2010 ONSC 6740, 2010 ONSC 6740

CITATION : Rempel v. Smith, 2010 ONSC 6740 ST. CATHARINES COURT FILE NO.: 178/08 DATE: 2010/12/08 ONTARIO SUPERIOR COURT OF JUSTICE B E T W E E N: ) ) Mary Ann Rempel ) ) ) Angela Grant Lee, for the Applicant ) Applicant ) ) - and - ) ) ) William James Smith ) ) ) John H. Cunningham, for the Respondent ) Respondent ) ) ) )) HEARD at St. Catharines: September 8, 9 & 10, 2010 THE HONOURABLE MR. JUSTICE J. R. HENDERSON REASONS FOR JUDGMENT INTRODUCTION

[ 1 ] The applicant Mary Ann Rempel (hereinafter called “Rempel”) and the respondent William James Smith (hereinafter called “Smith”) separated on January 10, 2006 after approximately 16 years of marriage. [ 2 ] After their separation, Rempel and Smith negotiated a written separation agreement to deal with their matrimonial issues, without the assistance of legal counsel.

The separation agreement was signed on April 12, 2006 by both parties in the presence of their pastor, Thomas Braun. [ 3 ] In this court action Smith asks for, among other things, an order setting aside the separation agreement pursuant to s.54(6) of the Family Law Act on the grounds that Rempel failed to disclose significant assets that she owned; that Smith did not understand the nature or the consequences of the agreement; and that there was an absence of consideration from Rempel. [ 4 ] My decision today only deals with the issue of whether the separation agreement should be set aside.

THE BACKGROUND FACTS [ 5 ] I make the following findings. The parties were married on September 16, 1989. They have two children, Dawson, currently 18 years of age, and Carolyn, currently 16 years of age. [ 6 ] Rempel studied accounting and economics for three years at the University of Waterloo, and she has taken courses toward her certified management accountant designation. At the time of the separation she was employed as the accounting manager at John Deere. Her taxable income in the year 2005 was approximately $144,000. [ 7 ] Smith did not achieve a university education.

After Smith completed high school he worked as an apprentice for approximately five years until he became certified as a machinist. From 1996 until the present time he has been the sole proprietor of his own business known as Bazcan Industries, which is a small machine shop. Smith’s taxable income in 2005 was approximately $40,000. [ 8 ] I find that Smith was not a particularly good money manager.

The evidence shows that the business records at Bazcan Industries were not kept very well, that the business was often in arrears to the Canada Revenue Agency (“CRA”) with respect to payroll deductions and taxes, and that the business regularly went through financial crises. [ 9 ] Rempel did not keep the books for Bazcan Industries, but she regularly assisted Smith in preparing government remittance forms for the business.

Further, I accept that Smith often turned to his wife for assistance when the business had a financial problem. [ 10 ] I find that Rempel was the driving force behind the preparation of the separation agreement. After the separation Rempel did some research on the Internet, and then started to compose a draft of the separation agreement. [ 11 ] It was Rempel’s idea to enter into a separation agreement without the assistance of lawyers, but I find that Smith readily accepted this idea. Both parties wanted to avoid unnecessary expenses.

Both parties were aware that they could obtain legal advice before signing the separation agreement, but both parties voluntarily chose not to do so. [ 12 ] Rempel drafted the agreement over a period of a few weeks in March and April 2006. Smith did not see a copy of the agreement until April 10, 2006, when he received the final version by email, but I find that Smith and Rempel discussed the contents of the agreement while Rempel was drafting it.

In particular, I find that both Smith and Rempel viewed and discussed certain documents that were used to draft the agreement, including the mortgage statement, the appraisal of the matrimonial home, and the statement of arrears owing to CRA. [ 13 ] On April 12, 2006 the parties had a short meeting at a restaurant at which time both signed the agreement in the presence of Pastor Tom. There was little discussion as to the contents of the agreement at that meeting. [ 14 ] The basic framework of the agreement was that Rempel and the two children would remain in the matrimonial home.

