diff --git a/hindsight-api/hindsight_api/api/http.py b/hindsight-api/hindsight_api/api/http.py
index 6631d2ce..ec028fe2 100644
--- a/hindsight-api/hindsight_api/api/http.py
+++ b/hindsight-api/hindsight_api/api/http.py
@@ -32,9 +32,44 @@ def _parse_metadata(metadata: Any) -> dict[str, Any]:
     return {}
 
 
+from typing import Callable
+
 from pydantic import BaseModel, ConfigDict, Field, field_validator
 
 from hindsight_api import MemoryEngine
+
+
+def FieldWithDefault(default_factory: Callable, **kwargs) -> Any:
+    """
+    Field wrapper that ensures default_factory values appear in OpenAPI schema.
+
+    Pydantic doesn't include default_factory in OpenAPI schemas, causing OpenAPI
+    Generator to make fields Optional with default=None instead of non-optional
+    with the correct default value.
+
+    This wrapper adds json_schema_extra to include the default in the schema.
+    """
+    # Determine the default value for the schema based on the factory
+    if default_factory is list:
+        schema_default = []
+    elif default_factory is dict:
+        schema_default = {}
+    else:
+        # For custom factories (like IncludeOptions), use empty dict as placeholder
+        schema_default = {}
+
+    # Add or merge json_schema_extra
+    json_extra = kwargs.pop("json_schema_extra", {})
+    if isinstance(json_extra, dict):
+        json_extra["default"] = schema_default
+    else:
+        # If json_schema_extra was a function, we can't merge easily
+        # Fall back to just setting default
+        json_extra = {"default": schema_default}
+
+    return Field(default_factory=default_factory, json_schema_extra=json_extra, **kwargs)
+
+
 from hindsight_api.engine.db_utils import acquire_with_retry
 from hindsight_api.engine.memory_engine import Budget, _get_tiktoken_encoding, fq_table
 from hindsight_api.engine.reflect.observations import Observation
@@ -103,8 +138,8 @@ class RecallRequest(BaseModel):
     query_timestamp: str | None = Field(
         default=None, description="ISO format date string (e.g., '2023-05-30T23:40:00')"
     )
-    include: IncludeOptions = Field(
-        default_factory=IncludeOptions,
+    include: IncludeOptions = FieldWithDefault(
+        IncludeOptions,
         description="Options for including additional data (entities are included by default)",
     )
     tags: list[str] | None = Field(
@@ -570,18 +605,16 @@ class ReflectLLMCall(BaseModel):
 class ReflectBasedOn(BaseModel):
     """Evidence the response is based on: memories, mental models, and directives."""
 
-    memories: list[ReflectFact] = Field(default_factory=list, description="Memory facts used to generate the response")
-    mental_models: list[ReflectMentalModel] = Field(
-        default_factory=list, description="Mental models used during reflection"
-    )
-    directives: list[ReflectDirective] = Field(default_factory=list, description="Directives applied during reflection")
+    memories: list[ReflectFact] = FieldWithDefault(list, description="Memory facts used to generate the response")
+    mental_models: list[ReflectMentalModel] = FieldWithDefault(list, description="Mental models used during reflection")
+    directives: list[ReflectDirective] = FieldWithDefault(list, description="Directives applied during reflection")
 
 
 class ReflectTrace(BaseModel):
     """Execution trace of LLM and tool calls during reflection."""
 
-    tool_calls: list[ReflectToolCall] = Field(default_factory=list, description="Tool calls made during reflection")
-    llm_calls: list[ReflectLLMCall] = Field(default_factory=list, description="LLM calls made during reflection")
+    tool_calls: list[ReflectToolCall] = FieldWithDefault(list, description="Tool calls made during reflection")
+    llm_calls: list[ReflectLLMCall] = FieldWithDefault(list, description="LLM calls made during reflection")
 
 
 class ReflectResponse(BaseModel):
@@ -942,7 +975,7 @@ class DocumentResponse(BaseModel):
     created_at: str
     updated_at: str
     memory_unit_count: int
-    tags: list[str] = Field(default_factory=list, description="Tags associated with this document")
+    tags: list[str] = FieldWithDefault(list, description="Tags associated with this document")
 
 
 class DeleteDocumentResponse(BaseModel):
@@ -1066,7 +1099,7 @@ class DirectiveResponse(BaseModel):
     content: str
     priority: int = 0
     is_active: bool = True
-    tags: list[str] = Field(default_factory=list)
+    tags: list[str] = FieldWithDefault(list)
     created_at: str | None = None
     updated_at: str | None = None
 
