Financial Disclosure in High Net Worth Divorces
Divorce is fraught with emotional and legal intricacies, and when the parties involved possess substantial wealth, the process becomes even more complex. High net worth individuals navigating the world of divorce law face a unique set of challenges, from identifying and assessing assets to ensuring that financial disclosures are comprehensive and accurate. This blog post will canvass some of the financial disclosure issues in high net worth divorces.
Other Resources at our website and blog
Financial Disclosure has long been one of my ‘pet issues’. I delivered a webinar on the topic in 2020. You can watch the entire show (1.5 hours) and/or you can have a look through my talking notes.
There are other useful resources re financial disclosure that are applicable to high net worth situations. Here are some of those resources (each one of them is a quick read):
Timely Financial Disclosure Is Essential
Spousal Support (Alimony): What Ontario High-Income Earning Fathers Need to Know
High Asset Divorce And Separations
Six assets that can complicate valuation issues in equalization of net family property (Ontario)
Asset valuation mistakes to avoid in a divorce
Assets that may be excluded from equalization calculations
Divorce & Ontario Property Division
High-Net-Worth Divorce Court Litigation Versus Private Med-Arb: Which Is Right For You?
The Crucial Importance of Financial Disclosure
In high net worth divorces, financial disclosure is a fundamental aspect of the legal process. It requires both parties to provide full and accurate information about their personal finances, most notably when the division of assets is at stake. A transparent and comprehensive financial disclosure not only enables each party to make informed decisions but also ensures that the divorce settlement fulfills the legal requirements of fairness and equity.
You are required to disclose all assets and liabilities as at three dates: marriage, separation, current. Keep in mind that in Ontario, we equalize the wealth accumulated during the marriage; therefore, we take a snapshot at marriage date and then at separation date.
The Ontario Difference
Ontario’s Family Law Act stipulates that each spouse must provide full financial disclosure within 30 days of a request for information from the other party. However, the law doesn’t end there; the province’s courts also require ongoing and updated financial disclosure, emphasizing the goal of a “live” information exchange throughout the litigation process. And now in Ontario the courts as a matter of standard procedure issue a Mandatory Disclosure Order when an Application is issued. Failure to disclose can, off the bat, be subject to a noncompliance motion and that’s serious business. You cannot sit around complacently and just wait for the other side to ask; the onus is upon you to fess up from the get go.
Understanding Financial Disclosure
In the context of divorce, financial disclosure refers to the obligation of each party to provide complete and honest details about their monetary circumstances. This includes any financial changes that have occurred between separation and the finalization of the divorce.
The Purpose and Process
The primary purpose of financial disclosure is to allow both parties and the court to understand the financial reality of the family unit. This is key to reaching a fair settlement and ensuring that all assets, debts, and incomes are accounted for.
Ontario law mandates that financial disclosure be made via the Financial Statement form or another satisfactory document. This document demands all details that are or may become relevant to the financial claims being made in the divorce.
Key Financial Documents to Share
For high net worth individuals, the scope of financial documentation that needs to be shared can be vast. Here are some of the most critical categories:
Income Statements – Current and historical records of all sources of income are vital. This includes employment salaries, bonuses, and benefits, as well as investment returns and rental income.
Tax Returns – Providing personal and corporate tax returns in full is necessary to ensure all income and assets are accurately reported.
Bank Statements – Presenting several years of bank statements is essential to trace the flow of funds and identify undisclosed assets or income.
Investment Portfolios – Clearing displaying all investment holdings and transactions is important to value and potentially divide these assets in a divorce settlement.
Real Estate Holdings – Detailing all real properties, with evidence of valuations, mortgages, and other encumbrances, is crucial in property division discussions.
Business Interests – For high net worth individuals who own or have an interest in businesses, presenting financial statements, tax returns, and business valuations is a non-negotiable.
We are often asked if offshore assets and liabilities need to be disclosed. The very short answer is “yes”.
Complexities in High Net Worth Divorces
High asset divorces often come with unique complexities that don’t readily exist in typical divorce cases.
Hidden Assets and Income – Cases involving high net worth often see allegations—and sometimes substantiation—of hidden assets or income. To evade equitable division, some individuals may attempt to siphon funds into offshore accounts, cryptocurrency, or other complex financial instruments. In Ontario, the penalties for failing to disclose such assets are severe.
Valuation of Assets – For those with diverse investment portfolios and business interests, accurately valuing these assets is not always straightforward. Appraisals, expert opinions, and the court’s discretion often come into play.
Tracing Assets – In situations where the date of separation is in dispute, accurately tracing the increase or decrease in the value of certain assets can be a significant challenge.
Consequences of Non-disclosure
The ramifications for failing to provide full and truthful financial disclosure are serious. Here are some potential consequences:
Legal Repercussions – In Ontario, the discovery of undisclosed income or assets can lead to court orders that are less favorable to the non-disclosing party, including higher spousal support payments, unequal division of net family property, or having to pay a larger portion of legal fees.
Impact on Settlement Negotiations – If one party is found to have not disclosed financial information, it can lead to the breakdown of negotiations and a more adversarial approach to the divorce.
Potential for Increased Legal Fees – Non-compliance with disclosure requirements can lead to an increase in the cost of the divorce. Legal battles over non-disclosure can escalate quickly, leading to higher legal fees.
Conclusion
In the realm of high net worth divorce, no financial stone should be left unturned. Transparency and compliance with financial disclosure requirements are not merely legal duties; they are the cornerstones of a fair and equitable divorce settlement. If you’re navigating the divorce process and possess substantial wealth, it’s crucial to seek the advice of a knowledgeable and experienced Ontario divorce lawyer.
For guidance through your high net worth divorce, consider the Gene C. Colman Family Law Centre. Our team of family law professionals brings a wealth of experience in navigating the complexities of high asset divorces within the Ontario legal system. Contact us today for personalized support tailored to your unique situation.
Remember, in the realm of high net worth divorces, knowledge is power—and full financial disclosure is key.
(This post has focused on married couples. Common law couples in Ontario have their own set of challenges and some separate and challenging legal principles to face.)