Smith agreed to pay child support to Rempel in the amount of $150 per week, and Smith and Rempel agreed to contribute to any additional expenses of the children on a 50/50 basis. I note that there is no reference whatsoever in the separation agreement as to the current incomes of Smith or Rempel. [ 15 ] The agreement provided for the equity in the matrimonial home to be divided equally between Smith and Rempel.

In that respect the home was appraised at $260,000 and the amounts of the existing mortgage and the joint line of credit were fixed at $42,255 and $36,128 respectively. [ 16 ] The agreement provided that Smith would transfer to Rempel his interest in the matrimonial home forthwith in return for an Equity Note in an amount equal to Smith’s interest in the home.

Schedule 2 to the agreement is a detailed calculation that values Smith’s 50% interest in the home at $84,537. From that figure is deducted “outstanding child support” of $2,130. Therefore, the amount of the Equity Note was fixed at $82,407 as of April 30, 2006.

The agreement provided that the Equity Note would be payable on July 1, 2016, or upon completion of all post-secondary education by the children. [ 17 ] As to personal property, the separation agreement purported to list all of the assets and liabilities of Smith and Rempel, which resulted in the net worth of the two parties (excluding the home) being valued at $93,000 for Smith and $106,000 for Rempel.

It was agreed that each of the parties would keep his/her own assets and liabilities, and that they would have no claim against each other with respect to any personal assets or personal liabilities. [ 18 ] After the signing of the separation agreement Smith attended at a lawyer’s office and signed a Transfer that conveyed the matrimonial home to Rempel. Subsequently, Rempel obtained a mortgage on the home in her own name and paid out the existing mortgage and joint line of credit. [ 19 ] Thereafter, I accept the evidence that Rempel signed the Equity Note in the amount of $82,407, but she kept the

original in her possession and sent Smith an email copy of the draft Note. [20] There is an issue between the parties as to whether Smith has paid all of the periodic child support contemplated inthe agreement. There is also an issue with respect to money owing by Smith for the children’s extraordinary expenses. In his AnswerSmith makes requests for an equalization payment and for spousal support. However, those issues will not be resolved by this court atthis time, as this decision will only determine the validity of the agreement.

THE LAW [21] The relevant legislation is s.56(4) of the Family Law Act, which reads as follows: A Court may, on application, set aside a domestic contract or a provision in it, (

a) if a party failed to disclose to the other significant assets, or significant debts or other liabilities, existing when the contract wasmade; (

b) If a party did not understand the nature or consequences of a domestic contract; or (

c) Otherwise in accordance with the law of contract. [22] It is well established that a two-stage analysis should be applied when a party seeks to set aside a domesticagreement. See Miglin v. Miglin 2003 SCC 24 , [2003] 1 S.C.R. 303 at paras. 79 to 91, Demchuk v. Demchuk (1986) (ON SC), 1 R.F.L. (3d) 176, and LeVan v. LeVan (2006) (ON SC), 82 O.R. (3d) 1, aff’d at 2008 ONCA388 (OCA). That two-stage analysis was summarized in the OCA decision in LeVan v. LeVan at para. 51 as follows: “The analysis undertaken under s. 56(4) is essentially comprised of a two-part process: Demchuk v.

Demchuk (1986), (ON SC), 1 R.F.L. (3d) 176 (Ont. H.C.J.). First, the court must consider whether the party seeking to set aside the agreement candemonstrate that one or more of the circumstances set out within the provision have been engaged. Once that hurdle has been overcome,the court must then consider whether it is appropriate to exercise discretion in favour of setting aside the agreement.….” [23] At stage one of the analysis, the court must consider the circumstances surrounding the negotiation and execution ofthe agreement, and thereafter consider the substance of the agreement.

