Busted! Court Relies on Sworn Financial Statements from First Divorce to Value Assets During Second One
The husband was a 46-year-old, recently-separated businessman who met the 26-year-old wife when she was a junior at the law firm he used for his business matters and litigation. After they moved in together and he got a divorce from his first marriage, the wife left her job at the law firm to take care of the husband’s litigation and related corporate affairs.
They were married for 14 years before they separated, and had three children.
When they split up, the husband forwarded a newly-prepared separation agreement for the wife’s signature. She signed without obtaining independent legal representation. She was comfortable doing so because she believed that the husband had provided full disclosure, and she trusted his assessment since he had considerable experience valuing businesses.
Using the business valuation information provided by the husband, the separation agreement would have called for the wife to pay the husband just under $1 million as an equalization payment; however, it also provided that the husband would agree to forgo her having to pay that amount.
Sounds like a good deal, right?
However, the wife slowly realized afterwards that the husband had misled her. Rather than her owe him money in equalization (which he waived), the proper calculation was entirely different because he had greatly overstated the value of the corporate assets that he brought into the relationship, most notably the value of his company at the date of marriage. This would inflate the amount she was adjudged to owe him way of an equalization.
She successfully applied to the court to set aside the separation agreement, on the basis that the husband had not given full financial disclosure. The trial judge adjusted the calculation accordingly.
The husband appealed. In support of his business valuation figures, he put forth the evidence of an expert, who attested to the fact that the value of the business on the marriage date was over $7 million. However, the Appeal Court concluded that the expert was partial to the husband and lacked independence, and had given an inflated figure that could not be trusted.
Instead, the court relied on some “smoking gun” evidence: the sworn financial statements the husband had filed in his first divorce, which showed that he had essentially brought no assets of value into this second marriage to the wife. The trial judge had relied on this evidence as well in setting the separation agreement aside, and the Appeal Court confirmed that there was nothing improper about the trial judge having done so, even if it was to the husband’s detriment.
In the end, the husband was found to have intentionally misrepresented the value of his corporate assets, by claiming that they were worth $6 million more than their actual (court-determined) value.
The Appeal Court upheld the trial judge’s decision to set aside the separation agreement, and went on to calculate the proper equalization amounts using the true valuation of the husband’s assets.
For the full text of the decision, see:
Virc v. Blair
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