Upon the breakdown of a marriage or common-law partnership, parties must determine how to divide their property, which commonly includes their matrimonial home. There are numerous ways to address these issues, including dispute resolution outside of court or negotiating the terms in a separation agreement. It can be helpful for the parties to prepare a separation agreement, as it may be less costly than going to court if the parties are willing to agree to the terms. Also, a separation agreement has some degree of certainty as the parties decide the terms. However, if the matter proceeds to court, there could be a wide range of outcomes that one cannot reliably predict. 

In this post, we will discuss the principles regarding a valid separation agreement and the circumstances in which a separation agreement may be invalid. We will also discuss a case, Carvalho v. Carvalho, 2021 ABQB 922, in which the court found that the terms in the separation agreement regarding the matrimonial home should be upheld. In particular, the calculation of the value of the matrimonial home in the separation agreement was enforced despite the husband’s objection that circumstances had changed to warrant a different calculation. This post will provide helpful insights for those considering a separation agreement and what consequences may flow from having an agreement on property division

What is a valid separation agreement in Alberta?

In Alberta, if a separation agreement includes terms on property division, it will be governed by sections 37 and 38 of the Family Property Act (formerly the Matrimonial Property Act). 

An agreement concerning property division can include terms for how property will be divided between the spouses, including at separation or the end of the marriage. It can also include property owned by either one of the parties or both after the agreement is finalized. 

For common-law partnerships, the agreement would be unenforceable by someone who would have known that there was no valid adult-interdependent relationship under the Adult Interdependent Relationships Act. For example, if the party seeking to enforce the agreement was already married to someone else, there may be no valid adult interdependent relationship. 

An agreement may be invalidated for specific reasons. For instance, non-disclosure is a common reason for an agreement regarding property division to be unenforceable. For family property, parties must disclose all property they own, even if it is owned solely by one party or the property is located outside of Alberta. The court treats non-disclosure very seriously, so ensuring that your disclosure obligations are being met is important.

Furthermore, given that agreements between former spouses or common-law partners may have an existing power dynamic that is disadvantageous for a vulnerable party, the court has recognized that a party may have agreed under duress. This means that one of the parties only agreed because they were placed under illegitimate pressure to do so. This would also invalidate a separation agreement

What are the requirements for a separation agreement?

Under section 38 of the Family Property Act, formal requirements are set out for agreements involving property division. The parties are required to make a written acknowledgement that they are:

  1. Aware of the nature and effect of the agreement;
  2. Aware of the possible future claims to property that the party may have under the Family Property Act, but nevertheless intend to give up those claims for the agreement to be effective; and
  3. Executing the agreement freely and voluntarily, without pressure from the other party to agree.

The acknowledgement must be made before a lawyer. The parties cannot make their acknowledgements before the same lawyer.

Even if circumstances change after the separation agreement is finalized, these circumstances may not be enough to invalidate an agreement that meets all of the requirements unless it falls under exceptional categories such as non-disclosure, duress, etc. 

Calculation of Matrimonial Home Value in Separation Agreement Upheld 

In the Carvalho case, the court upheld the calculation of the value of the matrimonial home in the separation agreement after finding there was no reason to deviate from the agreed-upon formula in the agreement. 

The agreement mainly addressed property division of the matrimonial home located in Fort McMurray, Alberta. 2016 a wildfire destroyed most of the home, although the foundational structure remained intact. The parties later separated in 2018.

The husband operated a construction company in which the wife was an equal shareholder. In January 2020, the parties entered into a written agreement for the husband to pay out her interest in the company. After this, the only remaining property to be divided was the matrimonial home. 

Shortly after the separation in 2018, the husband suggested that his company take on the work of rebuilding the home, with the parties taking out a joint loan to cover the costs. After the home was reconstructed, the parties would divide the net equity equally to settle the property division issues. Then, the husband would keep the home and take over the mortgage in his sole name. 

The parties set out the terms in a detailed separation and property agreement in October 2020. The mortgage amount approved by the bank was identical to the amount in the husband’s company’s quote, which was based on the renovation estimates of professional third parties. 

The husband drew almost $428,000 to rebuild the home, with approximately $55,000 remaining. The husband also signed and swore a Certificate of Substantial Completion by October 20, 2020. He claimed that he was entitled to the remaining amount, as there was now a late penalty. The overall costs were now higher at $587,000, so approximately $100,000 was owed to him, and the agreement stated that any extra amounts would be charged separately for upgrades to the home. 

The court found that the separation agreement was upheld, as the husband put forth no reason to result in invalidating the separation agreement. In particular, the upgrades to the home were to his sole benefit and under his control, as he would be keeping the home after construction. Also, the upgrades were discussed at the time of the agreement and included initial cost estimates. 

The court then followed the formula in the agreement to determine the amount owed to the wife. The court found that the husband cannot later rewrite the formula that was agreed upon, especially considering that he knew how much the house cost to rebuild, as he signed the Certificate of Substantial Completion a few days before signing the settlement agreement. He was solely responsible for upgrades beyond those costs. Furthermore, there was no evidence that the wife agreed to implement the upgrades. The husband fully knew the circumstances and legal advice when he signed the agreement. 

Mincher Koeman Lawyers Can Assist with Matrimonial Property Division and Separation Agreements

It may be prudent for the parties to enter into a separation agreement to provide certainty and prevent the need to court over property division issues. It is important to carefully consider the terms of the separation agreement with a lawyer. You should speak with one of our family law lawyers at Mincher Koeman, who are experienced in assisting parties with issues involving property division and separation agreements. Our Calgary family law lawyers are dedicated to finding the best resolution for you after your divorce.

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