May 27, 2021
Family Law Agreements Part 2: Can you rely on them?
Vancouver & North Vancouver family law lawyer discusses the reliability of family law agreements
In my last blog, I discussed the circumstances under which a family law agreement may be set aside. Recently, the BC Court of appeal in Dhaliwal v. Dhaliwal, 2021 BCCA 72 grappled with this issue – namely- whether to set aside the terms of a marriage agreement.
In this case, Mr. Dhaliwal and Ms. Dhwaliwal were married for approximately ten years. The parties each had their own career at the time they met, and this was a second marriage for both of them. Ms. Dhaliwal moved from India, where she had an established academic career, to Richmond, BC, with her 13‑year‑old son to live with Mr. Dhaliwal. Mr. Dhaliwal was a widower and had three children who were adults when he married Ms. Dhaliwal. He had significantly more assets than Ms. Dhaliwal. He was 56 and she was 43 years old when they married.
The marriage agreement provided that the parties would retain the property they brought into the marriage as well as any increase in value. Instead of the usual division of family property, Ms. Dhaliwal would receive a lump sum which increased based on the duration of the marriage. The marriage agreement precluded spousal support. The agreement and marriage occurred at a time when the applicable family law legislation was the predecessor legislation of the current Family Law Act, being the Family Relations Act (the “FRA”). Mr. Dhwaliwal did not disclose all of his assets in the marriage agreement.
From Mr. Dhaliwal’s perspective, the agreement was intended to keep the parties’ assets separate. He had acquired significant assets before marriage, and he wanted to keep these for himself and his children’s future.
They separated after ten years and as a result, Mr. Dhaliwal was required under the agreement to make a lump-sum payment of $450,000 to Ms. Dhaliwal. Ms. Dhwaliwal applied to the BC Supreme Court to set the agreement aside as she wanted a larger payment.
In considering its enforceability, the trial judge identified the two-stage test described in Miglin v. Miglin 2003 SCC 24 (more fully discussed in my last blog): (1)whether the agreement was fair at the time of its making, and (2) whether it is fair now, at the time of its operation.
A court may intervene to override a domestic contract where vulnerability or a flaw in the negotiation process has occurred. The court must consider whether there were any circumstances of oppression, pressure, or other vulnerabilities.
Regarding the first stage of the test, the trial judge concluded that the circumstances were fair. While the respondent had not fully disclosed the value of all of his assets, the claimant received independent legal advice and was aware that she could seek more information, but chose not to. Further, she was concerned about her ability to acquire a home should their relationship end, which contributed to the lump sum payment structure. This demonstrated an ability to negotiate the agreement. The trial judge put particular weight on the claimant’s receipt of independent legal advice and ultimately upheld the agreement’s fairness at the time of its making.
The next step required the trial judge to consider the fairness of the agreement at the time of the trial. The trial judge considered the statutory factors set out at s. 65(1) of the FRA for the reapportionment of family property. Of particular importance to the trial judge’s analysis was that virtually all of the respondent’s assets had been acquired well before the marriage and that the claimant had not made any significant contribution to the respondent’s assets or career. Further, there had not been any unforeseen change in circumstances. The judge also considered that the receipt of spousal support supported the fairness of the agreement.
The Court of Appeal upheld the trial judge’s conclusion on the first stage of the analysis. However, the Court of Appeal found that the trial judge had overlooked two key facts in reaching her conclusions that the operation of the agreement at the time of trial was in line with the parties’ original contemplations.
The judge did not consider that the basis for the lump‑sum payment to Ms. Dhaliwal, as stated in the agreement was to enable Ms. Dhaliwal to purchase a home. The judge did not mention the specifics regarding the value of the family home which had dramatically increased from a value of $875,000 at the time of the agreement to a value of $1,900,000 at the time of trial. In other words, the family home value increased by just over 100%– an increase which, as found by the trial judge, was “in line” with the housing market in the Lower Mainland during this time.
There was no evidence or finding that the parties contemplated the dramatic increase in value when contemplating that the lump‑sum payment provided for in the agreement would enable Ms. Dhaliwal to acquire a home.
Leaving the agreement unaltered would mean that Mr. Dhaliwal would be the sole beneficiary of the windfall increase in value of the family home, despite the facts that the growth in the real estate market occurred during the marriage and had a disproportionately negative impact on Ms. Dhaliwal’s ability to acquire a home.
The Court of Appeal said the exceptionally large increase in the value of residential real estate in the Lower Mainland over the course of the parties’ marriage, relative to the clear goal of the lump‑sum payment provided for in the agreement, was such a significant factor in considering whether the outcome of the agreement operated fairly that it had to be considered by the judge.
The court of appeal also found that the trial judge erred in assuming that the parties contemplated the scale of disparity in the parties’ financial circumstances at the marriage breakdown, given that the respondent had not disclosed the full scope of his wealth at the time the agreement was made.
The Court found that the agreement was significantly unfair, but that this unfairness could be remedied by allowing the claimant to share equally in the increase in value of the family home. This resulted in an increase in the lump sum payment payable to the claimant from the $450,000 provided for in the agreement to $525,000.
So, what is the takeaway?
Although courts will make their best efforts to uphold family law agreements, if circumstances exist at the time of separation that were not contemplated or planned for by the parties at the time they negotiated the family law agreement, then the court may set the family law agreement aside to achieve fairness. Further, this decision highlights the importance of financial disclosure in a family law agreement – if a party fails to disclose assets at the time the family law agreement is negotiated, the agreement is vulnerable to being set aside in the future. Lastly, this case is a good reminder that a spouse having legal advice at the time of signing does not bulletproof the agreement – if the agreement is significantly unfair or flawed in other ways (see a full listing of these factors in my last blog), the fact that spouse received independent legal advice may not prevent it from being set aside.
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 you each have the opportunity to obtain adequate independent legal advice and 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 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.
