April 27, 2021
Family Law Agreements Part 1: Can you rely on them?
Vancouver & North Vancouver family law lawyer discusses the reliability of family law agreements
The goal of entering into a family law agreement is to achieve certainty, predictability, and finality, whether that be through a cohabitation/marriage (“prenuptial”) agreement with a new partner or a separation agreement with your ex.
A cohabitation/marriage (“prenuptial”) agreement will typically deal with the division of assets upon a possible separation and may also deal with spousal support. A separation agreement will often deal with all issues arising in a family’s situation, including parenting arrangements, property and debt division, child support and spousal support.
However, sometimes family law agreements may be set aside or varied by the BC Supreme Court if challenged by a spouse at a later date. Under the Family Law Act, our current provincial family law legislation, on an application by a spouse, the BC Supreme Court may set aside or vary a family law agreement if:
a. A spouse fails to disclose significant property or debts or other information relevant to the negotiation of the agreement. For example, a spouse fails to disclosure certain bank accounts or property owned in another jurisdiction, either intentionally or because they simply forgot.
b. A spouse takes improper advantage of the other spouse’s vulnerability, including their ignorance, need or distress. For example, one spouse convinces the other spouse that they do not need to speak to a lawyer before signing the agreement.
c. A spouse does not understand the nature or consequences of the agreement. For example, a spouse has language barriers that prevent them from understanding the deal that they are entering, or otherwise have a limited knowledge of the financial terms of the agreement.
d. Other circumstances that would, under the common law, cause all or part of a contract to be voidable. The other circumstances under common law are:
1. Unconscionability: the agreement is obviously and seriously unfair to one of the spouses. For example, a party takes advantage of a power disbalance to craft a deal that deprives a party of their basic legal rights.
2. Misrepresentation: A party signs the agreement on the basis that misleading information had been provided. For example, a party may state that the value of a certain asset is less than it is, or that their income is lower than it is.
3. Undue influence: A spouse takes advantage of a position of power over the other spouse. For example, a spouse who has more knowledge of the family’s finances may convince the other spouse to enter into a “bad deal” based on their limited information.
4. Duress: There was some pressure or stress on one of the spouses which resulted in them signing the agreement. For example, one spouse pressures another or makes threats in order to get them to enter into the agreement.
The BC Supreme Court may also set aside a family law agreement if the agreement is significantly unfair. For example, if a significant period of time has passed since the agreement was made and terms no longer operate fairly, the agreement may be set aside or varied. Further, if the spouses seemed to conduct their lives in disregard of the agreement, the court may set it aside or vary it.
So how does the Supreme Court determine whether to set aside or vary a family law agreement?
There have been a few important cases from the Supreme Court of Canada on when a court may set aside an agreement. In Miglin v. Miglin 2003 SCC 24, the Supreme Court of Canada prescribed a two-stage test (the “Miglin Test”) that a court must apply if a family law agreement is challenged.
Stage one – There are two parts to this first stage.
(1) The first part requires the court to consider the circumstances under which the agreement was negotiated and executed. A court may set aside family law agreement where one spouse was vulnerable or there was some unfairness or a flaw in the negotiation process (such as the circumstances discussed above in a-d and 1-4).
It should be noted that independent legal advice can assist in protecting against vulnerabilities and unequal bargaining power. However, independent legal advice is not a complete answer and does not always prevent an unfair agreement from being set aside. For example, unfairness resulting from a power imbalance (including the amount of funds available to one of the spouses to fund the negotiation process), lack of full disclosure, time pressure, or mental health issues may not be mitigated by independent legal advice. So just because both spouses have had legal advice, the family law agreement is not necessarily bulletproof!
(2) The second part asks whether the agreement substantially complied with the law at the time it was made.
If the agreement fails the first stage of the Miglin Test, then it may be set aside in whole or in part and the Family Law Act and the Divorce Act will apply. If the agreement does not fail the first stage, it will proceed to the second.
Stage two.
At the second stage, the court must assess whether the agreement still reflects the original intentions of the parties and the extent to which it is still in substantial compliance with the law. The party seeking to set aside the agreement will need to show that these new circumstances were not reasonably anticipated by the parties, and have led to a situation that cannot be condoned. Some degree of change in the circumstances of the parties is always foreseeable, as agreements are future-oriented the court will presume that spouses are aware that health, job markets, parental responsibilities, housing markets, and values of assets are all subject to change. It is only where the current circumstances represent a significant departure from the range of reasonable outcomes that the court may set aside the agreement.
So, what is the takeaway?
The BC courts believe that spouses should be free to choose to structure their affairs in a number of different ways, including “unequally”, and courts are reluctant to second-guess the agreements that spouses enter into. One should never enter into a less-than-favourable deal on the assumption that they can simply “deal with it later” by applying to the court for a better deal at a later date – BC courts will make their best efforts to uphold family law agreements, so make sure that your deal is acceptable to both you and your spouse. That said, courts will only intervene when necessary.
If you are going to enter into a family law agreement of any sort, make sure that both you and your spouse are entering into the agreement on mutually acceptable terms, intentionally and with full and accurate financial disclosure. Make sure that both parties have the opportunity to obtain adequate independent legal advice and be sure that you and your spouse put your mind to the possible circumstances that may unfold in the future, and how you intend your agreement to address those changing circumstances.
