Signed but set aside: getting out of a separation agreement or prenuptial agreement in BC
By Tanya Thakur, Vancouver Family Lawyer
In family law matters in BC contracts between spouses can be overturned by a judge if they are found to be unfair. Knowing how this happens will help to ensure an agreement is strong.
Navigating the complexities of divorce and separation is often an emotionally challenging journey. When it comes to dividing family property, finances, and other assets after separation, couples frequently find themselves grappling with tough decisions. In such circumstances, it is essential to have a clear understanding of the legal framework that governs these matters or you could enter an agreement that is vulnerable to attack.
This blog aims to shed light on the legal test to be applied to successfully challenge and overturn a separation or prenuptial agreement. This is helpful if you have an agreement that you don’t like or if you are trying to ensure an agreement will be strong and resistant to attack.
Primarily, we will explore the significance of Sections 81 and 92-94 of the Family Law Act, which empower parties to establish agreements that override the principle of equal division of family property. By delving into these provisions, we hope to equip you with the knowledge necessary to navigate this intricate terrain with confidence and informed decision-making.
(i) Relevant Provisions in the Family Law Act
Section 94(2) of the Family Law Act provides that the court may not divide property that is the subject of a written, signed and witnessed agreement unless it is first set aside under s. 93. In the context of family law, "setting an agreement aside" refers to the legal process of invalidating or overturning a previously established agreement between parties.
Section 93 applies if spouses have a written agreement respecting division of property and debt, with the signature of each spouse witnessed by at least one person. A court has the discretion to apply section 93 to an unwitnessed written agreement upon considering all the circumstances.
Section 93(3)-(5) provide for the circumstances under which a signed and witnessed agreement may be set aside. If an agreement is set aside under section 93, then the presumption of equal division of family property will be applied and not the agreed upon division in the separation agreement or prenuptial agreement.
Section 93(3)-(5) of the Family Law Act is reproduced below:
Setting aside agreements respecting property division
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.
(4) The Supreme Court may decline to act under subsection (3) if, on consideration of all of the evidence, the Supreme Court would not replace the agreement with an order that is substantially different from the terms set out in the agreement.
(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.
Section 93 compels a two-pronged approach to determining whether to set aside the agreement. First, the court must consider whether the agreement in question is procedurally fair, which requires consideration of the circumstances surrounding the formation of the agreement. Second, the court must consider whether the agreement is fair in its operation at the time that it is challenged.
(i) Procedural Fairness
The first considerations are those set out in section 93(3) which relate to fairness in the formation of the agreement.
If a spouse fails to disclose “significant” property or debts this could lead to the agreement being overturned. This means that when an agreement is negotiated, and before it is signed, the parties must know what assets and debts are held by each of them. This can often be achieved by a detailed schedule of assets and debts provided by each side, but in some cases disclosure of actual financial statements will be required. Failure to disclose is one of the most common ways for an agreement on family property to be overturned after separation or divorce.
93(3)(b) of the Family Law Act raises the issue of a spouse taking improper advantage of the other spouse thought their vulnerability. This includes situations of coercion, undue pressure, abuse, threats, material misrepresentation, manipulation, and other blameworthy conduct. If this has occurred, it makes it easier to overturn an agreement.
If a spouse did not understand the agreement but signed nonetheless, their lack of understanding can be fatal to the agreement. This is why it is important that both spouses have independent legal advice on a separation agreement, cohabitation agreement or prenuptial agreement.
The B.C. Supreme Court outlined all of these issues in detail in Y.L. v G.L, 2020 BCSC 808 at paragraph 285 as follows:
a) the court should consider the s. 93(3) considerations holistically, and not in isolation to each other as the combination of certain factors may lead to setting aside the agreement where each of the factors alone would not, or where the presence of a factor in favour of setting aside the agreement may be ameliorated by the absence of another factor;
b) the fact-specific nature of the inquiry, particularly the relative vulnerabilities of the parties and/or the relative amount of information they have about each other’s financial affairs is such that the cases are not necessarily readily comparable;
c) with regard to failing to disclose significant property, debts or other relevant information:
i. failure to disclose financial information or incomplete disclosure impacts the integrity of the bargain made. The extent and nature of the failure determines whether the court will intervene;
ii. a party’s assertion that he or she did not believe the other party had a claim to the assets and so did not disclose is not an answer if the party has a claim or an arguable claim. Disclosure is mandatory separate from any argument or negotiation around whether there is a legal interest in the property;
iii. failing to disclose any value for property cannot be defended on the basis that there is no misrepresentation because no value is given;
iv. where an asset’s value is uncertain, the party with the duty to make disclosure should disclose the facts that will allow the other party to make a decision as to the value or as to whether further investigation is required;
v. if a party waives the right to financial disclosure in making a separation agreement but does so in the context of having been misled about the existence of assets and/or their value, the waiver may not be informed and therefore not determinative, especially if it is paired with a representation that the facts disclosed are true, accurate and complete;
vi. failure of a party to act in good faith and to act in accordance with an agreement made is not an answer to the other party’s failure to disclose financial information;
vii. failing to disclose includes incomplete financial disclosure such as not providing the values of assets that both parties know to be in existence, not advising of the true income stream of a business, and providing estimates of the values of an RRSP;
viii. failing to ask for greater financial disclosure does not prevent the party who did not receive it from relying on s. 93(3)(a);
ix. where the party complaining of non-disclosure has general knowledge of the other party’s assets and their value, non-disclosure of the exact value may not result in an agreement being set aside where the nondisclosure is not a deliberate attempt to avoid addressing the division of those assets or to deprive the other party of information, he or she should have in making the agreement;
x. the non-disclosure must be significant and material.