See Miglin at paras. 81 and 85 and see Loy v. Loy [2007] O.J. No.4274 at paras. 113 to 116. [24] When the court considers the substance of the agreement the court should consider any alleged failure to properly value assets. At para. 53 of LeVan the OCA accepted the words in Dubin v.

Dubin (2003), (ON SC), 34 R.F.L. (5th)227 at para. 32 as follows, “….knowing assets and liabilities at the date of the agreement is fundamental to an eventual calculation of netfamily property.” Also, at para. 57 of LeVan, the OCA wrote, “There is no case law that supports the husband’s position that the positiveobligation required by s. 56(4)(

a) can be met by providing only a list of significant assets without some indication of value beingattributed to them.” [25] At stage two of the analysis, if one of the statutory conditions set out in s.56(4) has been engaged, the court mustdecide whether to exercise its discretion to set aside the agreement. In that respect, in the trial decision in LeVan at para. 200, BackhouseJ. listed seven factors to be taken into consideration, as follows: (

a) whether there had been concealment of the asset or material misrepresentation; (

b) whether there had been duress, or unconscionable circumstances; (

c) whether the petitioning party neglected to pursue full legal disclosures; (

d) whether he/she moved expeditiously to have the agreement set aside; (

e) whether he/she received substantial benefits under the agreement; (

f) whether the other party had fulfilled his/her obligations under the agreement; (

g) whether the non-disclosure was a material inducement to the aggrieved party entering into the agreement. [26] Lastly, in discussing the decision of the trial judge to exercise her discretion at stage two, the OCA in LeVan wroteat para. 60, “In my view, once a judge has found one of statutory preconditions to exist, he or she should be entitled to consider thefairness of the contract together with other factors in the exercise of his or her discretion.” ANALYSIS [27] At stage one of the analysis the court must first examine the circumstances surrounding the negotiation andexecution of the agreement.

I find that both Smith and Rempel were, and are, capable intelligent individuals. I find that neither party wasunder the undue influence of the other. Both parties were able to read the contents of the agreement, understand that content, and decidewhether or not to accept the terms of the agreement. I reject Smith’s suggestion that he did not understand the nature or consequences of

the agreement. [ 28 ] With respect to the lack of legal advice, I find that both parties knew that they could or should obtain legal advice, but both parties chose not to seek legal advice prior to signing the agreement. Therefore, having decided to forego legal advice, Smith cannot now complain that he was not aware of the legal consequences of the agreement. [ 29 ] I also reject Smith’s suggestion that he did not receive any consideration from Rempel, and therefore the agreement does not satisfy one of the basic requirements of contract law.

Consideration must be sufficient, not necessarily adequate, in order to support a valid contract. In this case, Smith clearly received some consideration, including Rempel’s assumption of the debts on the home, defined access to the children, the determination of child support, and the release regarding personal property. [ 30 ] Moreover, the agreement was prepared over a period of a few weeks. There was no urgency or undue pressure on Smith to execute the agreement.

Even though Smith did not see a draft of the agreement until two days prior to its execution, Smith was generally aware of the proposed structure of the agreement. For these reasons, I accept Rempel’s submission that the circumstances surrounding the negotiation and execution of the agreement were satisfactory. [ 31 ] Next, the court must examine the substance of the agreement. In this case, at stage one of the analysis, the real issue is whether the provisions of s.56(4)(

a) are engaged by reason of Rempel’s failure to disclose and accurately value significant assets. In that respect there are two concerns. [ 32 ] The first concern under s.56(4)(

a) relates to the valuation of Rempel’s pension with John Deere. Rempel had been a longtime employee of John Deere and had accumulated an interest in her employer’s pension plan. In the list of Rempel’s assets set out in the separation agreement Rempel valued her interest in that pension plan at $24,000. This is clearly an incorrect valuation. [ 33 ] After this action was started in 2008 Rempel obtained a letter from the pension and benefits administration supervisor at John Deere that indicated that the commuted value of her pension was approximately $98,000. Subsequently a pension valuator, J. M.

