Setting Aside Agreements Respecting Property Division (Part 1)

Section 93 of the Family Law Act (the “FLA”) sets out the legal basis under which a court may set aside a written (and properly witnessed) agreement respecting property division. In general there are two grounds upon which an agreement may be set aside. First, if there is a defect in the negotiation or drafting process itself. Second, if the agreement results in significant unfairness to one or both of the parties.

For the purposes of this article the focus will be confined to first ground – if there is a defect in the process of making the agreement.

Section 93(3) of the FLA sets out the following conditions in which a court may set aside an agreement and replace it with a court order. These include:

(a) failing to disclose significant property, debts, or other information relevant to the negotiation of the agreement;

(b) a spouse taking improper advantage of the other spouse’s vulnerability, ignorance, need or distress;

(c) a spouse not understanding the nature or consequences of the agreement;

(d) other circumstances that would, under common law, cause all or part of a contract to be voidable (i.e. not legally binding).

Improper Disclosure

The courts have been clear: full disclosure of all financial information between spouses is the cornerstone of any legally binding agreement. Failure by either spouse to disclose important assets, debts or liabilities may put the agreement at risk and vulnerable to court intervention. As the Supreme Court of Canada emphasized in Rick v. Brandesma, 2009 SCC 10, imposing a duty on separating spouses to make full and honest disclosure ensures that the integrity of the negotiating process remains in these uniquely vulnerable circumstances. The policy for this is simple. Spouses who intend to execute an agreement must fully understand the agreement they are entering into. The court’s view is that a spouse cannot be said to have made an informed decision about their rights if it is premised on incomplete information. Apart from the court’s ability to set aside agreement under s.93(3), if there is evidence that a spouse has deliberately mislead or induced the other spouse to sign a grossly unfair agreement, the offending spouse may also expose themselves to a separate claim for fraudulent misrepresentation.

Improper Advantage

Section 93(3)(b) of the FLA permits the court to set aside an agreement if there is sufficient evidence of one spouse taking improper advantage of the other on the basis of vulnerability, distress, or ignorance. However, this hurdle is not easily overcome and a spouse who intends to advance an argument on account of distress and/or vulnerability must have compelling evidence in order to succeed.

The fact that one spouse may be financially stronger or may have sought legal advice will not immediately raise the issue of improper advantage. Similarly, the fact that one spouse may experience acute emotional distress greater than the other will not constitute an improper advantage. In every case, the courts will ask itself the fundamental question: did the spouse who seeks to set aside the agreement have, in fact, really no alternative available to him or her but to sign the agreement? If the answer is “yes”, a claim for improper advantage may prevail on this basis.

Nature and Consequences of the Agreement

It is an organizing principle of contract law that a party to an agreement must understand the terms of the bargain. Section 93(3)(c) of the FLA is designed to assist a spouse if the court is satisfied that he or she failed to understand important terms of the agreement. While this may seem a valid argument, the courts will not assist a spouse who failed to take reasonable efforts to inform him or herself (such as obtaining independent legal advice when recommended to do so) of key terms of the agreement. Likewise, after receiving independent legal advice, if a spouse signs an agreement to their own detriment, they are unlikely to succeed on the basis that they did not understand important terms and that the agreement is grossly unfair. Nevertheless, if there is convincing evidence that a spouse failed to grasp the fundamental terms which results in an inequitable bargain, the court may be motivated to intervene. While there is no requirement that independent legal advice is mandatory, the absence of independent legal advice will generally be insufficient to invalidate the agreement.

Above all, s.93 (3) of the FLA is discretionary. Given the court’s general reluctance to disturb a bargain between spouses, a spouse who seeks to set aside an agreement must possess strong evidence and a very good reason for doing so.

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