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Must a Spouse Confirm the Falsity of the Other Spouse’s Financial Information?

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Must a Spouse Confirm the Falsity of the Other Spouse’s Financial Information?

In a recent family law decision called Virc v. Blair, the Court of Appeal faced an interesting question: whether one party is duty-bound to make inquiries into or confirm that the other party has provided deliberately-false financial information.

The dispute arose in connection with the business valuation that formed the basis for a 2008 separation agreement between a wife and husband. Even though the wife happened to be a lawyer, she had no experience with business valuations; the husband on the other hand was an “experienced and sophisticated businessman” who considered himself an expert in that area.

The wife signed the agreement (which was prepared by the husband’s lawyers), even though prior to doing so she was not provided with a full independent business valuation of his assets at the date of marriage. About two years after signing, she then realized that he had likely over-valued his marriage-date holdings to the tune of $9 million, which made a big difference to her equalization and other entitlements.

She went to court to have the separation agreement set aside, but was unsuccessful on the first go-around before a motion judge. That judge had concluded that even if it appeared likely the husband had materially misrepresented the value of his marriage-date property, the wife had disqualified herself from attacking the resulting separation agreement’s validity because she failed to make inquiries to confirm one way or the other. In other words, the wife’s oversight in failing to confirm the husband’s likely-false information was fatal to her bid to set the agreement aside. The motion judge essentially dismissed the wife’s application.

The matter went to appeal, and the wife was successful. The Appeal Court found that the motion judge, in purporting to apply the Ontario Family Law Act’s two-stage test for setting aside a domestic contract, had effectively (and incorrectly) shifted legal responsibility for confirming the false financial information to the wife.

However, this was not the law in Ontario.

Rather, once the motion judge was in a position to assume the husband had made a material misrepresentation as to his finances, the law placed the onus on the husband, being the party disclosing the financial information, to establish that the wife actually knew that his information had been false. It was incorrect to shift the responsibility to the wife to make the inquiries, and incorrect to conclude that her application to set the agreement aside had no real chance of success at trial.

The wife’s application should not have been dismissed; the proper course was to send the matter on for a full trial. The Court of Appeal made an order accordingly.

For the full text of the decision, see:

Virc v. Blair, 2014 ONCA 392 (CanLII)

 

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