pill to swallow for clients, he notes. Some clients tell him they’re happy with the deal they’ve struck and don’t care what their spouse’s true financial holdings are.

“You’ve got to be careful with those, because even though the clients are giving you instructions, as a lawyer, you’ve got to tell them that they can’t enter into that agreement unless they go in with open eyes,” says Gold.

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