September 18th, 2021
Individuals seeking to separate from their spouse and do not want to rely on the court process may be consider signing a separation agreement. Separation agreements are usually the result of negotiation between the separating spouses either directly or through their lawyers. The terms of some separation agreements may even be dictated by a previously signed pre-marital agreement. Individuals who use a separation agreement may not have any issues until the agreement is challenged. If the agreement is challenged, the question becomes, is this agreement valid?
The short answer is, yes. Separation agreements are, by their very nature, a contract. As they are a contract, they can be challenged on the same basis as any other contract may be challenged. There are ways to challenge a separation agreement that are specific to family law though. The courts have recognized that, because of the vulnerabilities of the parties and risk of inequitable sharing, the rules of commercial contracts do not necessarily apply to family law agreements. A separation agreement though, may still be found invalid based on the contractual defences which are applied to any other contract and are not specific to family law.
When deciding if a separation agreement is valid, the court will initially weigh certain factors to make that determination. The goal of the court’s analysis is to determine whether there was both procedural fairness in negotiating the contract as well as substantive fairness in the terms of the agreement itself. These factors and the method for analysis stem from the Supreme Court of Canada case of Miglin v Miglin, 2003 SCC 24, and expanded in Rick v. Brandsema, 2009 SCC 10. The application of those factors established in Miglin v Miglin are demonstrated clearly in Hartshorne v. Hartshorne, 2004 SCC 22.
In the case of Miglin v Miglin, 2003 SCC 24, the court established a two-stage approach. The first stage is further broken down into two sub-stages. Broadly, the first stage requires a review of the formation of the agreement and the second stage requires a review of whether the agreement reflects the parties’ original intentions.
The first step of the first stage requires the court to review the circumstances around the formation of the agreement. Although there is no exhaustive list, the court will evaluate whether there were any vulnerabilities, the duration of negotiations and the degree of any professional assistance. The court will not presume a power imbalance. If, in fact, there is a power imbalance, sufficient professional assistance can be used to compensate. The essential element for the court is to determine if there is any evidence of a fundamental flaw in the negotiation process.
The second step of the first stage requires the court to look at substance of the agreement. Although the courts will respect agreements between parties, the agreement must take into account the factors and objectives in the governing legislation, such as the Divorce Act. The courts will generally intervene only if there is a significant departure from the general objectives, such as the objective that an agreement reflect an equitable sharing of the economic consequences of the marriage and its breakdown. Importantly, just because an agreement fails to comply with those objectives, does not mean that the entire agreement is set aside and ignored. The courts want to recognize agreements and this intention to accept the validity of agreements is clearly demonstrated in Hartshorne v. Hartshorne.
The second stage requires the court to look at the agreement as a whole and decide if, based on an unforeseen material change in circumstance, the agreement still reflects the parties’ intentions. The material change in circumstance does not need to be “radically unforeseen” and a certain degree of change is foreseeable so, the material change needs to be such that the new circumstances were not reasonably anticipated by the parties.
The case of Rick v. Brandsema, 2009 SCC 10 dealt with two important issues that clarified how the two-step approach developed in Miglin v Miglin is applied. The first issue in Rick v. Brandsema was that the wife was incapable of making use of the professional assistance she received because of her mental instability. Although her counsel was competent and capable, her mental instability made it such that her vulnerabilities were not compensated by the assistance of counsel. The second issue was that the husband provided misleading financial information to the wife. This further compounded the first issue of the wife’s vulnerabilities and poisoned the integrity of the bargaining process.
The holding in Rick v. Brandsema, 2009 SCC 10 added to the decision of Miglin v Miglin with its findings on the two important issues in the case. First, the Court clarified that the mere presence of independent legal advice does not mean that there is equality in the negotiation or ensure a fair agreement. Second, the Court recognized how important the duty to provide full and honest disclosure is when negotiating separation agreements. By not providing full and honest disclosure, the integrity of the bargaining process can be at risk and lead to a finding that the negotiations were procedurally unfair.
The holding in Hartshorne v. Hartshorne, 2004 SCC 22 is an important lesson for individuals who want to challenge a separation agreement. The wife wanted to set aside a pre-marriage contract on the basis that the agreement was unfair at the time of separation, when the property was being distributed. The wife signed the pre-marriage agreement, which entitled her to very little in the division of property upon separation, despite being warned by her lawyer, at the time of signing, that the pre-marriage agreement was substantially unfair.
The Court recognized that, although the division of property was disproportionate between the spouses, the wife knew what the outcome of the agreement would be and there were no unforeseen circumstances. Although this decision may appear to conflict with the rationale of Miglin v Miglin, what is important to note is that if the procedure for reaching the agreement was procedurally fair, the court will pay more defence to the agreement as negotiated. So, individuals should not sign agreements which they are not prepared to be bound by. Individuals who enter an agreement which were negotiated fairly, especially if they have the benefit of independent legal advice, will likely be bound by the terms of the agreement.
If there are other circumstances that give rise to common law defences, the contract may be challenged based on typical contractual defences. These may include:
Although some of the common law defences appear to be the same as the factors mentioned above, they are not identical. What may be considered unconscionable in a family law context may not be unconscionable in a commercial context. As such, many of the common law defences to contracts are captured by the analysis from Miglin v Miglin.
There are many ways in which a separation agreement may be challenged if the parties are not careful to ensure that the agreement is properly negotiated and drafted. Individuals who try to forego using lawyers or pressure their former spouse into an agreement, especially if the agreement is unfair and the spouse does not have a lawyer, risks those agreements being found unenforceable at a later date. Conversely, spouses who have the benefit of a lawyer and are aware that an agreement is unfair, run the risk of being held to an agreement that they do not agree with if they “sign for show”. The best practice to ensure that your separation agreement is enforceable, is to use a lawyer.
Are you separating or separated and want to settle your issues by a private separation agreement? In Calgary, contact Anthony Young QC with Young Family Law to discuss how to draft a separation agreement to suit your needs. Ensure your property is divided according to your wishes – and not left to Alberta provincial legislation and the Alberta courts. Call Anthony at 403-219-4216.
Anthony Young QC is a Calgary lawyer with extensive experience in prenuptial agreements. www.youngfamilylaw.ca