@@ -1084,7 +1117,7 @@ class CreateDirectiveRequest(BaseModel):
     content: str = Field(description="The directive text to inject into prompts")
     priority: int = Field(default=0, description="Higher priority directives are injected first")
     is_active: bool = Field(default=True, description="Whether this directive is active")
-    tags: list[str] = Field(default_factory=list, description="Tags for filtering")
+    tags: list[str] = FieldWithDefault(list, description="Tags for filtering")
 
 
 class UpdateDirectiveRequest(BaseModel):
@@ -1121,9 +1154,9 @@ class MentalModelResponse(BaseModel):
     content: str = Field(
         description="The mental model content as well-formatted markdown (auto-generated from reflect endpoint)"
     )
-    tags: list[str] = Field(default_factory=list)
+    tags: list[str] = FieldWithDefault(list)
     max_tokens: int = Field(default=2048)
-    trigger: MentalModelTrigger = Field(default_factory=MentalModelTrigger)
+    trigger: MentalModelTrigger = FieldWithDefault(MentalModelTrigger)
     last_refreshed_at: str | None = None
     created_at: str | None = None
     reflect_response: dict | None = Field(
@@ -1159,9 +1192,9 @@ class CreateMentalModelRequest(BaseModel):
     )
     name: str = Field(description="Human-readable name for the mental model")
     source_query: str = Field(description="The query to run to generate content")
-    tags: list[str] = Field(default_factory=list, description="Tags for scoped visibility")
+    tags: list[str] = FieldWithDefault(list, description="Tags for scoped visibility")
     max_tokens: int = Field(default=2048, ge=256, le=8192, description="Maximum tokens for generated content")
-    trigger: MentalModelTrigger = Field(default_factory=MentalModelTrigger, description="Trigger settings")
+    trigger: MentalModelTrigger = FieldWithDefault(MentalModelTrigger, description="Trigger settings")
 
