Full Disclosure Is Critical In Negotiating A Separation Agreement

The negotiation of a Separation Agreement upon the breakdown of a marriage is a unique situation and is very difficult from the negotiation of a commercial contract between parties of equal strength.  The breakdown of a marriage is a very emotionally challenging time for all involved and results in unique vulnerabilities on the parties. As a result, it is exceptionally important that both parties comply with the duty of providing full and honest disclosure of their financial situation, assets and liabilities to their spouse. Failing to do so may result in the Separation Agreement being overturned by the Court.

In the 2009 Supreme Court of Canada case of Rick v. Brandsema, the High Court upheld the lower Court’s finding that a Separation Agreement was unenforceable on the basis that it was unconscionable.  The wife, in this case, had intended to sign the Separation Agreement in order to give her some funds, but then to apply to set aside the agreement in order to obtain “justice.”  The Court, nonetheless, found the Separation Agreement to be unconscionable due to the husband knowingly presenting misleading financial information and taking advantage of his spouse’s emotional vulnerabilities during the negotiation process.

The parties were married for almost thirty years.  The Family Relations Act creates a presumption that, upon the breakdown of a marriage, all family assets are to be divided equally between the spouses.  It has long been recognized that parties should be free to enter into an agreement between themselves with respect to the division of their assets, but the Family Relations Act gives the Court the ability to vary the agreement if, based on certain factors, the proposed division would be unfair. In this case, the wife entered into the Separation Agreement based on an erroneous understanding of the parties’ financial situation due to the inaccurate information provided by the husband, which resulted in her accepting almost $650,000 less than her presumptive entitlement. 

Whether a Court will interfere with the parties’ contractual autonomy and set aside a Separation Agreement will depend on the particular circumstances of each case.  Some factors that the Court will consider include whether the negotiation process was procedurally flawed, whether the duty to make full and honest disclosure was met by each party, whether the parties had the assistance of legal counsel and whether, and to what extent, the agreement varied from the presumption of equal entitlement under the Family Relations Act. 

The full text of this decision can be found at the following link:

http://www.canlii.org/eliisa/highlight.do?text=rick+v.+brandsema&language=en&searchTitle=Search+all+CanLII+Databases&path=/en/ca/scc/doc/2009/2009scc10/2009scc10.html

If you would like to discuss the preparation of a Separation Agreement, and/or any other family law issues, please do not hesitate to contact Ashleigh Baylis at baylis@pushormitchell.com.