In a recent blog post, we discussed top tips on how to create a binding Separation Agreement or Domestic Contract. However, what happens if an Agreement/Contract is signed without the typical safeguards the law encourages? Does that mean that the Agreement/Contract is automatically unenforceable?
The Anderson Case
In the recent Supreme Court of Canada decision of Anderson v Anderson, the Court dealt with whether to enforce and uphold an “informal” Separation Agreement that was made between separating spouses. At the time the Agreement was signed, there was no financial disclosure, no independent legal advice, and the witnesses to the Agreement were friends of the spouses. The Supreme Court of Canada ultimately found that the Agreement was indeed binding in law, even though traditional safeguards were not in place, which ran contrary to the decision of the lower-level court that the Agreement was not binding.
The deciding factor in the Supreme Court’s decision appears to be the presence of fairness between the parties that existed at the time the Agreement was made, to the extent that that the parties made an “informed choice” whilst entering to the Agreement.
What does this mean for Family Law Agreements and Contracts?
It should be noted that “fairness” and “informed choice” does not seem to mean that the outcome of the Agreement has to be “right” in accordance with the law, it simply means that both parties chose to enter into the Agreement willingly, knew going into the Agreement that they were on the same page about their finances and overall objectives, reached a deal that both of them could be satisfied with, and the deal did not prejudice either of them in a major way.
In totality, the Supreme Court felt that “informal” Separation Agreements/Domestic Contracts should be given a great deal of deference, and that Courts should promote and respect parties’ self-sufficiency, autonomy, and finality, which are also important objectives in the family law context.
In other words, Courts must strike a balance between what the law provides, and what choices people should be allowed to make for their own lives.
The Continued Emphasis on Financial Disclosure
One pertinent element of family law Agreements and Contracts is the presence of financial disclosure. Almost all family law property legislation in Canada (inclusive of the Ontario Family Law Act) states that a lack of financial disclosure can be a basis to set aside an Agreement/Domestic Contract. On this specific issue, the Supreme Court of Canada states:
[67] Given that disclosure is not a legislative requirement, the lack of disclosure is only relevant if it undermined the fairness of the negotiation process. As this Court has noted several times, disclosure is critical in family law to prevent misinformation and exploitation. In the unconscionability context, this Court has recognized a general duty to make full and frank disclosure of all relevant financial information in family law cases. Even in the common law of unconscionability, however, the goal of requiring disclosure between contracting parties is to prevent one party from misleading the other or from exploiting an asymmetry of information. A lack of disclosure, on its own, will not necessarily call for judicial intervention. A court may intervene, however, where a failure to disclose is deliberate and coupled with misinformation, or where a failure to disclose leads to an agreement that departs substantially from the objectives of the governing legislation. In other words, the focus is on prejudice resulting from uneven access to information.
[68] Here, the lack of disclosure did not result in unfairness to either party. While the parties may not have been aware of the precise value of each other’s assets and liabilities at the date of separation, there has been no suggestion that either party concealed important information or otherwise misled the other. Nor has there been a claim that disclosure was needed to cure an existing asymmetry of information resulting from an imbalance of power in the relationship.
In other words, financial disclosure, while important, is perhaps not necessary to form a binding Agreement in situations where the parties were on an equal playing field with respect to their level of knowledge and bargaining power in the negotiation process, and neither party was “duped” or misled about their understanding of the financial circumstances of the other.
Conclusion
The decision of Anderson clearly paves the way for more clarity surrounding how Courts will/should treat “informal” Separation Agreements, but what perhaps it also does, is lead to even more factors that must be considered and scrutinized in determining the validity of an Agreement. It will be interesting to see how lower Courts approach and apply the Anderson case, as the law develops around it.
To avoid circumstances of uncertainty and lengthy litigation as occurred in Anderson, it is still advisable that proper safeguards be put in place during the drafting and negotiation process of a Separation Agreement or Domestic Contract. For further information, you can read the blog here on this issue, or reach out to a Family Law Lawyer on the Mills & Mills LLP team.
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