If you have read any of my articles over the past two years or the articles of my colleagues over the same period, there is little doubt that you have heard us describe the changes to family law under the Family Law Act.
The Family Law Act (the “FLA”) came into force on March 18, 2013. Given the substantive changes to the law resulting from the FLA, many clients are now seeking legal assistance with drafting and negotiating Cohabitation Agreements and Marriage Agreements. In doing so, the concept of obligatory financial disclosure is brought to their attention. The first questions that clients then ask are:
1. what is full financial disclosure?
2. what documents do I need to provide?
3. do both parties have to comply with these obligations?
4. what happens if I don’t?
1. To assist you in understanding the concept of financial disclosure, I often explain that it is the exchange of all documents that are used to determine annual income, provide valuations for family property and family debt and, connected to the aforementioned, business and corporate documents which assist in the valuation of the same.
To simplify, full financial disclosure means showing the other spouse your “net worth” on paper.
2. To assist you in complying with the obligation of full financial disclosure, I will often provide the client with a court form called the Form F8 Financial Statement (BC Supreme Court Form). This is the document that parties must complete if they commence a family law proceeding in the BC Supreme Court. A Form F8 describes the documents that must be disclosed to the other party (and to the Court) in order for the Court to proceed in making any court orders.
These documents may differ depending on how you derive your income (ie. salaried employee, partner or self-employed, etc.) but will generally include, complete income tax returns for the previous 3 years, financial statements for your business for the previous 3 years, pay stubs, property assessments, etc.
In addition to the documents required by the Form F8, when negotiating a Family Law Agreement (which include Cohabitation Agreements, Pre-Nuptial Agreements, Marriage Agreements or Separation Agreements) you may also be required to have an asset or piece of property professionally valued.
An example of this would be if you were the beneficiary of a trust and is seeking to have the trust (including income derived therefrom and growth in it) excluded from the interest of the other spouse in an Agreement. If this is the case, I would advise you to be prepared to have the trust properly valued by a financial professional (ie. an accountant, valuator, etc.) in order to meet your obligations for full financial disclosure. The valuation of the trust is not mandatory and, an informal valuation may, in some circumstances, suffice as long as the other spouse understands the process involved.
This concept may be met with resistance as the work involved and costs associated with this disclosure may be deterrent in addition to the privacy issues and discomfort many feel when asked to fully disclose their financial means.
3. When negotiating a Family Law Agreement, the obligation of full disclosure is on both parties, not only the party who may have more income or assets. It is vital that both parties involve themselves in the disclosure of documents and be aware of their respective obligations to do so.
4. The answer to the question of “what happens if I don’t?” is simple – you run the risk of having the Agreement or a portion of it set aside by the court if challenged. Section 93(3)(a) of the Family Law Act provides that a court can set aside all or part of an Agreement if it finds that a spouse failed to disclose significant property or debt or any other information relevant in negotiating the Agreement.
It is this risk that outweighs any immediate benefit one may see by withholding information or failing to properly value assets. After all, the goal on drafting and negotiating Family Law Agreements is to provide the strongest and most fair agreement for the parties moving into the future.
Taryn Moore can be reached at (250)869-1265 or at [email protected]
