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The Courts’ Role in Catching Spouses Who Play “Hide and Seek” with Family Assets

The Courts’ Role in Catching Spouses Who Play “Hide and Seek” with Family Assets

 

The opening paragraphs of the 2011 decision in Lo v. Mang provides a glimpse of the contentious nature of family law disputes that routinely come before the Ontario Court of Justice, and the human “back story” against which the court must make determinations as to division of family property for separating and divorcing couples.

The court in that case wrote:

1 Happily, eleven year old Chelsea Elisabeth Mang (“Chelsea”) and nine year old Evelyn Chloe Mang (“Evelyn”) are so loved that each of their parents wants to spend as much time as they can with them and play key roles in their ongoing development. Sadly, their parents’ disagreement about what is best for Chelsea and Evelyn has lead to a titanic legal battle.

I Divorce and Equalization of Net Family Property

2 During this proceeding the parties’ lawyers agreed on two things: first, Ms Lo and Mr. Mang should be divorced and second, that an equalization payment of $417,294.60 is due by Ms Lo to Mr. Mang.

This level of acrimony is not uncommon in family law cases. Nonetheless, it forms the backdrop against which the court must evaluate the financial information provided by separated spouses as part of their disclosure obligations. This job includes untangling the frequently-intricate financial arrangements by each party, some of whom take active steps to attempt to conceal transactions and assets to the detriment of their former partners.

In the Lo v. Mang case, for example, the husband had systematically under-reported his income and assets to the court. Among his assertions was the claim that certain shares that he held in a company were worth a total of only $300. In fact, after closely scrutinizing the evidence and delving into certain business and other financial records, the court concluded that these were participating shares that had an actual value of $665,200. After drawing this conclusion, the court said:

“To understate it, Mr. Mang’s financial disclosure was again flawed. Ms Iadeluca’s characterization of the exercise as a game of hide and seek is more accurate.”

Similarly, in a 2009 decision called Beneteau v. Young, the court had to closely examine the financial facts surrounding the business income of a husband who had taken deliberate steps in order to hide assets from his common-law wife. The court heard evidence that he had diverted significant undisclosed funds from his tire business to his own use, rather than that of his wife and child. For example, the wife found an unexplained $9,400 in cash in the husband’s jacket, for which he offered an implausible story involving the sale of a van. She also suspected him of taking undeclared cash payments in the course of his business, and knew for a fact that for years he had been earning money that he had not declared to the Canada Revenue Agency. And (perhaps most troublingly to the wife) a mere three days after they returned from holiday to Italy together, the husband purchased a $9,000 diamond engagement ring – apparently for another woman – which the wife found in a dresser drawer in their home.

Against this background, the court easily concluded that the husband had been diverting funds and hiding assets, which it needed to take into account for equalization purposes. The court wrote:

5. Undisclosed / Undeclared Cash

62 As identified, the parties’ relationship had very clear roles and expectations. Mr. Young devoted his entire time, energy and effort to creating, maintaining and promoting Wellington Tire Corporation. Except for some brief time Mr. Young spent with the children before their bedtime, the entire responsibility for the home, the children and all of their schooling, health, activities and maintenance devolved to Ms. Beneteau. …

63 In turn, it was understood and expected by Ms. Beneteau that Mr. Young would be open and honest with regard to income disclosure and to bring home his entire salary for her to manage. …

64 That arrangement worked for all of their 13 years and, when it was to their benefit, they used the various sources of cash that flowed into the home through Mr. Young as circumstances required. It was only in the later years of their relationship that Ms. Beneteau became suspicious that Mr. Young was diverting some of that cash to his own use, exclusive of her and the children. The first indication of this new deviousness was in July 2005 when Ms. Beneteau found the woman’s diamond engagement ring.

65 Her suspicions were of course confirmed when, in May 2007, she found the $9,400 in cash. By then, any level of trust between them had long disappeared. By then Ms. Beneteau was clearly searching for more evidence of Mr. Young’s duplicity and his financial deprivation of her and their children.

