TIMELY FINANCIAL DISCLOSURE IS ESSENTIAL

The Basic Obligation

The most basic obligation in family law dispute resolution is the legal requirement to comprehensively disclose financial information. If a financial claim is being made (child support, spousal support, or division of property) you must disclose your true financial position to the other party honestly, fully, and quickly. You also have an ongoing duty to update your financial disclosure throughout the proceedings.

Standard Form

If you are in court, there is a standard form “Financial Statement” form which you use to disclose your income, expenses, assets, and liabilities. Similar disclosure is highly advisable even if you and your ex-spouse reach an agreement outside of court. One cannot determine if an agreement is fair unless he/she has a proper understanding of the other party’s financial situation. In order to gain this understanding disclosure is necessary.

Don’t Delay

It is essential to begin compiling one’s financial documents immediately to ensure that the case moves ahead quickly.

What We Need

Here is a partial list of what one needs to disclose:

(1) Last 3 years’ Income Tax Return and Notices of Assessment (and Reassessment if any) – you need those on hand to simply commence or respond to a case. Without them, you’ll have to incur the expense of a motion to get special permission to file;

(2) Proof of year-to-date income from all sources, including pay remittance advice (for employees), employment insurance stubs (for unemployed individuals), and/or statement of income and expenses/professional activities (for self-employed individuals).

(3) Backup documents for all key dates (the date of marriage, date of separation, and current date if we are dealing with a married couple) relating to asset and debt values along with proof of values for the months surrounding those dates.

However, often, this disclosure is not sufficient to allow the other party to properly understand your financial situation. This is especially true for business owners, as it is imperative to truly understand their financial realities.

Business Owners

Calculating a business owner’s true income is not so straightforward. Pointing to your Line 150 Total Income on your tax return is simply not a final answer. These are the sorts of corporate documents (in addition to the documents listed above) that a business owner needs to gather:

(1) Minute book;

(2) Tax returns and Notices of Assessment (and Reassessment if any);

(3) Financial Statements (last three years)

(4) Bank statements for all accounts;

(5) Credit card statements;

(6) Key contracts (you may usually redact third-party identifying information);

(7) In many cases, one would be well advised to produce the accountant’s working papers.

Keeping it Current

You should ensure that you are able to substantiate all your debts and expenses with statements and records and you continue to update these records regularly. Under the Family Law Rules if the opposing party views your disclosure as incomplete, then he/she may request additional information and documents. If the request is not responded to within 7 days, the court may order such production. A motion for production where the disclosure was not sufficient should attract adverse cost consequences.

Keep Your Legal Costs Down

In our law firm, significant challenges to process a case quickly stem from our own clients’ failure to take seriously financial disclosure requirements and requests. We have had to literally hound our own clients to produce what we ask for. Every email, every phone call – it all adds up and costs you, the client, more money. In one of our cases, we warned the client that if she did not produce at a much quicker pace the opposing counsel would surely bring a motion that could have serious consequences. We were wrong; he brought two motions. For another client, after we were experiencing delays of more than a year (!!!), we sent our summer student to his office to help him to extract from his file cabinet and organize his documents.

Remedies

If you continue to ignore orders and/or the Rules that require disclosure, if you fail to fully disclose your financial situation, or if your pace of disclosure greatly delays the matter from moving forward, there can be serious consequences. For example:

(1) Imputed income: In Sabeeh v Syed the court found that the father, who was the sole shareholder in a corporation, failed to disclose enough information to support his claimed annual income. The court imputed his income to an amount $90,000 greater than his claimed income because he failed to disclose personal bank accounts and other documents supporting his claimed income/expenses.

(2) Striking pleadings: If you disobey an order the court may strike out any document that you filed. In other words, your official Application or Answer could be struck. This means that you are no longer entitled to participate in the case which will then proceed in your absence. Ouch!

(3) Penalties: Not only will failure to disclose drive up your legal fees (and you may be responsible for paying the other party’s legal costs connected with the disclosure issues), but a court can also find that you are responsible for paying the other side a penalty for your non-compliance and the associated delay. For example, in Malik v Malik the judge ordered that the non-disclosing party pay the other party $5,000 per month for each month of non-disclosure back to the date that the order was made and ongoing until he complies. In Hutcheon v Bissonnette the judge required that the party who was in breach of the disclosure order had to pay $100 per day back to the date of the order ($24,900) to the opposing party.

(4) Set agreement aside: Failure to fully and accurately disclose your financial circumstances can also affect an agreed upon out-of-court settlement. Inaccurate, incomplete, or misleading financial disclosure will constitute grounds to set aside a Separation Agreement or Marriage Contract.

Take Aways

(1) Financial disclosure is not optional. You must disclose fully, accurately, and in a timely manner.

(2) You need to provide your last three years’ Income Tax Returns and Notices of Assessment. If you don’t have these, request copies from your accountant or the CRA right away. (If you open a “My Account” with the CRA, you can get your Notices of Assessment online in a flash.)

(3) Start preparing financial disclosure early on. Compile all documents that explain your income, assets, and expenses.

(4) Your financial disclosure obligation continues throughout the case.

(5) Save your own money. Do what your lawyer asks you to do the first time. Don’t make your lawyer chase you for documents.

(6) Even if you think the other party knows and understands your financial situation, you must provide supporting information. Even if you and the other party agree on support and division, you must disclose. Otherwise, this deficiency leaves your agreed-upon settlement vulnerable to be overturned later.

This blog post is authored jointly by Jessica Cohen and Gene C. Colman.