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Rights of disinherited second wife – full and frank disclosure

People who sign domestic contracts should know that failure to make full and frank disclosure of all relevant financial information opens the door for the contract to be set aside.

In the LeVan case, Richard’s family’s business was worth $30 million. Before his marriage to Erika, Richard’s family insisted that they enter into a marriage contract. The contract excluded Richard’s business interests and severely restricted Erika’s rights to support upon end of marriage or upon Richard’s death. The court set aside the contract and the LeVan case became the seminal case for the proposition that full and frank disclosure should be a foundation stone of every domestic contract.

When trying to understand this case, it is helpful to review key provisions under the Family Law Act (FLA). Two people who are engaged or married to each other can agree about what happens when their marriage ends or upon death. In other words, the provisions of the FLA meant to protect the financially weaker spouse do not apply if the parties sign a contract that say they do not apply. While the FLA allows for a spouse to choose to take an equalization of net family property and support, the law also allows spouses to make their own deal. There is, however, another provision in the FLA that protects the financially weaker spouse.

Section 56(4) was the key provision that Erika relied on to protect herself. A court may set aside a domestic contract if a spouse failed to disclose significant assets existing when the domestic contract was made or if the other spouse did not understand the nature or consequences of the contract.

While Richard provided some information, there was no information about his income, no value as to his interest in the family business or his beneficial interest in a Trust. Also, as the wedding approached Richard began to undermine his wife’s relationship with her lawyer. Richard found Erika a new lawyer who did not possess relevant financial information. Richard kept telling Erika that if the contract was not signed there would be no marriage. At trial, the judge found that Richard did not want Erika to know his income or the value of his assets because he wanted to control their lifestyle.

Richard was afraid that full disclosure might lead to more aggressive demands and a less favourable contract. The judge concluded that Richard did not make full and frank disclosure and she exercised her discretion to set aside the contract. However, failure to make financial disclosure may not be enough for a court to set aside the contract.

In LeVan, the failure to disclose opened the door to allow the judge the discretion to set aside the contract. Significant to the court’s decision, was that Erika did not have effective independent legal advice, she did not understand the nature and consequence of the contract, Richard misrepresented the nature and terms of the contract, he deliberately failed to disclose his entire assets and interfered with Erika’s receipt of legal advice.

Another important fact was that the contract was unfair. Although there is nothing in the FLA that suggests that fairness is a consideration in deciding whether to set aside a marriage contract, the Court of Appeal agreed that fairness is an appropriate consideration in the exercise of the court’s discretion.

LeVan was decided in 2006 and is still binding law.

Whether a spouse makes full and frank disclosure in a domestic contract is very relevant in the context of estate disputes. If the contract is set aside, the surviving spouse may turn to their statutory rights for a division of net family property and support under the FLA.

This short review of the case law should not be taken as legal advice. Based on my experience in dealing with these cases, they often turn on the specific facts. If you have a legal question relating to something similar, seek legal advice to determine your best course of action.

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Toronto Estate Litigator - Charles Wagner

The author of this blog is Charles B. Wagner. Charles is a Certified Specialist in Estates and Trusts and partner at Wagner Sidlofsky LLP.

This Toronto office is a boutique litigation law firm whose practice is focused on estate and commercial litigation.

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