66 Ms. Beneteau’s May 2007 discovery of the cash cache and her removal of same caused great ructions between them. It was not until after this litigation was well commenced that Mr. Young acknowledged this cache and created an explanation for it. He “explained” that $4,000 of the $9,400 was from the sale of the van that he had confiscated from her in December 2006. The balance of $5,400 was, he now says, the proceeds of a longstanding, ongoing cash arrangement that he had entered into with an unnamed individual who had for years apparently attended at Wellington Tire and had been purchasing for cash the used tires that were turned in when new tires were purchased. When confronted, Mr. Young disclosed that he had been receiving various amounts of cash for these “left over” tires for years. He admitted that this arrangement had continued from the mid-1990s until late 2005 or early 2006. He feigned that he really could not remember just when that scheme had ended but in his vague and avoidant answers to cross-examination on this issue, Mr. Young assured the court that this practice had ended well before the separation. He said that without any explanation “the guy” had just stopped attending at his place of business to pick up the tires.

67 I have a great deal of difficulty with Mr. Young’s self-serving evidence on this point since, of course, given the nature of his subterfuge with both the government and his accountant (and after separation, his former partner Ms. Beneteau), his assertions are unprovable or incapable of disproof. Obviously, it behooves him to keep that longstanding scheme under the table.

68 … As an explanation for the $9,400 cash found hidden in his jacket in May of 2007 (allegedly partial proceeds from a sale in January or early February of 2007 for a corporate owned van that he took possession of in December 2006), these deposits appear to represent his attempt to reconstruct historical facts. There is no bill of sale or any independent corroboration of any part of his story and I reject it.

69 Mr. Young’s further assertion that this $9,400 had been in the till at work lacks credibility since for years he had been bringing home money from work and had, for at least two years before the finding of this hoard, been secreting other of his assets around the home (eg. the diamond ring).

70 When cross-examined with regard to the coincidental ending of the purchase of the leftover tires by the unnamed buyer with his separation from Ms. Beneteau, Mr. Young was elusive, avoidant and evasive. He would not concede that one event had anything to do with the other. If he were to be believed, it was merely a fortuitous coincidence that they occurred at the same time. I am unpersuaded.

71 Part of Ms. Beneteau’s claim includes a request for a finding that Mr. Young continues to take undisclosed and undeclared amounts of cash from his business, not only from the till for work done for cash but that, on a balance of probabilities, the alleged end of the used-tire-for-cash-sales scheme is a misdirection or an outright lie. After all, she argues, how could she ever prove or disprove that this “under the table” long-standing modus operandi no longer continues.

72 On balance, I am persuaded that Mr. Young continues to deal in cash on a regular basis, given the evasiveness of his evidence; the fact that he has been carrying on business in this manner for well over a decade; and the fact that the books, ledgers and bank records of his corporation do not disclose any expense whatsoever that his company must apparently now incur to dispose of used tires in some manner, since the purported end of the scheme. …

In light of these conclusions the court then turned to the task of imputing income to the husband. It said:

73 The issue then becomes how to conclude how much Mr. Young is actually taking from the business in un-disclosed and undeclared cash when the entire rationale for and the scheme is set up to ensure that accountants and/or the government cannot prove that he continues to perpetuate the arrangement and to enjoy the benefits of his non-disclosure.

74 Certainly, he had almost $10,000 in cash to buy the ring in the summer of 2005. Almost two years later, he had almost another $10,000 in cash hidden in a secret place in his home. Presently, he has a safety deposit box, the exact details of the contents of which he was unwilling to disclose.

75 Since the onus of proof in this trial is a civil, not a criminal one, I am persuaded that it is more probable than not that Mr. Young continues to accept and to take cash from his business whenever he is offered that opportunity.

76 Accordingly, I conclude that Mr. Young takes at least $10,000 a year from his business, as was proven that he did in both 2005 and again in 2007. I do not accept his assertion that the $9,400 cash that Ms. Beneteau found in his secret place was partially the result of the sale of the van. I find that explanation is a concoction of his that he created after the discovery of his hidden cache of money.

The decisions in Lo v. Mang and Beneteau v. Young are just two recent examples of cases where one spouse has attempted to hide economic information from the other or play a “shell game” with financial transactions to obscure the location or value of assets. It may be easy to see why separated spouses facing court-imposed equalization adjustments would feel tempted to do this. However, full financial disclosure is imperative in the family law system and – as these decisions show – the courts will impute income in the appropriate circumstances.

The lawyers and staff at Russell Alexander, Family Lawyers are experienced in dealing with financial disclosure obligations for separating and divorcing couples, and can advise as to this and other family law matters as well. For further information, visit us at www.RussellAlexander.com

For the full text of these decisions, see:

Lo v. Mang, 2011 ONSC 496 http://bit.ly/plp7pz

Beneteau v. Young, 2009 CanLII 40312 (ON SC) http://bit.ly/qVjXoY