Norton Consulting Inc., reviewed the John Deere documentation and valued the pension at either $83,537 or $52,380 depending upon Rempel’s date of retirement. Therefore, it is clear that Rempel undervalued her pension by a maximum of $74,000 and a minimum of $28,000. [ 34 ] I find that Smith relied upon Rempel to provide a proper valuation of her pension for the purposes of preparing the separation agreement. Moreover, I find that it was reasonable for Smith to rely upon Rempel in this respect because Rempel had a financial background and had access to all of the John Deere documentation.

Rempel testified that she was not qualified to be a pension valuator, but that she used her skills only to calculate the present value of the pension. However, despite her lack of qualifications I find that Rempel did in fact purport to value the pension at $24,000 as set out in the separation agreement. [ 35 ] The second concern under s.56(4)(

a) relates to the fact that four separate assets owned by Rempel as of the date of the agreement were never disclosed to Smith and were not listed in Rempel’s list of assets set out in the agreement. Specifically those four assets are: 1. A mutual fund with Templeton International that was funded through John Deere valued at $7,423 as of January 1, 2006; 2. John Deere stock options valued at $9,442 (before tax) as of January 1, 2006; 3. A bank account with Meridian Credit Union in the amount of $9,197 as of the date of separation; and 4.

A savings account with Meridian Credit Union in the amount of $2,636 as of the date of separation. [ 36 ] If Rempel had included these four assets in her list of assets contained in the separation agreement, her net worth would have been approximately $28,000 greater than the amount set out in the separation agreement. [ 37 ] Rempel attempted to explain why the two accounts at Meridian Credit Union were left out of the separation agreement by stating that both parties had bank accounts and they simply agreed to leave the bank accounts out of the process.

I have difficulty with that statement because it is clear now that Smith only had one bank account that had a balance of approximately twenty dollars as of the date of separation. [ 38 ] Further, I do not accept Rempel’s testimony that she did not include her stock options in her list of assets because she thought that they had no value. In my view, any person with Rempel’s background would be aware that the stock options were assets that had value. Rempel never did explain why she omitted the Templeton mutual fund.

Still further, if the parties wish to leave certain items out of the equalization calculation, their agreement to do so must be made in writing in order to be binding in accordance with the provisions of the Family Law Act . [ 39 ] In combination, the under-valuation of the pension plan and the non-disclosure of the four specific assets set out above constitute a total advantage to Rempel in the range of approximately $56,000 to $102,000. Considering the net worth of the parties as set out in the agreement, this is a significant amount.

Therefore, I find that these two concerns amount to non-disclosure of significant assets by Rempel, and therefore the provisions of s.56(4)(

a) are engaged. [ 40 ] Having found that s.56(4)(

a) is engaged, I next turn to stage two of the analysis to consider whether the agreement should be set aside. In that respect, I have considered the seven factors set out in the trial decision in LeVan . Regarding factors (

b) and (c), I have already found that there has been no duress or unconscionable circumstances, and that both parties chose to forego legal advice.

[ 41 ] One factor in Rempel’s favour at stage two is the fact that Smith did not apply to set aside the agreement until approximately 23 months after it was signed, and did so only by way of his Answer in these proceedings. This is set out as factor (

d) in the LeVan trial decision. However, the impact of this factor is ameliorated by the fact that the information regarding the John Deere pension was controlled by Rempel, and Smith did not have any information that would suggest that Rempel’s valuation of the pension was inaccurate until sometime in 2008. As I indicated earlier, I find that it was reasonable for Smith to rely on Rempel to provide a reasonably accurate valuation of the pension. [ 42 ] The most significant factor at stage two is that the under-valuation of the pension and the non-disclosure of the four specific assets have resulted in a substantial benefit to Rempel, as discussed in factor (

