While the idea of a home made separation agreement may seem like an appealing way to save on the costs of hiring a lawyer, there are a number of traps that can catch unwary spouses looking to separate quickly and easily. These traps can cost them far more than they ever bargained for.
When going through the difficult process of separation and divorce, spouses are frequently encouraged to prepare and sign a separation agreement. The separation agreement forms a binding contract between spouses/former spouses and sets out the rights and obligations of each spouse arising from the breakdown of the marriage. Typically, a separation agreement will deal with:
Often, separating spouses will feel that they are able to prepare and sign their own separation agreements. This will frequently occur when the separation is mutual and acrimony is minimal. There is an abundance of online resources available, where separating spouses can find examples of separation agreements online and fill them out as they see fit. The appeal of these agreements is that parties believe that they can avoid the additional cost associated with hiring a lawyer to prepare their separation agreements for them.
While the appeal of self-prepared separation agreement is certainly evident, separating spouses should be wary of the numerous dangers of preparing a separation agreement without legal advice.
The Family Law Act grants judges the significant ability to set aside or disregard clauses in a separation agreements if they feel that they:
Additionally, a judge may set aside the entire agreement in the event that:
A party failed to disclose to the other significant assets, or significant debts or other liabilities, existing when the contract was made;
A party did not understand that nature or consequences of the domestic contract; or
The agreement is not otherwise in accordance with the law of contract.
These provisions of the Family Law Act often serve to strike down home made separation agreements that are considered "unconscionable" by family law judges for any of the above reasons, or if they find that one spouse took advantage of the emotional or financial vulnerability of the other.
In particular, separating spouses must ensure that if they wish their agreement to be binding, and not set aside and litigated in court years later that they fully and accurately disclose their income, assets and liabilities. The recent case of Tadayon v. Mohtashami, heard by the Ontario Court of Appeal demonstrates the importance of accurately disclosing financial information.
In this case the parties separated in 1999 and entered into a separation agreement regarding the sale proceeds of the matrimonial home and requiring the husband to pay combined child and spousal support. In 2005 the parties amended the agreement after they purchased a new home for the wife and the children to live in. The husband advised his wife in 2005 that his income would be $80,000.00. He did not provide her with any financial information to support this claim and the agreement was concluded on this basis.
In 2012 the wife commenced an Application, asking that the amended separation agreement be set aside. The trial judge found that the husband’s income in 2005 was $344,000 as opposed to the reported $80,000.00. He agreed with the wife that the separation agreement ought to be set aside and noted that the husband’s income in 2004 had been $147,000 and also that he knew he would be receiving income from a new home building venture in 2005. The agreement was set aside, and the husband was forced to pay support arrears from 2005 onwards and the wife was awarded sole ownership of the property.
The Court of Appeal upheld the decision and found that the husband’s failure to disclose financial information was an act of preying upon his wife’s economic vulnerability and justified a finding of unconscionability.
While, the circumstances of this case are certainly extreme, the principles are easily applicable to many domestic agreements where a spouse may be tempted to underrepresent their income for the purpose of obtaining a more favourable settlement. Such an act will often have severe consequences resulting in substantial arrears payments, expensive litigation and significant stress.
When negotiating a separation agreement, it is always important to be honest and forthcoming with financial disclosure, and to seek the assistance of a qualified lawyer to ensure that you are not contravening the Family Law Act.