Financial Disclosure in Negotiating Separation Agreements: Why is it Necessary?
For those who are embarking on separation or divorce, a key element of reaching a fair Separation Agreement, is the exchange of financial disclosure between the parties. When I mediate my cases, I often work with the parties to facilitate this disclosure, which assists in cost efficiency.
CLIENT TO HERSELF: “Why is my lawyer making me prepare financial disclosure when all I need is a separation agreement?”
CLIENT TO LAWYER: “I know what my husband has and he knows what I have. We’ve agreed on how we’re dividing the assets. Just draft it up so we have a legal separation agreement!”
These are comments often made by clients who have retained lawyers to assist them in negotiating a Separation Agreement. Reasons include:
- I (the client) don’t have the time or patience to do this work;
- I don’t want to pay for my lawyer’s time in doing this;
- This is just a make-work project by the lawyers (after all that’s why they’re all rich, isn’t it!); and
- I trust my spouse!
So why is financial disclosure in negotiating separation agreements (and marriage contracts also!), necessary?
The following are the answers:
• The necessity of Informed Consent: One of my clients, who works in the medical field, analogizes this requirement to the written consent – “informed consent” – that a patient must give that he/she has been told of the possible risks before consenting to a surgery. For example, before undergoing eye surgery, the patient must be told of and understand the possible risks of going blind in the surgery. Using this analogy, how can a husband and wife agree on how the assets and debts will be divided or distributed it they don’t know what all the assets and debts are, or their values?
• The Terms of Agreements change once people are informed: As an example, I had a mediation case where, when I met each spouse separately at the outset as is my process when doing mediation, I ascertained that the husband had a pension of many years with his employer. When I met the wife she told me that “This will be the easiest open and shut mediation you have ever done!” When I said “You know he has a pension and you know that is considered an asset under our Ontario law” she said “Yes, but I don’t want any part of it, I don’t care what it’s worth” and that her husband would have a fit if she asked for a share. I then asked her “What if I request an actuarial valuation of his pension – 2 – and it turns out it’s worth 1 million dollars?” Knowing that she could be entitled ( in the absence of any other assets) to half of that value, my client wisely told me to go ahead and have the pension valued. In fact the final point they ended up arguing about, prior to settling all terms of their Separation Agreement, was the pension value. The actuary provided 3 possible values based on 3 possible retirement ages of the husband, and guess which value each spouse argued!
• Ignorance is not bliss when it comes to negotiating a Separation Agreement or a Marriage Contract! It’s easy to agree on things, e.g. “I don’t want his pension,” if one doesn’t know what they’re worth; or that “Each shall keep his/her own assets,” without knowing what they’re worth. In order to make an agreement that will stand the test of time, it must be based on the exchange of clear, thorough and complete financial disclosure, so that each party, when negotiating the terms of the agreement, will make their decisions based on knowledge and facts, i.e. informed consent.
Click here to read the rest of my article (first written in 2013 and still relevant and important today).
Until next time!
Anne!
