Introduction
Tsarynny v. Topchiy revolved around the setting aside of a separation agreement. The parties had married in Ukraine in 2003 and later relocated to Canada. They separated in 2016. A separation agreement (SA) was formulated, renouncing equalization, specifying nominal spousal support, and with child support not in line with the Guidelines. The core of the dispute centred on the SA's validity and the determination of the separation date. Interestingly, this dispute arose in 2021 when the Applicant went to enforce the sale of the matrimonial home and deal with parenting and support issues.
Legal Issues
The Respondent contested the SA's validity, invoking section 56(4) of the Family Law Act (FLA), which empowers the court to strike down a domestic contract due to a party's lack of comprehension of its nature or consequences, or non-disclosure of significant assets.
Analysis
The legal analysis involved a two-stage process: evaluating whether the Respondent lacked understanding or financial disclosure, and subsequently determining if it was appropriate to set aside the SA:
[3] …To apply s. 56(4) of the FLA, I conduct a two-stage analysis: a) Can the Respondent demonstrate that she did not understand the nature or consequence of the contract or that she did not have financial disclosure; and b) is it appropriate to set aside the SA: M.O. v. F.S., 2019 ONSC 5091, at para. 11, citing LeVan v. LeVan, 2008 ONCA 388, 90 O.R. (3d) 1, at para. 51.
The Respondent asserted that the Applicant had failed to disclose critical information about his company, PostBeyond, during negotiations. The court acknowledged the merit in this claim, underscoring the fundamental need for proper financial disclosure in separation agreement negotiations:
[6] In April of 2016, PostBeyond received an investment of approximately $4,000,000. The Applicant testified that he did not know of these investors at the time he signed the SA. I reject his evidence. Instead, I infer that by March of 2016, the Applicant knew that two potential investors were on the horizon who could flush PostBeyond with cash. I do not accept the Applicant’s evidence that he had no idea this investment was on the horizon. Common sense suggests that no one invests in a company without due diligence where the potential investor would inquire about the financial health of the company and a request to review books and records. The Applicant acknowledged on cross-examination that the due diligence process usually takes several weeks to several months. As the principal of PostBeyond, I infer that the Applicant would have known of such inquiries. Despite such knowledge, the Applicant allowed the Respondent to rely on prior information that PostBeyond was struggling and on the verge of bankruptcy.
The Applicant's failure to disclose PostBeyond's substantial 2016 investment emerged as a pivotal factor. The court rejected the argument that a release in 2013 exempted the Applicant from financial disclosure, emphasizing that such a release did not absolve parties from the requisite disclosure when negotiating a domestic contract
The absence of financial disclosure concerning a significant asset prompted the court to set aside the SA:
[9] At best, the Applicant, was negligent in his material misrepresentation about PostBeyond and, at worse, purposeful. Either way, I accept the Applicant’s position that her approach to the negotiations would have been different had she thought that there was more to PostBeyond than the Applicant had represented.
Recognizing the Respondent's assertion that her negotiation approach would have differed with knowledge of PostBeyond's true financial status, the court concluded that fairness dictated the annulment of the agreement.
Conclusion
The court set aside the separation agreement. The decision underscored the paramount importance of transparency and fairness in family law negotiations. Tsarynny v. Topchiy serves as a poignant reminder to legal practitioners and individuals navigating family law that full disclosure is indispensable to the integrity of separation agreements.