d) with regard to one spouse taking advantage of the other’s vulnerability, including the other’s ignorance, need or distress:
i. the parties’ relative abilities to understand financial matters is relevant to the assessment of whether one party took advantage of the other’s vulnerabilities;
ii. vulnerability of a less powerful party should not be presumed, there must be evidence to support a finding of vulnerability;
iii. whether the party who asserts vulnerability had input into the content of the agreement is relevant to assessing this factor;
iv. legal advice may negate vulnerability but does not necessarily do so and the absence of legal advice does not lead to a presumption that a vulnerability has not been exploited;
v. the parties’ respective bargaining power is relevant to vulnerability and includes whether one of the parties was at an immediate economic disadvantage because the other party controlled the cash or had better access to cash;
vi. physical and/or emotional abuse is relevant;
vii. the timing of emotional or physical abuse in relation to the time at which the agreement was made is relevant in the sense that if a party is living in active fear and makes the agreement to get away from an abuser, that is different than a situation where there was an incident of abuse a significant length of time prior to when the agreement was made, especially if the parties were living in different locations when the agreement was made.
e) with regard to whether one of the spouses did not understand the nature or consequences of the agreement:
i. whether the party received independent legal advice is relevant, but not determinative;
ii. persons who do not take advantage of the ability to receive legal advice may not be held to unfair agreements despite their own failures especially where the party seeking to enforce it withheld information or the person is vulnerable;
iii. if a party received legal advice but it was affected by incomplete financial disclosure, it may be not fair to hold the party to the agreement;
iv. similarly, failure to read an agreement when there was an opportunity to do so will be taken into account in assessing whether failure to understand the agreement is a basis on which to set it aside.
f) with regard to other circumstances that would, under the common law, cause all or part of a contract to be voidable:
i. unconscionability can be based on information asymmetry; and
ii. unconscionability does not have to result in the same type of power imbalance that would void a commercial contract but can arise out of any circumstances of oppression, pressure or other vulnerabilities.
If the process in which the agreement was negotiated and signed was fair, the court must then consider the factors in section 93(5) which relate to the substantive fairness of the effect or operation of the agreement. At this stage of the test the agreement must be “significantly unfair”.
(ii) Operational Fairness
Under s. 93(5), an agreement can be set aside if it is significantly unfair even if it was fairly made if its effect renders it significantly unfair. The court will consider the following factors in assessing whether the agreement continues to operate fairly at the time it is challenged:
(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.
Significant unfairness represents a high threshold for setting aside an agreement.
Below are some examples of cases where the court set aside a separation or prenuptial agreement because its effect was significantly unfair:
- In Asselin v. Roy, 2013 BCSC 1681, the court held that the parties’ cohabitation agreement was significantly unfair, based in part on the length of time that had passed since it was signed, and the fact that the claimant had contributed her excluded property to the respondent’s property;
- In N.K.D. v. H.S.D., 2021 BCCA 72, the court overturned a marriage agreement due to significant unfairness. The agreement failed to account for the substantial increase in real estate prices when stipulating a lump sum for spousal support, and it didn't grant the wife any share of the family home's increased value.
- In Tian v. Cheung, 2016 BCSC 950, the court found the agreement at issue unfair. The parties were married for 14 years. During that time Ms. Tian made significant contributions to the matrimonial home in terms of time and effort. Without a variation of the prenuptial agreement, Ms. Tian would not be able to become and remain economically self-sufficient.
- In Brovkin v. Brovkin, 2008 BCSC 1602, the court found a prenuptial agreement was unfair for a number of reasons, including it did not anticipate that Ms. Brovkin would ultimately have the primary care of the parties’ child; that she made significant monetary contributions that would increase the value of the assets owned by Mr. Brovkin; and that she was led by Mr. Brovkin to believe that the document was never to have legal effect, had been destroyed, and that she was to consider that the signing of the document “never happened”: at paras. 10 and 36.
A court may determine that, despite significant unfairness, an agreement should not be set aside if, for example, the parties have relied heavily on its terms in making their lifestyle choices, or have deliberately risked having to live with an unfair agreement because they placed a high value on certainty.
In summary, setting aside prenuptial, cohabitation or separation agreements under Section 93 of the Family Law Act is a complex and sensitive issue that requires careful consideration and attention. The court’s analysis must consider whether the legislative objectives of the Family Law Act, namely, to encourage resolution of family law disputes through agreements (s. 4(b)) and the certainty, predictability and clarity created by the simplified equal division regime, are met. The analysis must also respect contractual autonomy while recognizing the unique nature of negotiating agreements for the dissolution of spousal relationship and the inherent vulnerabilities in play as they relate to the concept of unconscionability: Miglin v. Miglin [2003] S.C.J. No. 21, 2003 SCC 24 at paras. 66, 82.
While these agreements can provide a way for couples to resolve their differences and move on with their lives, if they are not fair, they may not be enforceable. It's important to understand the circumstances under which an agreement may be set aside, as well as the process for doing so before you sign it.
If you're going through a separation or divorce, it's essential to seek professional legal advice and guidance from a qualified family law professional who can help you navigate the process of negotiating and drafting a separation agreement that meets your needs and is legally sound. With the right support and advice, you can ensure that your rights and interests are protected and that you can move on from your separation with confidence and peace of mind. Also, independent legal advice is key to making a prenuptial agreement or separation agreement strong.
To speak to one our experienced family lawyers at Crossroads Law, book your free 20-minute consult today.