 
 class CreateMentalModelResponse(BaseModel):
diff --git a/hindsight-api/tests/test_reflect_empty_based_on.py b/hindsight-api/tests/test_reflect_empty_based_on.py
new file mode 100644
index 00000000..a7339f00
--- /dev/null
+++ b/hindsight-api/tests/test_reflect_empty_based_on.py
@@ -0,0 +1,103 @@
+"""
+Test reflect endpoint with empty based_on (no memories scenario).
+
+This test verifies that the API returns the correct based_on format:
+- v0.3.0 (old): returned based_on as list []
+- v0.4.0+ (current): returns based_on as object {"memories": [], "mental_models": [], "directives": []}
+"""
+
+import pytest
+import pytest_asyncio
+import httpx
+from hindsight_api.api import create_app
+
+
+@pytest_asyncio.fixture
+async def api_client(memory):
+    """Create an async test client for the FastAPI app."""
+    app = create_app(memory, initialize_memory=False)
+    transport = httpx.ASGITransport(app=app)
+    async with httpx.AsyncClient(transport=transport, base_url="http://test") as client:
+        yield client
+
+
+@pytest.mark.asyncio
+async def test_reflect_with_no_memories_empty_bank(api_client):
+    """Test reflect on an empty bank (no memories) with include.facts enabled."""
+    bank_id = "test_empty_bank"
+
+    # Reflect on empty bank with facts requested
+    response = await api_client.post(
+        f"/v1/default/banks/{bank_id}/reflect",
+        json={
+            "query": "What do you know about machine learning?",
+            "budget": "low",
+            "include": {
+                "facts": {}  # Request facts but bank is empty
+            }
+        }
+    )
+
+    assert response.status_code == 200
+    data = response.json()
+
+    # DEBUG: Print what the API actually returned
+    import json
+    print("\n" + "="*80)
+    print("API Response:")
+    print(json.dumps(data, indent=2))
+    print("="*80 + "\n")
+
+    # Verify response structure
+    assert "text" in data
+    assert "based_on" in data
+
+    # The API should return based_on as either:
+    # 1. null/None (if include.facts not set)
+    # 2. {"memories": [], "mental_models": [], "directives": []} (if include.facts set but empty)
+    # It should NEVER return based_on: []
+
+    based_on = data.get("based_on")
+    if based_on is not None:
+        assert isinstance(based_on, dict), f"based_on should be dict or null, got {type(based_on)}: {based_on}"
+        assert not isinstance(based_on, list), f"based_on should NEVER be a list! Got: {based_on}"
+        assert "memories" in based_on
+        assert "mental_models" in based_on
+        assert "directives" in based_on
+        # All should be empty lists
+        assert based_on["memories"] == []
+        assert based_on["mental_models"] == []
+        assert based_on["directives"] == []
+
+    # Verify the structure is parseable as proper types
+    assert isinstance(data["text"], str)
+    if based_on is not None:
+        # Verify it's the v0.4.0+ format (object with arrays)
+        assert isinstance(based_on["memories"], list)
+        assert isinstance(based_on["mental_models"], list)
+        assert isinstance(based_on["directives"], list)
+
+
+@pytest.mark.asyncio
+async def test_reflect_without_include_facts(api_client):
+    """Test reflect without requesting facts (based_on should be None)."""
+    bank_id = "test_no_facts"
+
+    response = await api_client.post(
+        f"/v1/default/banks/{bank_id}/reflect",
+        json={
+            "query": "Hello world",
+            "budget": "low"
+            # No include.facts
+        }
+    )
+
+    assert response.status_code == 200
+    data = response.json()
+
+    # When include.facts is not set, based_on should not be in response (or be null)
+    based_on = data.get("based_on")
+    assert based_on is None, f"based_on should be None when not requested, got {type(based_on)}: {based_on}"
+
+    # Verify structure
+    assert isinstance(data["text"], str)
diff --git a/hindsight-clients/python/tests/test_reflect_response_parsing.py b/hindsight-clients/python/tests/test_reflect_response_parsing.py
new file mode 100644
index 00000000..c4ce6045
--- /dev/null
+++ b/hindsight-clients/python/tests/test_reflect_response_parsing.py
@@ -0,0 +1,125 @@
+"""
+Test ReflectResponse parsing for different API versions.
+
+This tests the client's ability to parse reflect responses from:
+- v0.3.0 API (based_on as list)
+- v0.4.0+ API (based_on as object)
+"""
+
+import pytest
+from hindsight_client_api.models.reflect_response import ReflectResponse
+from hindsight_client_api.models.reflect_based_on import ReflectBasedOn
+
+
+def test_parse_v4_format_with_empty_based_on():
+    """Test parsing v0.4.0+ format with empty based_on object."""
+    response_data = {
+        "text": "I don't have any information about that.",
+        "based_on": {
+            "memories": [],
+            "mental_models": [],
+            "directives": []
+        }
+    }
+
+    response = ReflectResponse.from_dict(response_data)
+    assert response is not None
+    assert response.text == "I don't have any information about that."
+    assert response.based_on is not None
+    assert isinstance(response.based_on, ReflectBasedOn)
+    assert response.based_on.memories == []
+    assert response.based_on.mental_models == []
+    assert response.based_on.directives == []
+
+
+def test_parse_v4_format_with_null_based_on():
+    """Test parsing v0.4.0+ format with null based_on (include.facts not set)."""
+    response_data = {
+        "text": "Hello!",
+        "based_on": None
+    }
+
+    response = ReflectResponse.from_dict(response_data)
+    assert response is not None
+    assert response.text == "Hello!"
+    assert response.based_on is None
+
+
+def test_parse_v4_format_with_populated_based_on():
+    """Test parsing v0.4.0+ format with actual facts."""
+    response_data = {
+        "text": "Based on my knowledge, AI is transformative.",
+        "based_on": {
+            "memories": [
+                {
+                    "id": "mem-123",
+                    "text": "AI is used in healthcare",
+                    "type": "world",
+                    "context": None,
+                    "occurred_start": None,
+                    "occurred_end": None
+                }
+            ],
+            "mental_models": [
+                {