NOT LEGAL ADVICE. Information made available on this website is for information purposes only and is not legal advice. Do not rely on this information, nor take or fail to take any action, based upon this information. Do not disregard professional legal advice or delay in seeking legal advice because of something you have read on this website. Contact me here to discuss any specific legal issues.
April 14, 2021
How to Lose your Excluded Property Part 1: Transfer Excluded Property into Joint Names
Vancouver & North Vancouver family lawyer discusses how to lose your excluded property
In a previous blog post, I discussed the ways that a spouse may lose their excluded property resulting in them having to share that property with their ex-spouse if they separate. A common way for a spouse to lose their excluded property is to transfer the excluded property into joint names.
For example, you may lose your excluded property by transferring it into real estate jointly held with your spouse (that is, property owned in “joint tenancy”); a bank account jointly owned with your spouse; a vehicle joint registered in your name with your spouse, or other property which is jointly owned.
As I have previously discussed, there are eight categories of excluded property listed in the Family Law Act. Some common types of excluded property are:
- Property owned by a spouse prior to the spousal relationship. For example, your equity in the family home that you owned prior to becoming spouses.
- Gifts to one spouse from a third party. For example, a gift from your parent to you for the down payment of real estate.
- Inheritances received by one spouse. For example, your grandmother passes and leaves you a cash inheritance.
- Personal injury settlements and insurance settlements (not attributed to the loss of income).
In the recent BC Supreme Court case of Basi v Basi, 2021 BCSC 421, the court confirmed that if a spouse transfers excluded property into joint names, but does not take steps at the time of the transfer to ensure that their excluded property will be returned to them at separation, and the court cannot otherwise find evidence of an intention to keep the excluded property separate, the excluded property will be lost and shared with the other spouse. For example, if there is evidence that the spouses at the time of transfer were “coming together” with the intention of commonly owning property, and they do not discuss what will happen if they break up, the excluded property will likely be lost.
If, however, a court can find evidence that a spouse did not intend to make a gift, then the transferring spouse may be able to keep his excluded property. Such evidence may include, for example, an oral agreement between the spouses that the excluded property would be returned upon separation, or some other circumstantial evidence of intention to keep the property separate.
In Basi v. Basi the parties began cohabiting in May 2005, were married in May 2007 and separated in July 2016. When the parties met in 2004 Ms. Basi was living in a rental suite and Mr. Basi was living in a house he co-owned with his mother (the “First House”).
On September 1, 2006, the parties began living together in a home they purchased together in June 2006 (the “Second Hose”).
The parties separated on July 13, 2016, and at that time owned a property (the “Third House”). Mr. Basi, amongst other claims, claimed $207,930 of his excluded property was used to purchase the Second House. Specifically, a $10,000 deposit that was paid towards the purchase of the Second House (which Mr. Basi said was derived from a line of credit secured against the First House) and $197,930.27 from the sale proceeds of the First House that was used as the down payment for the Second House.
It should be noted that in 2006 Ms. Basi received approximately $101,000 as her share of the family assets from her previous marriage.
Mr. Basi says the parties agreed he would provide the funds to purchase the Second House, and that Ms. Basi would provide her $101,000 as a contribution towards future household expenses, and not towards the acquisition of the Second House. Ms. Basi stated that she provided her $101,000 to Mr. Basi as her contribution to the purchase of the Second House, being half of the approximately $200,000 the parties put towards its purchase.
The court’s finding
After considering all of the evidence, the court found that Mr. Basi lost his exclusion for the following reasons:
During his testimony, Mr. Basi described the purchase of the Second House as the parties’ “coming together” to buy something after both the First House and Ms. Basi’s former family residence had been sold. Such a description was inconsistent with the suggestion that Ms. Basi made no contribution towards the purchase of the Second House.
(1) The parties took title to the Second House as joint tenants, evidencing their intention to jointly purchase the property.
(2) The parties had no discussions about how their respective financial contributions would be treated or about what would happen to their family property upon the breakdown of the relationship until the year leading up to their separation.
(3) Over the course of their relationship, the parties worked jointly to improve first the First House, then the Second House, and finally the Third House. Each contributed what they were able towards the household expenses. They equally took on the debt associated with both the Second House and the Third House.
(4) At the time the Second House was purchased, there was no acknowledgment by Ms. Basi that Mr. Basi’s contribution was to remain his exclusive property.
So, what’s the takeaway?
If you have excluded property that you do not want to share with your spouse if you separate, the safest thing to do is to keep it in your sole name. However, if you do decide to place excluded property into joint names with your spouse, make sure you document an express intention to keep the excluded property separate in the event you separate. My recommendation is that you enter into a marriage or cohabitation agreement (also known as a “prenuptial agreement”) which clearly states you and your spouse’s intentions with respect to excluded property. You can learn more about marriage or cohabitation agreements (also known as a “prenuptial agreement”) here and you can contact me here to book your free consultation.
NOT LEGAL ADVICE. Information made available on this website is for information purposes only and is not legal advice. Do not rely on this information, nor take or fail to take any action, based upon this information. Do not disregard professional legal advice or delay in seeking legal advice because of something you have read on this website. Contact me here to discuss any specific legal issues.
