Family Property Act: Section 38 Acknowledgment

Family Property act - Section 38 Acknowledgement

August 15th, 2021

SECTION 38 ACKNOWLEDGEMENT: Independent Legal Advice by Another Name?

Any spouse or adult interdependent partner who has signed an agreement with their spouse or partner to deal with property has likely heard of the Family Property Act.  As part of those agreements, you are required to execute an acknowledgement that satisfies the requirements of Section 38.  The requirements of Section 38 of the Family Property Act appear to require parties to obtain independent legal advice.  Is this really the case?  Is a Section 38 Acknowledgement just legal advice by another name?

Family Property Act

Section 37 (1) of the Family Property Act, R.S.A. 2000, c F-4.7 states that “Part 1 does not apply to property that is owned by either of the spouses or adult interdependent partners or that may be acquired by either or both spouses or adult interdependent partners, if, in respect of that property, the spouses or adult interdependent partners have entered into a subsisting written agreement with each other that is enforceable under Section 38 and that provides for the status, ownership and division of that property.

Section 38 of the Family Property Act requires that:

“(1) An agreement referred to in Section 37 is enforceable if each party to the agreement has acknowledged, in writing, apart from the other party:

  1. That the party is aware of the nature and the effect of the agreement,
  2. That the party is aware of the possible future claims to property the party may have under this Act and that the party intends to give up these claims to the extent necessary to give effect to the agreement, and
  3. That the party is executing the agreement freely and voluntarily without any compulsion on the party of the other party.

(2) The acknowledgement referred to in subsection (1) shall be made before a lawyer other than the lawyer acting for the other party or before whom the acknowledgement is made by the other party.”

Section 38 Acknowledgement

At first look, the requirements of the Section 38 acknowledgement appear to mimic the same requirements of a lawyer when providing independent legal advice (“ILA”).  The guideline for providing legal advice as published by the Law Society of Alberta contains much of the same requirements. The Law Society Code of Conduct states that when providing independent legal advice, a lawyer must, among other things, a) ensure that your client understands not only the nature and effect of the document, but also the client’s underlying rights and entitlements; and b) ensure clients are exercising their own free will.

The overlap between providing ILA and completing a Section 38 Acknowledgement appears to be obvious.  The three requirements of a Section 38 Acknowledgement are mirrored in the requirements of a lawyer providing legal advice.  A lawyer will likely even ask similar questions when providing ILA as when they are completing a Section 38 Acknowledgement for a client.  There is a key distinction, however, between ILA and a Section 38 Acknowledgement which is clearly stated in the case of Hicks v. Gazley, 2020 ABQB 178.

 

Hicks v. Gazley

Hicks v. Gazley concerned a question as to whether the formal requirements of Section 38 of the Family Property Act were satisfied by the parties to a post-nuptial agreement.  The husband asserted that the Section 38 Acknowledgement requirements were satisfied whereas the wife asserted non-compliance and, subsequently, that the agreement was unenforceable. 

The judge found that the agreement was enforceable even though there was inadequate financial disclosure and despite the fact that, based on the advice she received from counsel, the wife believed that the agreement was unenforceable and she was “signing for show”.  Since none of the circumstances disproved that she had the requisite awareness and voluntariness, and there was no demand for further disclosure, the husband was entitled to take the acknowledgement at face value. Justice M.J. Lema humorously concluded his decision “The wife gambled, and lost: the agreement is enforceable.”

Importantly, the judge in Hicks v. Gazley determined that the requirements of Section 38 of the Family Property Act are not as demanding as independent legal advice.  Although the formal requirements of Section 38 of the Family Property Act appear to mimic the requirements of independent legal advice, there is a core distinction.  The distinction is that a lawyer providing independent legal advice must provide advice in addition to confirming the three requirements of section 38.

 

What is Section 38 of the Family Property Act, then?

The purpose of the acknowledgement is to satisfy the other spouse that the signor has complied with the formalities of Section 38 of the Family Law Act.

The effect of properly completing an acknowledgement under Section 38 of the Family Property Act is profound.  If parties are found to have properly complied with Section 38 of the Family Property Act, several contractual defences become unavailable in arguing that an agreement under the Family Property Act is unenforceable.  Importantly, this is true even if parties decide to not obtain independent legal advice.  

If Section 38 of the Family Property Act is satisfied, the decision in Hicks v. Gazley makes it apparent that courts will be hesitant to consider defences that the agreement is invalid because it was unfair, there was inadequate or no financial disclosure or that there was no independent legal advice.  Although there may still be a defence of duress or undue influence available, such an argument would be challenging in the face of a valid Section 38 Acknowledgement.

 

Considerations When Completing a Section 38 Acknowledgement

Under Section 38 of the Family Property Act, a lawyer completing the acknowledgement is not required to provide any advice or guidance about whether the client should sign the agreement or not.  A lawyer’s role in assisting a client by completing the Section 38 Acknowledgement is to ensure the client: knows what their rights are, knows what they are giving up and is doing so freely, apart from their spouse or partner.   Although a lawyer may choose to provide advice, not providing advice may not invalidate an agreement if the requirements of Section 38 of the Family Law Act are met.  

If a lawyer does not want to provide independent legal advice, they should be cautious in how they complete the Section 38 acknowledgement to avoid providing independent legal advice.  Lawyers should consider carefully and clearly setting out in a retainer agreement what their obligations are and that they will not be providing independent legal advice.  Clients must also understand that if they want independent legal advice they must clearly request this.

 

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