B.C. Prenuptial Agreements: Worthless if Not Fair
One of the main concerns when drafting a prenuptial agreement or cohabitation agreement in British Columbia is the issue of fairness. This is because to be enforceable in British Columbia a prenuptial agreement must meet the test for fairness. The fairness test is enshrined in the British Columbia Family Law Act at section 93 https://www.canlii.org/en/bc/laws/stat/sbc-2011-c-25/latest/sbc-2011-c-25.html, which states:
93(3)On application by a spouse, the Supreme Court may set aside or replace with an order made under this Part all or part of an agreement described in subsection (1) only if satisfied that one or more of the following circumstances existed when the parties entered into the agreement:
(a)a spouse failed to disclose significant property or debts, or other information relevant to the negotiation of the agreement;
(b)a spouse took improper advantage of the other spouse's vulnerability, including the other spouse's ignorance, need or distress;
(c)a spouse did not understand the nature or consequences of the agreement;
(d)other circumstances that would, under the common law, cause all or part of a contract to be voidable.
(5)Despite subsection (3), the Supreme Court may set aside or replace with an order made under this Part all or part of an agreement if satisfied that none of the circumstances described in that subsection existed when the parties entered into the agreement but that the agreement is significantly unfair on consideration of the following:
(a)the length of time that has passed since the agreement was made;
(b)the intention of the spouses, in making the agreement, to achieve certainty;
(c)the degree to which the spouses relied on the terms of the agreement.
Therefore, when a family law court is reviewing a cohabitation or prenuptial agreement, potential unfairness can come from a variety of areas including but not limited to:
- exploiting a spouse’s emotional or psychological vulnerability,
- influence over a spouse through dominance and oppression,
- any history of emotional, physical or financial abuse,
- significant control over the family finances,
- taking advantage of a spouse who does not understand the nature or consequences of the agreement,
- one spouse having a lawyer to give them independent legal advice while the other does not,
- preventing access to or unreasonable restrictions over the release of financial information,
- a significant length of time passing since the agreement and during this time the financial circumstances of the parties changes significantly,
- one spouse becoming sick or disabled after the signing of the agreement, and
- one spouse becoming responsible for children of the relationship.
Some of these vulnerabilities were described in a 2000 case from Ontario, Leopold v. Leopold, 2000 CanLII 22708 (ON SC):
"One party may have power and dominance financially, or may possess power through influence over children ... often both contracting parties are vulnerable emotionally, with their judgment and ability to plan diminished, without the other spouse preying upon or influencing the other. The complex marital relationship is full of potential power imbalance."
Where unfairness is found after divorce or separation, the family law court will be more likely to set aside a prenuptial agreement or make an order that contradicts the agreement. As a result, people negotiating family law agreements must take special care to ensure that everyone is on a level playing field and that the spouses are negotiating from positions of relative equality. Here are some things that can help:
Independent legal advice: Make sure each spouse has legal advice about the meaning and consequences of the agreement from their own independent lawyers. Also, the lawyers who provide the independent legal advice must witness the parties' signatures on the prenuptial agreement and sign certificates of independent legal advice.
Ensure that full disclosure is made: Always make full disclosure whether or not disclosure has been requested. Collect all documentation of present and past income, bank and investment account balances at the present date, any outstanding debts, property values, values of shares and options, and a list of all assets. Also, give each spouse the opportunity to have an expert value any property or businesses. Failure to disclose financial assets, debts, and property will likely be considered “unfair” upon review of the prenuptial agreement.
Respect any vulnerabilities: Negotiations over the prenuptial or cohabitation agreement should cease when someone is too upset to continue or appears to be compromised in any way. If there is any doubt that a party is not in their right mind, cease negotiations and recommence at a later date. Consider the need for counselling or therapy before continuing.
Tell the Truth: Intentionally misleading a spouse about the value of an asset or income will always undermine the strength of a prenuptial agreement. Be honest and transparent at all times.
Know the law: Each spouse should be well informed about the law of cohabitation and prenuptial agreements. The Divorce Act and the Family Law Act say when and why spousal support should be paid and how family property and debts should be divided. Know how family law treats these different areas and ensure that each spouse knows what they are giving up.
In British Columbia, it is essential that there be fairness at all stages of the creation of the prenuptial or cohabitation agreement, which means there must be fairness in the way an agreement is negotiated, fairness in the way it is drafted, and fairness in the way it is signed. The people who are negotiating the agreement must be able to understand the agreement, be capable of agreeing to it, and sign it voluntarily.
This can also be summed up in a fairly straightforward manner:
- You can't exploit the other party's weaknesses to get a good deal for yourself in the cohabitation or prenuptial agreement,
- You have to make sure that the other party understands exactly what the prenuptial agreement means and how it will affect their life, both now and in the future, and,
- You can't force or pressure someone to sign the agreement, you can't cheat someone into signing the agreement, and the prenuptial agreement must be reasonable.
Moreover, a court can overturn a marriage or cohabitation agreement where a party behaved unfairly or took advantage of the other party. For example, a prenuptial agreement may be set aside where a party failed to disclose significant property or debts because a spouse may not have signed if they had this information. Or, an agreement signed under pressure a day or two before a wedding could be seen as being signed under duress due to the family pressure, financial commitment and stress at that time close to the wedding.
In addition, even if the prenuptial or cohabitation agreement was entered into fairly, the British Columbia Family Law Act permits a judge to overturn it under section 93 (5), which allows a judge to consider if enforcing the agreement would be significantly unfair given the length of time that has passed since the agreement was made, the intention of the spouses when they made the agreement and the degreed upon which the spouses relied on the terms of the prenuptial agreement. Therefore, if a long-term relationship ends and the cohabitation or prenuptial agreement creates a massive income disparity, or if the spouses did not rely on the agreement during their relationship, this can be fertile grounds for a family lawyer to apply to have it set aside.
In order to deal with these issues it is prudent to have your family lawyer structure your prenuptial or cohabitation agreement in such a way so that the spouse who will be more financially dependent during the relationship is not left destitute in the event of separation. Sometimes this involves creating a lump sum payment in the event of separation or divorce that increases with the length of the relationship. Sometimes this involves creating customized spousal support calculations specific to the agreement. It may also include creating provisions for the transfer of some assets, which otherwise would be excluded from any division of family property, in the event one party dies during the relationship and the spouses never separated. Each case is unique and requires careful planning to ensure that a cohabitation or prenuptial agreement is more likely to viewed as fair in the future.
One of the best ways to achieve fairness is to have each party get independent legal advice from a B.C. family lawyer before signing the agreement. This involves each party meeting with their own family lawyer to get advice about what the cohabitation or prenuptial agreement means, what rights and obligations the agreement gives to each party, and how the agreement affects other legal issues. Obtaining independent legal advice from a family lawyer does not guarantee that a prenuptial agreement will be enforced by the courts when challenged under the British Columbia Family Law Act, but it significantly mitigates the risk.
If you are considering a prenuptial or cohabitation agreement the Vancouver family lawyers at Crossroads Law offer flat rates for these agreements and a free half hour consultation. Contact us at the number or email address below to set up a consultation with a Vancouver family lawyer now.