Having full financial disclosure is the baseline for negotiation of most domestic contracts. Financial issues that could pertain to support, property and succession are contained within them. All too often, a client provides counsel with a draft separation agreement, provided by the opposing side, that lacks full financial disclosure, expecting that turnaround can be achieved quickly.
Before opposing sides can begin negotiation, a lawyer must advise their client to seek out full financial disclosure from their spouse as well as to prepare their own.
Knowledge of both financial positions is crucial to best represent a client so that a fair and equitable domestic contract can be prepared. Inclusion of each parties’ financial position bears so much weight that without it, a domestic contract can be deemed invalid or set aside in accordance with the Family Law Act, R.S.O. 1990 or current case law.
Should both parties disclose their full financial positions honestly, future proceedings related to the domestic contract can be avoided. However, failure on behalf of one party to accurately provide their financial position can jeopardize the entire domestic contract.
The following provisions outline certain criteria that can be relied upon when setting aside a domestic contract: “Pursuant to s. 56(4) of the Family Law Act, R.S.O. 1990, c. F.3, a court may on application set aside a domestic contract or a provision in it, a) if a party failed to disclose to the other significant assets, or significant debts or other liabilities, existing when the domestic contract was made; b) if a party did not understand the nature or consequences of the domestic contract; or c) otherwise in accordance with the law of contract.”
In addition to the legislation on setting aside a domestic contract, guiding principles were established in the case of Miglin v. Miglin 2003 SCC 24, which are now known as the Miglin Principles. In this case, Linda Miglin was seeking spousal support from Eric Miglin. However, the spouses had already entered into a separation agreement that included a full and final release of any future spousal support claims. The court thus established the Miglin Principles in two stages.
The first stage involves two steps.
Stage one: The first step
The first step at para. 80 says: “… the court should first look to the circumstances in which the agreement was negotiated and executed to determine whether there is any reason to discount it.” At para. 81, the court provides a non-exhaustive list of “factors to consider in assessing the circumstances of negotiation and execution of an agreement.” The list includes circumstances of oppression, pressure or other vulnerabilities and the conditions under which the negotiations were held, which includes full financial disclosure.
The second step
The second step can be found at para. 84. “Where the court is satisfied that the conditions under
which the agreement was negotiated are satisfactory, it must then turn its attention to the substance of the agreement. The court must determine the extent to which the agreement takes into account the factors and objectives listed in the Act, thereby reflecting an equitable sharing of the economic consequences of marriage and its breakdown. Only a significant departure from the general objectives of the Act will warrant the court’s intervention on the basis that there is not substantial compliance with the Act.”
While not essential to outline in full for the purposes of this topic, stage two of the Miglin Principles would consider whether or not the separation agreement should be disregarded or given little weight as there may have been changes in the parties’ circumstances that were not contemplated.
At para. 87 the court states: “…on the bringing of an application under s. 15.2, the court should assess the extent to which enforcement of the agreement still reflects the original intention of the parties and the extent to which it is still in substantial compliance with the objectives of the Act.” The test for setting aside an agreement remains high, but no longer needs to be “radically unforeseen,” nor does it have to “demonstrate a causal connection to the marriage.” (para. 88).
For more information on the Miglin Principles please refer to Miglin v. Miglin.
For the lawyer, negotiating a domestic contract without full financial disclosure puts him or her at a disadvantage. Quite obviously, partial or no financial disclosure makes giving independent legal advice almost impossible. If a file proceeded without said information, a lawyer could be exposed to a negligence claim if the contract is challenged and set aside.
Therefore, asking a client to provide full financial disclosure as early on as possible is highly recommended for best practices. This will ensure smooth negotiations and will avoid the potential for future reviews or contentions.