In Ontario, the Family Law Act permits couples to enter domestic contracts setting out their obligations and rights upon separation, including the division of property. Both parties will need to understand the rights they may be waiving before signing. This requires spouses to provide accurate financial disclosure for any agreement to be valid and binding.
Ontario courts have stated that spouses are responsible for doing their own due diligence by asking questions or obtaining information about an asset’s value when negotiating a domestic contract. Where a spouse fails to do so, they cannot later rely on their own ignorance to set aside a contract and try to bring an asset back into equalization after separation or divorce.
Onus to Settle Property Concerns Before Entering Domestic Contracts Arose in Matrimonial Home Dispute
A spouse’s responsibility to perform their own due diligence when entering into a domestic contract was set out by the Ontario Superior Court in Capar v. Vujnovic. Mr. Capar and Ms. Vujnovic were married in 2012. At the time of the marriage, Ms. Vujnovic owned a property (the “Grey Owl Property”) that she had purchased in 2004.
Prior to the marriage, she lived there with her children, with Mr. Capar later moving in, making the house their matrimonial home. By November 2016, the couple had signed a marriage contract, and Mr. Capar received independent legal advice prior to signing.
Marriage Contract Excluded Matrimonial Home From Equalization
The content of the marriage contract prevented Mr. Capar from making a claim for any interest, present or future, vested or contingent, in the Grey Owl Property. The contract also confirmed that Ms. Vujnovic had brought the property into the marriage and that she had no debt except for a small mortgage. Consequently, despite the Grey Owl Property becoming a matrimonial home within the meaning of the Family Law Act, under the terms of the contract, it was to be excluded from any division of property or equalization calculation in the event the parties separated.
Following separation, Mr. Capar sought an order setting aside the marriage contract on the grounds that Ms. Vujnovic did not make the necessary disclosure and that he failed to understand the rights and benefits he was giving up. In response, Ms. Vujnovic sought to rely on the marriage contract to protect the value of her interest in the Grey Owl Property and argued the contract served as a defence against any equalization claim.
Mr. Capar recognized that the contract was intended to preserve the value of Ms. Vujnovic’s interest in the property and admitted that was the intention of both parties in signing the contract. The dispute arose from Ms. Vujnovic seeking to exempt the growth in value of the property at the time it was sold. Mr. Capar alleged that he should be permitted to share in the increased equity and the appreciation in its value.
Deference Given to Agreements Signed Between Spouses
Financial disclosure is a central responsibility in marriage contracts. Before entering a contract, the parties need to appreciate their rights and obligations, what they may be giving up, and understand each spouse’s asset base. At the same time, significant deference is owed to a domestic contract.
A challenge to set aside a marriage contract is brought under section 56(4) of the Family Law Act. In considering whether a contract should be set aside for non-disclosure, a court must first accept there was a failure to disclose significant assets before determining whether it should exercise its discretion to rescind the contract.
Wife Argued Husband Responsible for Requesting Information About Asset Value When Contract Made
In this case, the issue of proper disclosure concerned the value of the Grey Owl Property. Generally, a failure to disclose significant assets or materially misrepresenting the true value of assets supports a finding that a party failed in their disclosure duties.
Ms. Vujnovic’s position was that the disclosure was proper and that awareness of the other party’s assets was sufficient. This corresponded with earlier court decisions finding that general awareness of the assets of the other party can be enough to avoid setting aside an agreement.
For the Court, disclosure of assets is necessary to uphold a domestic contract, but this does not necessarily extend to disclosing the value of an asset that the party challenging the validity of the agreement knew or ought to have known. Consequently, Ms. Vujnovic argued she was not obligated to provide the value of the property at the time the contract was signed. Mr. Capar already knew the property was subject to the contract and could have requested information to ascertain the value of the property.
Absent Deceit, Ignorance No Defence After Excluding Asset from Equalization
The Court emphasized the responsibility of contracting parties to fully canvass issues related to disclosure prior to signing, which includes recognizing and addressing any shortcomings in information.
In Quinn v. Epstein Cole LLP, Justice Brown indicated that parties are expected to use due diligence in ascertaining the facts underlying their agreements and that parties cannot fail to ask questions and later allege a lack of disclosure. There is nothing that prevents an individual from entering into a domestic contract – including one where an asset is excluded from family property division and equalization – without full financial disclosure.
This was echoed by the Ontario Court of Appeal in Butty v. Butty, in which the Court stated that a party cannot enter into a contract aware of disclosure shortcomings and then rely on those shortcomings as a basis for setting the contract aside. Concerns relating to disclosure are to be addressed at the time that the contractual terms are being negotiated. The exception is, of course, a circumstance where the other spouse’s disclosure was inaccurate, misleading, or false.
Proactive Disclosure of Asset Value Not Required When Party Aware of Asset’s Existence
Ultimately Mr. Capar had adequate knowledge about Ms. Vujnovic’s interest in the Grey Owl Property at the time they concluded the marriage contract. As a result, the Court found there was no reason for it to use its discretion to set the contract aside.
The Court held that formal disclosure through sworn financial statements is not necessary to meet disclosure obligations. While disclosing assets is required, it does not mean that disclosing the value of an asset is required when the party knows about the asset in question. Further, if a party does not pursue their concerns about disclosure prior to signing a contract, their failure to resolve any shortcomings will prevent them from trying to set aside the contract and bring the asset into the equalization process later.
Contact GDH Family Law in Vaughan for Trusted Advice on Family Property Division & Equalization
It is crucial to obtain qualified legal advice to understand your rights and obligations before signing a domestic contract. The talented family lawyers at GDH Family Law understand the technicalities of equalization and family property division after a separation or divorce. We provide reliable advice and tailored legal solutions to family property and matrimonial home disputes.
GDH Family Law offers free initial consultations to new clients. We are located in Vaughan and proudly serve clients throughout the surrounding areas, including Maple, Concord, Woodbridge, Markham, Kleinburg, Richmond Hill, Nobleton, Toronto, Newmarket, Aurora, Brampton, Caledon, Mississauga, Etobicoke, North York, Thornhill, and King City. To schedule a consultation, contact us online or by calling 416-535-6944.