A separation agreement can be a great way for divorce parties to settle on various issues, including property division, spousal support, and child support. Parties have more flexibility in deciding what terms will work for them rather than having a court decide the outcome. Of course, this depends on the case’s specific circumstances, including how willing the parties are to agree to certain terms. Once parties agree to a separation agreement, they are expected to follow the contractually binding terms unless the separation agreement is invalidated on other legal grounds. Otherwise, a party may find that they are in breach of the agreement and may need to pay costs. 

In this post, we will discuss considerations for divorcing parties in signing a separation agreement, as well as the consequences if a party does not follow the terms of the agreement. Generally, parties are expected to follow the terms set out in the agreement, including how spousal support will be paid out. While this may not make a difference, failing to follow the terms of a separation agreement can be costly. We will examine a case example, Drake v Lambert, 2024 ABKB 170, in which the court found that the husband had no basis to unilaterally change the payment method of spousal support from periodic to lump sum. This post will provide key insights for parties to a divorce who are considering or have a separation agreement, including how to avoid common pitfalls. 

Why should you have a separation agreement?

In many cases, a separation agreement may be a good way to settle issues after a divorce. A separation agreement can provide some certainty for parties, as the terms are laid out in an agreement. Parties are also bound to the terms of the separation agreement, so each party can expect the other to follow the agreement or be found in breach of the contract. 

Also, a separation agreement allows for a certain degree of control for parties going through a divorce. In particular, parties can provide their input on how they wish to set up the terms of their separation agreement. This allows parties to craft specific terms in their separation agreement to fit their particular case, such as how exactly they will divide certain property. Otherwise, if a court were to decide the outcome of the case, the parties have less certainty over what the court may decide for each issue. 

Separation agreements may also be less costly than going to court, as litigation can take a long time, and costs can add up if ongoing disputes arise. 

Spousal Support Payment Terms in Separation Agreement Are Binding 

The terms of a separation agreement are binding, meaning that if a party does not follow the terms, it could be found to be in breach of the agreement. As a result, they may need to pay costs and damages for failing to follow the terms of the agreement, as it may have led to negative consequences for the other party. 

In particular, if a separation agreement specifies how spousal support will be paid, the court is likely to uphold this unless the agreement is found to be otherwise invalid. For instance, the court will uphold the terms of the separation agreement, which sets out whether spousal support will be periodic payments or a lump sum. The payor party can only change the payment method if the recipient agrees to these terms. For spousal support, the payment method may also affect the recipient’s tax consequences, so it is important for the payor to follow the method of payment as set out in the separation agreement. 

Even if a party alleges that the other is not following the terms of the agreement, they are expected to continue following the agreement terms unless it is found that the other is repudiating the contract. Repudiation means that the agreement is invalidated because the other party has acted in a way that shows they intended for the terms of the contract to no longer be binding. In the Drake case below, the court found that the husband was not permitted to change how spousal support was paid on the allegation that the wife was not following other contract terms. 

Husband To Pay Costs For Failing to Follow Separation Agreement Terms 

In the Drake case, the court found that the husband breached the terms of the separation agreement by failing to pay spousal support periodically, as specified in the agreement. 

The parties had a separation agreement describing how spousal support would be paid and property division. Part of the spousal support would be a lump sum, which was also a consideration for the husband when buying out the family home. This was paid out according to the agreement. The other portion of spousal support would be periodic payments. With respect to the family home, the parties set out the property that the husband would keep. The remaining property in the home that was not described was to be left in the home for the husband to keep after he took possession of the home. 

After the wife vacated the home, as set out in the agreement, the husband claimed that some of his personal property was missing from the home after he moved back in. The wife explained that some of the movers made a mistake, and when she identified some of the husband’s property that had been taken out of the home, she returned them promptly. 

The husband refused to pay the periodic spousal support because he alleged that the wife took some of the property he was supposed to keep. The court found that the husband did not make a valid argument about why the missing property would allow him to defer the spousal support payments set out in the agreement. He also sought to change the periodic payments to a final lump sum payment with a discount for the assumed tax rate for the wife as the recipient. The wife refused to accept a lump sum payment based on the tax advice she received. The court found that the husband did not have a unilateral right to pay lump sum spousal support rather than periodic payments as the parties had agreed, as it would create different tax consequences for the wife, who had to seek additional advice on the issue. 

The spousal support issue was later settled out of court. However, the husband still claimed that the wife had breached the agreement because she failed to resolve issues through mediation first, as set out in the agreement. Despite this, the court found that the wife needed to fully understand that the proposed four-way settlement meeting would not fulfill the mediation requirement in the agreement. In contrast, the husband’s breach of the agreement led to costs in the wife’s favour, as his claims were unreasonable. 

Calgary Family Lawyers Advising On Separation Agreements and Spousal Support Matters 

It may be prudent for the parties to enter into a separation agreement to provide certainty and prevent the need to go to court. After a separation agreement is signed, parties must meet their contractual obligations or face costly consequences. You should speak with one of our family law lawyers at Mincher Koeman, who is experienced in assisting parties with issues involving separation agreements. Our Calgary family law lawyers are dedicated to finding the best resolution for you after your divorce.

To book a consultation, please contact us online or by phone at 403-910-3000.

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