Why your seemingly perfect separation agreement may not be written in stone

In most cases, separated spouses resolve the issues arising from their separation by way of a written agreement between them. While it is hoped that the agreement will remain tucked away in a drawer indefinitely, that is not always the case. For some couples, the passage of time does not just give rise to the collection of dust. Rather, for a variety of reasons, one spouse may challenge one or more terms of the agreement. Of course, a dispute arises when the other spouse wants to enforce the settlement.

That is precisely what happened for an Ontario husband and wife who separated on Dec. 31, 2008. They signed a comprehensive separation agreement just three weeks later. Pursuant to that agreement, the wife retained the parties’ assets, including the home, and the husband assumed liability for a significantly greater portion of the parties’ significant debts. The husband walked away in a $500,000 deficit position while the wife was in a net asset position in excess of $1 million.

In exchange for the unusual property settlement, the parties agreed the husband would not pay child support to the wife for the parties’ two children who continued to reside with the wife. The parties also released each other from any claims for spousal support. Notably, the husband was unemployed when the parties signed the separation agreement.

During the three years that followed the parties’ separation, the husband did not secure employment or his own living space. According to the husband, since signing the agreement, “he spent time sleeping on the floor of a stock room, followed by living with his sister and then with his parents.” In the context of the husband’s bleak financial circumstances, the husband, not surprisingly, commenced court proceedings wherein he challenged the validity of the agreement and made claims for division of property and spousal support.

Following a six-day trial, Justice Phillip Sutherland of Ontario’s Superior Court of Justice ordered the wife to pay the husband lump-sum spousal support in the amount of $143,933. Justice Sutherland dismissed the husband’s claim for division of property. The husband appealed from Justice Sutherland’s finding that the terms of the agreement relating to division of property were of full force and effect. The wife cross-appealed from Justice Sutherland’s order requiring her to pay lump-sum spousal support.

On July 17, 2019, the appeal and cross-appeal were heard by the Court of Appeal for Ontario and the decision was released on Sept. 10. In the decision written by Associate Chief Justice Hoy, the Court of Appeal dismissed the appeal and cross-appeal.

Perhaps the most controversial part of Justice Sutherland’s decision that was upheld by the Court of Appeal was to award spousal support notwithstanding the parties had released all claims for spousal support against each other. Writing for the Court of Appeal, Associate Chief Justice Hoy pointed out that under the federal Divorce Act, “a valid separation agreement is but one factor to consider in determining whether the court should exercise its authority to award corollary spousal support.”

Specifically, the Divorce Act directs a court to consider the condition, means, needs and other circumstances of each spouse, including (a) the length of time the spouses cohabited, (b) the functions performed by each spouse during cohabitation, and (c) any order, agreement or arrangement relating to support of either spouse. It is this legislated set of considerations that permits a court to override the terms of a separation agreement while not having to set the agreement aside.

Associate Chief Justice Hoy points out that a 2003 case from the Supreme Court of Canada “articulates a two-stage inquiry in the face of an application for spousal support that is inconsistent with a pre-existing agreement between the parties. The first stage looks at the time the agreement was formed. The second considers the circumstances at the time of the application.”

In this case, the trial judge found, and the Court of Appeal agreed, that the circumstances under which the separation agreement was negotiated were fine. That said, the agreement did not meet the objectives of the Divorce Act at the time it was made since it failed to (a) recognize any economic advantages or disadvantages to the spouses arising from the marriage or its breakdown and (b) relieve any economic hardship of the husband arising from the breakdown of the marriage.

Similarly, the terms of the agreement failed the second stage of the analysis, that being the facts at the time of the husband’s application for spousal support. The Court of Appeal noted that while “it was open to the trial judge to attribute all these circumstances exclusively to the husband’s own poor decisions and intentional under-employment, after hearing evidence from both parties, that was not his conclusion. Instead, the trial judge attributed some of this misfortune to the breakdown of the marriage and also viewed the husband’s circumstances at the time of the application as a sufficient departure from what the parties had originally intended.”

This is an important case that underscores the somewhat supervisory role the court will assume over agreements reached between separated spouses regarding spousal support. Bearing that in mind, separated married couples must turn their minds to the objectives of the Divorce Act. Failure to meet those objectives may cause a court to override the spousal support provisions in a separation agreement.

This article was originally published in the National Post.