+                    "id": "mm-456",
+                    "text": "AI transforms industries",
+                    "context": "technology trends"
+                }
+            ],
+            "directives": [
+                {
+                    "id": "dir-789",
+                    "name": "Be concise",
+                    "content": "Keep responses brief"
+                }
+            ]
+        }
+    }
+
+    response = ReflectResponse.from_dict(response_data)
+    assert response is not None
+    assert response.text == "Based on my knowledge, AI is transformative."
+    assert response.based_on is not None
+    assert len(response.based_on.memories) == 1
+    assert response.based_on.memories[0].id == "mem-123"
+    assert len(response.based_on.mental_models) == 1
+    assert response.based_on.mental_models[0].id == "mm-456"
+    assert len(response.based_on.directives) == 1
+    assert response.based_on.directives[0].id == "dir-789"
+
+
+def test_parse_v3_format_with_empty_list_fails():
+    """
+    Test that v0.3.0 format (based_on as list) fails validation.
+
+    This is a BREAKING CHANGE from v0.3.0 to v0.4.0.
+    Clients using v0.4.x SDK cannot parse v0.3.0 API responses.
+
+    Users must either:
+    - Upgrade API to v0.4.0+
+    - Use v0.3.0 client with v0.3.0 API
+    """
+    response_data = {
+        "text": "No information available.",
+        "based_on": []  # v0.3.0 format - incompatible with v0.4.0+ client
+    }
+
+    with pytest.raises(Exception) as exc_info:
+        ReflectResponse.from_dict(response_data)
+
+    # Should fail with validation error
+    assert "ValidationError" in str(type(exc_info.value).__name__) or "validation" in str(exc_info.value).lower()
+
+
+def test_parse_missing_based_on_field():
+    """Test parsing response when based_on field is omitted entirely."""
+    response_data = {
+        "text": "Hello!"
+        # based_on field not present
+    }
+
+    response = ReflectResponse.from_dict(response_data)
+    assert response is not None
+    assert response.text == "Hello!"
+    assert response.based_on is None
diff --git a/hindsight-docs/static/openapi.json b/hindsight-docs/static/openapi.json
index 9d4b2a44..513304a6 100644
--- a/hindsight-docs/static/openapi.json
+++ b/hindsight-docs/static/openapi.json
@@ -3560,7 +3560,8 @@
             },
             "type": "array",
             "title": "Tags",
-            "description": "Tags for filtering"
+            "description": "Tags for filtering",
+            "default": []
           }
         },
         "type": "object",
@@ -3601,7 +3602,8 @@
             },
             "type": "array",
             "title": "Tags",
-            "description": "Tags for scoped visibility"
+            "description": "Tags for scoped visibility",
+            "default": []
           },
           "max_tokens": {
             "type": "integer",
@@ -3613,7 +3615,8 @@
           },
           "trigger": {
             "$ref": "#/components/schemas/MentalModelTrigger",
-            "description": "Trigger settings"
+            "description": "Trigger settings",
+            "default": {}
           }
         },
         "type": "object",
@@ -3789,7 +3792,8 @@
               "type": "string"
             },
             "type": "array",
-            "title": "Tags"
+            "title": "Tags",
+            "default": []
           },
           "created_at": {
             "anyOf": [
@@ -3905,7 +3909,8 @@
             },
             "type": "array",
             "title": "Tags",
-            "description": "Tags associated with this document"
+            "description": "Tags associated with this document",
+            "default": []
           }
         },
         "type": "object",
@@ -4686,7 +4691,8 @@
               "type": "string"
             },
             "type": "array",
-            "title": "Tags"
+            "title": "Tags",
+            "default": []
           },
           "max_tokens": {
             "type": "integer",
@@ -4694,7 +4700,8 @@
             "default": 2048
           },
           "trigger": {
-            "$ref": "#/components/schemas/MentalModelTrigger"
+            "$ref": "#/components/schemas/MentalModelTrigger",
+            "default": {}
           },
           "last_refreshed_at": {
             "anyOf": [
@@ -5008,7 +5015,8 @@
           },
           "include": {
             "$ref": "#/components/schemas/IncludeOptions",
-            "description": "Options for including additional data (entities are included by default)"
+            "description": "Options for including additional data (entities are included by default)",
+            "default": {}
           },
           "tags": {
             "anyOf": [
@@ -5333,7 +5341,8 @@
             },
             "type": "array",
             "title": "Memories",
-            "description": "Memory facts used to generate the response"
+            "description": "Memory facts used to generate the response",
+            "default": []
           },
           "mental_models": {
             "items": {
@@ -5341,7 +5350,8 @@
             },
             "type": "array",
             "title": "Mental Models",
-            "description": "Mental models used during reflection"
+            "description": "Mental models used during reflection",
+            "default": []
           },
           "directives": {
             "items": {
@@ -5349,7 +5359,8 @@
             },
             "type": "array",
             "title": "Directives",
-            "description": "Directives applied during reflection"
+            "description": "Directives applied during reflection",
+            "default": []
           }
         },
         "type": "object",
@@ -5825,7 +5836,8 @@
             },
             "type": "array",
             "title": "Tool Calls",
-            "description": "Tool calls made during reflection"
+            "description": "Tool calls made during reflection",
+            "default": []
           },
           "llm_calls": {
             "items": {
@@ -5833,7 +5845,8 @@
             },
             "type": "array",
             "title": "Llm Calls",
-            "description": "LLM calls made during reflection"
+            "description": "LLM calls made during reflection",
+            "default": []
           }
         },
         "type": "object",