Courts place substantial value on a separated couple’s right to create their own separation agreement. However, courts will set aside an agreement if they find it was substantially unfair or was signed in a manner that took advantage of a party’s vulnerable state.
In a recent decision of the British Columbia Court of Appeal, the Court set aside a couple’s separation agreement after finding the husband had exploited the wife’s vulnerable state. The Court also denounced the husband’s actions in disparaging the independent legal advice received by the wife as a method of pressuring her to sign the agreement.
Wife proposed one-time payment in separation settlement
In Eckert v. Garnham, the applicant’s wife applied to set aside the parties’ separation agreement. The couple lived in a house owned by the husband in British Columbia, along with their children from previous relationships. The wife owned a home in North Vancouver and transferred the title to the property to her brother in exchange for $110,000. During their relationship, the husband remortgaged his house so the couple could buy a recreational property.
After the parties’ separation in 2020, they began discussing the terms of a separation agreement. In a proposal sent via email to the husband, the wife requested $138,000, which was intended to cover the following:
- $110,000 for the sale of the wife’s home in North Vancouver;
- $18,000 for a trailer located on the recreational property; and
- $10,000 for expenses and debts incurred by the wife.
In exchange for $138,000, the wife stated she would not pursue spousal support, any equity in the husband’s home, or the husband’s pension. The husband agreed to pay $138,000 to the wife and advised that he would have his lawyer draw up the agreement.
Wife sought to set aside separation agreement on grounds of unfairness and non-disclosure of assets
After the husband agreed to pay $138,000, the wife stated she had consulted with a lawyer and wished to increase the amount of the payment. After the husband indicated that he was having difficulties obtaining the settlement funds, the agreement was signed in December 2020.
One year later, in December 2021, the wife filed a claim to set aside the separation agreement on the grounds that there was “significant non-disclosure of assets and income” by the husband at the time the agreement was signed.
Wife stated she was in extremely vulnerable state when agreement was signed
In addition to her concerns about non-disclosure of assets, the wife argued the separation agreement was “significantly unfair”. She explained that she was in a vulnerable state at the time the parties executed the separation agreement, and the husband took advantage of that vulnerability. She also advised the Court that she had not received independent legal advice before signing the separation agreement. Further, she submitted that the lawyer who drafted the agreement was in a conflict of interest, as they acted for the wife in a previous (unrelated) matter.
Courts consider circumstances of separation agreement and whether contract aligns with the purpose of the law
The leading case in British Columbia on setting aside a separation agreement is Reid v. Reid, which adopts the reasoning of the Supreme Court of Canada in Miglin v. Miglin. To set aside a separation agreement, the Court must consider:
- The circumstances that existed at the time the agreement was entered into (particularly where one party exploits an “unfair negotiating advantage”);
- Whether the separation agreement, at the time it was entered into, aligned with the goals of the applicable legislation (i.e. the Divorce Act and provincial family law legislation).
Court of Appeal found no significant non-disclosure of husband’s assets
Quoting the Supreme Court of Canada’s decision in Rick v. Brandsema, the British Columbia Court of Appeal noted:
“… the deliberate failure to make such disclosure may render the agreement vulnerable to judicial intervention where the result is a negotiated settlement that is substantially at variance from the objectives of the governing legislation”.
The Court acknowledged that the husband had understated his income by $5,000, which was “not [a] vast” difference. It also found that the wife had failed to establish any grounds for entitlement to spousal support (which she had waived in the separation agreement). Overall, the Court found no “significant non-disclosure of assets” by the husband when the agreement was signed.
“Emotional vulnerabilities” of family law cases require heightened judicial scrutiny of agreements
Under the Miglin test, the Court must examine whether the separation agreement aligns with the objectives of the family law legislation. The Court noted that these objectives include ensuring the parties equally share the financial consequences of the relationship and separation while promoting the parties’ economic independence. Courts must also respect parties’ right to enter into a contract of their creation and promote certainty in a finalized agreement. However, the “emotional vulnerabilities” in family law litigation, the Court explained, call for more judicial scrutiny than commercial cases.
The wife submitted that she was in a vulnerable state at the time the separation agreement was signed. She was in the final stages of pregnancy and did not have the income to find suitable housing for herself and her children. She sent her children to live with their father in October 2020. Further, she was grieving the loss of her mother, who died in May 2020.
Husband deliberately exploited wife’s vulnerability, pressured her to sign separation agreement
The wife advised the husband that she was “not in the best place to make decisions” but agreed to sign the agreement at his urging. She had received independent legal advice from a lawyer who advised the wife not to sign the agreement as it was too one-sided in the husband’s favour. The lawyer declined to meet with the wife again, and the wife signed the agreement, including a waiver of her right to independent legal advice.
The Court of Appeal agreed that the wife had been in a vulnerable state and the husband exploited that vulnerability, including his decision to retain a lawyer who had previously represented the wife. However, the Court did not find that the lawyer was in a disqualifying conflict as he clearly advised the wife of the need for her to obtain independent legal advice.
Husband undermined and criticized independent legal advice received by wife to get unfair negotiating advantage
In the parties’ communications, the husband disparaged the independent legal advice the wife had received and told her that his lawyer disagreed with that advice. By telling the wife that his lawyer believed the separation agreement was “not that far off”, the Court found the husband used the wife’s previous solicitor-client relationship with his lawyer to his advantage.
In an email to the wife, the husband stated the lawyer from which the wife obtained independent legal advice was using a “greasy” legal tactic as lawyers do not make money from uncontested separation agreements. He further undermined the legal advice received by the wife by suggesting the lawyer she consulted was motivated by financial gain and questioned her professionalism.
Despite her requesting more time to consider the agreement, the husband urged the wife to sign the agreement on December 10, 2020. All of these actions, the Court found, exploited the wife’s vulnerabilities and gave the husband an unfair negotiating advantage.
Court of Appeal found separation agreement too one-sided to align with family legislation’s objectives
Turning to the second stage of the Miglin test, the Court found the separation agreement failed to align with the objectives of the applicable family law legislation. Although the evidence made it difficult to calculate the wife’s precise entitlement, the Court found it was easily more than $138,000, given her legal entitlement to half of the equity and property value of the parties’ properties and the husband’s pension. As a result, the Court ruled the separation agreement was substantively unfair.
As the wife’s application did not include a request for the Court to replace the agreement with an order, the Court of Appeal awarded her costs. It directed the parties to resolve the remaining issues (i.e. the parties’ actual entitlements arising from the separation).
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