Family Law Disclosure

By Paul Steckley

I’m reminded of a situation that really brings home the importance of being honest and frank in your disclosure in a family law matter, whether it in a  litigation setting or collaborative, which I’d like to share.  It involves a divorcing couple, where both the husband and wife felt they were each owed an equalization payment from the other.  The main area of disagreement between them was that the wife had been operating a business prior to separation that she claimed had stopped operating and was essentially worthless at the time that the parties separated.  She even went so far as to hire a certified business valuator who completed a report indicating that the business was essentially worthless as it was not operating and had no assets on the valuation date.  The husband knew that he business had stopped operating but disagreed that the business was worthless as he knew that some of the business’s assets were unaccounted for.  The matter proceeded to trial, where it was revealed that the wife had in fact been less than truthful.  She was forced to admit that not only had she hidden some assets from the business but that at least one of the assets was fairly valuable and had been sold recently.  She had even gone so far as to hide this information from her own lawyer.

This shocking revelation basically lost her the trial, as the judge found that she lacked credibility and that her evidence, including the evidence of the business valuator, had to be ignored completely.  This even included her evidence that proceeds of the sale of the asset were subject to taxation and the payment of legitimate debts.  Because of her lack of credibility, the judge ignored everything expect for the gross value of the sale.  The end result was that the wife had to make an equalization payment to the husband, a significant swing from the result she had attempted to manufacture, and probably more than what would have happened had she been honest in the first place.  Had the true value of these assets been disclosed earlier, the business valuator might have been able to minimize the effect by factoring in taxes and various costs associated with the assets, reducing their value and perhaps eliminating the need for the equalization payment.  It is easy to see why she was lured to the idea of hiding assets, thinking that it would give her an advantage in the litigation.  However, in this case the lack of full and frank disclosure did not pay the dividends she was expecting.  And not including her lawyer in on this subterfuge meant that she denied herself the benefit of guidance from her lawyer that may have made her realize that her attempts would ultimately backfire.  As well, a costly trial was inevitable since the husband knew she was being deceitful.  It is always best to bring forth all the information you have, and provide it to your spouse, your lawyer, and your financial professional so that it can be dealt with.  In the end it will be less costly and will likely lead to a settlement much earlier in the process.