Divorce Negotiation Tactics: Settlement Without Full Financial Disclosure

As a matter of policy, the courts encourage settlement of matrimonial disputes through mediation and promote dispute resolution outside of the court process, but the potential for reaching an out-of-court settlement depends on the divorce negotiation tactics employed by the parties. The separating spouses are required to provide full and honest disclosure of all relevant financial information, without the use of any exploitative tactics or defective disclosure. There is no place for “dirty tricks” such as undervaluing property or deliberately understating income.

Divorce negotiation tactics: Choosing to settle without full financial disclosure

What about a situation where the separating spouses choose to enter into settlement negotiations without complete disclosure – in other words, where the parties are aware that they do not have the full financial picture, but elect to enter settlement negotiations anyway? It is not without risk to settle without full financial disclosure, but as a divorce negotiation tactic it often leads to an expeditious settlement without which the parties would spend more time and money.

In Kawchuk v. Kovacs, 2016 ABQB 118, aff’d 2016 ABCA 210, the husband brought an application to enforce a negotiated settlement while the wife applied to set it aside, taking the position that no binding settlement had been reached or, if there was any settlement, it was conditional upon further financial disclosure. The court ordered that the settlement was enforceable, despite the incomplete financial disclosure. Let’s examine the decision to learn why the negotiated settlement was enforceable.

Divorce negotiation tactic: Opting for binding mediation/arbitration

Mr. Kovacs and Ms. Kawchuk separated in 2012 after 13 years of marriage. There were two children of the marriage, born in 2002 and 2005. This was a traditional marriage: the husband worked as a consultant while the wife stayed home to look after the children.

In April 2015, the parties entered into a mediation/arbitration agreement after receiving independent advice from their respective lawyers. The agreement expressly included a waiver of the right to litigate the issues including custody of the children, child support, spousal support, and distribution of property. The agreement also provided that arbitration was binding and that the terms of the arbitration award would be incorporated into a consent order.

The parties and their respective lawyers attended mediation on June 11, 2015 and reached an agreement, facilitated by an arbitrator. After the parties reached a settlement on all financial matters, the husband, in the presence of the wife, asked the arbitrator to incorporate the terms of the settlement into the arbitration award. When the arbitration award was issued in July 2015, the wife refused to sign it. She claimed that no binding settlement was reached or, if there was a settlement, it was conditional upon further disclosure being provided.

Application to the court to enforce the negotiated divorce settlement

The husband brought an application to enforce the settlement. The wife maintained her position that she thought the settlement was not final as it was subject to verification after additional financial records were produced. In particular, she noted that statements and income tax returns of one of the husband’s companies had not been disclosed. The parties agreed that those documents had not been prepared and were not available on the date of mediation. It was common ground between the parties that the husband had agreed to provide the information. The issue was whether the settlement was reached subject to the wife reviewing that information when it became available.

Court enforces negotiated divorce settlement despite incomplete disclosure

The evidence from all others at the mediation, including Ms. Kawchuk’s own lawyer, indicated that all were aware that the parties had agreed on the financial terms of the divorce settlement, notwithstanding that disclosure was incomplete. The court noted that the wife was ably represented by counsel throughout the negotiation process, and further, she was generally familiar with her husband’s business affairs. She was a director of one of the companies and had access to its bank accounts. She also had general information as to the income of the husband’s other company. The parties seized upon the opportunity to settle the matter at the mediation, notwithstanding incomplete disclosure. Moreover, the wife was treated fairly and given every opportunity to respond, and the settlement was within reasonable range provided for resolution under Divorce Act and applicable provincial legislation.

Courts encourage settlement of matrimonial disputes

There is a matter of policy underlying the decision in Kawchuk v. Kovacs: the courts encourage settlement of matrimonial disputes through mediation and promote dispute resolution outside of the court process; it makes little sense to undermine this policy by allowing those unhappy with the results to avoid them by arguing that they did not know the nature of the process. This is particularly true when those parties are represented by counsel.

Divorce negotiation tactics: The bottom line on settlement without full financial disclosure

It is not without risk to settle without full financial disclosure, but as a divorce negotiation tactic it often leads to an expeditious settlement without which the parties would spend more time and money. In any divorce negotiation, parties are free to reach an agreement with the disclosure they have, or to choose not to reach an agreement until further disclosure has been provided. In the Kawchuk v. Kovacs case, the separating spouses seized upon the opportunity to settle the matter at mediation, notwithstanding incomplete disclosure. There was no deliberate withholding of financial information; rather, the evidence was clear that the parties were treated fairly and had independent legal advice, thus the negotiated settlement was enforceable.