e) in LeVan . Considering that the net worth of the parties (excluding the home) was in the range of $100,000 each, a monetary benefit in favour of Rempel in the range of $56,000 to $102,000 is extremely significant. [ 43 ] Also, given the size of the advantage to Rempel, I find that the non-disclosure and under-valuation were material inducements, as discussed in factor (

g) in LeVan . That is, if Smith had been aware of all of Rempel’s assets, and the values of same, that knowledge would have affected his decision as to whether or not to enter into the agreement. In that sense, the non-disclosure and under- valuation were material inducements to Smith entering into the agreement. [ 44 ] Regarding factor (a), there has been no active concealment by Rempel. However, I find that Rempel deliberately avoided making full disclosure of her assets and was fully aware that she was under-valuing her pension, knowing that she would probably obtain a monetary benefit by doing so.

I reject Rempel’s submission that the parties only intended to divide the equity in the matrimonial home, and therefore both parties were unconcerned about obtaining accurate values of the other property. Because the agreement itself contains a release with respect to personal property, I find that the parties intended that they would both make full disclosure of all of their assets, and would also provide a reasonably accurate valuation of all of their assets. [ 45 ] Therefore, I find that factors (a), (e), and (

g) as set out in the trial decision in the LeVan case are very strong factors in favour of setting this agreement aside. [ 46 ] There are also some specific terms of this agreement that should be considered at stage two. That is, there are many terms written into this agreement that are slanted in favour of Rempel. It is apparent that Smith made several concessions in the agreement that he now claims are inequitable or unfair to him.

Smith raised this concern in his submissions as to lack of consideration, which I rejected earlier, but at stage two of the analysis the overall fairness of the agreement is a factor that should be considered. [ 47 ] Unfairness does not, on its own, justify an order setting aside the agreement. That is, a party is entitled to decide to accept the terms of an agreement that may seem unfair on the surface, but a party is only capable of making that decision if there has been full and proper disclosure and valuation. In this case, it is the lack of proper disclosure and valuation that is the essence of the problem.

The fact that the net result is an agreement that is slanted in Rempel’s favour is another factor in favour of setting aside the agreement, as discussed in the LeVan OCA decision. [ 48 ] Some examples of the way in which the agreement is slanted in favour of Rempel include, 1. The calculation in

Schedule 2 does not fairly calculate Smith’s 50% interest in the matrimonial home as the $6,400 worth of mortgage payments that are deducted from his interest would have reduced the principal owing on the mortgage by more than $5,500 from the initial amount that was used in the calculation. 2. Amounts were deducted from Smith’s interest in the home that relate to utilities payable at the home after the separation when Smith was in fact not living in the matrimonial home. 3. Smith is required to pay 50% of the children’s extraordinary expenses at a time when his wife was making a much greater income. 4.

There is no interest payable on the Equity Note, and Smith may have to wait for 10 years before he receives any money for his interest in the matrimonial home. 5. Even on the figures set out in the agreement as to the net worth of each of the parties, there still should have been an equalization payment from Rempel to Smith in the amount of $6,500. [ 49 ] In

summary, I find that s.56(4)(

a) is engaged. Having made that finding, in consideration of all of the factors set out above, in my view, this separation agreement must be set aside. CONCLUSION [ 50 ] For these reasons, an order will issue setting aside the separation agreement. Costs are reserved to the trial of the remaining issues. [ 51 ] Before the parties

schedule a trial of the balance of the issues in this action, the parties will contact the trial co- ordinator in St. Catharines and arrange for a further settlement conference. ___________________________ Henderson, J.

Released: December 8, 2010 COURT FILE NO.: 178/08 DATE: 2010/12/08 ONTARIO SUPERIOR COURT OF JUSTICE B E T W E E N: Mary Ann Rempel Applicant - and – William James Smith Respondent REASONS FOR JUDGMENT Henderson, J. Released: December 8, 2010