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Appeal Court Confirms: Dishonest Husband Required to Show “Scrupulous Care” for Wife’s Interests

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Appeal Court Confirms: Dishonest Husband Required to Show “Scrupulous Care” for Wife’s Interests

Consider this scenario: Two spouses divorce after 20 years of marriage and three children. They enter into a separation agreement to establish the combined child and spousal support the husband should pay, and agree that a home they purchase after separation would be taken in the wife’s name alone.

However, in 2005 they decide to enter into an Amending Agreement: Among other things, it adjusts the support amount to reflect the husband’s declared income of $80,000 per year, and changes the split on the home’s ownership to 50-50 for each of them (with the title documents amended accordingly).

Years later, the wife later finds out that the husband’s income was not $80.000 as he claimed, but rather closer to $345,000. The vast majority of that income came from various contracting / home building businesses that the husband owned, which generated significant unreported income about which the Canada Revenue Agency was unaware.

The wife then asks the court to set aside the Amending Agreement as unconscionable, and to declare her the sole owner of the property. This is based mainly on the husband’s untruthfulness about his true income. In response, the husband complains that the wife should have raised her objections sooner in their proceedings, and that she should be barred from raising them now.

The questions for the court was this: Should the Amending Agreement be aside in these circumstances?
Not surprisingly, two different courts’ answer was a resounding “yes”. But what was interesting is that both courts concluded that the husband had a duty to act with “scrupulous care for [the wife’s] welfare and interests” in the circumstances.

The matter first came before an applications judge who found that the wife would not have signed the second agreement had she known of the husband’s true income. That judge set aside the agreement and declared her to be the sole owner of the home.

In doing so, the judge found there had been inequality between the parties and that the husband was preying on the wife, especially in light of her economic vulnerability. As such, he had a duty to act with her best interests in mind, and – as the later Appeal Court confirmed – his “failure to disclose that his income was roughly four times that which he represented it to be was a serious breach of that duty.”

There was no doubt on the evidence that the husband misrepresented his income as being $80,000, when in fact he had significant additional undeclared income. The wife did not find out about it until long after she began the court proceedings, so it did not lie in the father’s mouth to she should have raised it earlier in the proceedings.

Also, the Court of Appeal found no fault in the prior judge’s assessment that the Amending Agreement was unconscionable in law, based on both the husband’s non-disclosure of significant income, as well as the manner in which the parties purported to deal with their real estate. Although the concept of “unconscionability” in the context of domestic contracts is not the same as for regular contracts, one principle remains the same: where there are circumstances of oppression, pressure, or other vulnerabilities, and where there is evidence that one party exploits those vulnerabilities during the negotiation process to the point that the domestic contract deviates substantially from what the relevant family legislation would otherwise dictate, the contract need not be enforced.
The Amending Agreement was therefore set aside and the wife was declared the sole owner of the property.

For the full text of the decision, see:

Tadayon v. Mohtashami, 2015 ONCA 777 (CanLII)

At Russell Alexander, Family Lawyers our focus is exclusively family law, offering pre-separation legal advice and assisting clients with family related issues including: custody and access, separation agreements, child and spousal support, division of family property, paternity disputes, and enforcement of court orders. For more information, visit us at www.RussellAlexander.com.