Financial Disclosure and Domestic Contracts

Rick v. Brandsema reinforces the concept that spouses owe special obligations towards one another following a separation, including the obligation to disclose all known financial affairs to one another. The case also suggests that a spouse must take particular care not to be seen to take advantage of his or her spouse in the steps leading towards the execution of a Separation Agreement, even if the vulnerable spouse is represented by counsel.

In this case, the parties married in 1973; separated in 2000 and during the marriage, acquired vehicles, RRSPs, land and established dairy farms. The Court accepted that the wife was primarily the homemaker, but also contributed to the dairy farms.

At separation, it was the parties’ undisputed intention to divide their assets equally. They attempted mediation without lawyers. A memorandum was drafted stipulating the husband was to receive the dairy farm, while the wife was to retain the house and receive $750,000.

Through the process, the parties were intermittently represented by counsel and following the first mediation, the wife’s lawyer asked the husband to complete a family law financial statement.

The parties proceeded to a second mediation later that year, without lawyers. The husband provided a financial statement on this occasion. He listed one of the farms as being worth $300,000 more than he previously disclosed. A second memorandum, substantially the same as the first, was signed.

Subsequently the wife signed a Separation Agreement settling the parties’ affairs following from the separation, with the assistance of a lawyer. The wife then sought to set it aside on the grounds of unconscionability and misrepresentation.

The Trial Judge found that the wife was a “deeply troubled person”; she suffered from a severe mental condition at separation and during the negotiations leading to the Separation Agreement. It was also discovered that the husband wrote a cheque to himself from the parties’ joint account and also gave monies to a close friend, all before separation, and afterwards he deposited the funds into his accounts. He failed to account for these funds totaling approximately $250,000 in the disclosure process.

The Trial Judge concluded the husband knowingly presented misleading financial information to the wife during negotiations. Additionally, the Trial Judge found the husband to be an “astute and experienced businessman” who was “well aware of [his wife’s] disordered thinking.” The Trial Judge concluded the husband knowingly took advantage of his wife’s vulnerabilities, accepting an agreement based on what he alone knew to be erroneous financial information.

The British Columbia Court of Appeal allowed the husband’s appeal. They rejected the finding that the wife’s mental instability impeded her ability to understand the negotiation and concluded that any vulnerability the wife had was addressed and compensated for by the availability of professional assistance. The Court of Appeal stated that since the husband was not responsible for the wife’s failure to make effective use of the services available, he had no obligation to refrain from accepting a proposal that was in his best interests.

The wife appealed to the Supreme Court. The Court affirmed the importance of respecting parties’ autonomy when determining what constitutes acceptable equitable sharing. However, the Supreme Court noted that this autonomy is not without limitations. In order for both parties to be able to determine for themselves what constitutes equitable sharing, the Court stated that there is a duty to make “full and honest” disclosure of all relevant financial information and if full disclosure is not provided and an agreement is reached which differs substantially from the objectives of the governing legislation, a Court may intervene.

The Supreme Court stated that whether a Court will intervene will depend on the circumstances of each case. However, factors which should be taken into consideration include: the extent of defective disclosure; the degree to which the defective disclosure is found to have been deliberately generated; and the extent to which the resulting negotiated terms are at variance from the goals of the relevant legislation, in this case, British Columbia’s Family Relations Act.

The Supreme Court concurred with the Trial Judge, finding that the agreement was unconscionable. The Court found that the husband accepted a settlement amount that he alone knew was based on misleading financial information. The Court noted that the husband failed to make disclosure of funds approaching a quarter of a million dollars. Also, the Court found that the husband had taken advantage of the wife’s mental instability of which he was “well aware”. The Court found the result to be a significant departure from the relevant legislative objectives and from the parties’ undisputed intention to have an equal division of assets and thus set aside the Agreement.

In considering whether professional assistance compensated for the wife’s vulnerabilities, the Supreme Court made clear that the presence of professional assistance does not necessarily cure a spouse’s vulnerability. Rather, whether professional assistance has remedied the vulnerabilities is specific to each case. In this case, the Supreme Court held that the wife’s vulnerabilities were not compensated for, as her emotional and mental condition left her unable to make use of the professional assistance available.

In the end, the Supreme Court allowed the wife’s appeal, finding the Separation Agreement was unconscionable. The Court Ordered the husband to pay the wife an amount representing the difference between the negotiated “equalization payment” and the wife’s entitlement under British Columbia’s Family Relations Act

The Court made clear the need for spouses to make full and honest disclosure of financial affairs or face Court intervention. The case also suggests that a spouse needs to proceed with caution and not exploit his or her spouse’s vulnerability in the process.