Case Comment on Miglin v. Miglin: Are Separation Agreements Finally Final? On April 17, 2003, the Supreme Court of Canada released the long-awaited judgment in Miglin v. Miglin [2003] S.C.J. No. 21, 2003 SCC 24, regarding separation agreements. All nine justices of the Supreme Court of Canada heard the appeal from the Ontario Court of Appeal. Judgment for the majority of seven justices was written by Mr. Justice Bastarache and Madam Justice Arbour. Mr. Justice LeBel wrote the dissenting reasons for himself and Mr. Justice Deschamps.

This decision has been awaited by family law practitioners because it represented an opportunity for the Supreme Court of Canada to clarify the proper approach to an application for spousal support under section 15.2 of the Divorce Act (Canada) where the spouses have executed a separation agreement releasing any future claim for spousal support. The state of the law regarding the certainty of separation agreements was previously governed by a trilogy of cases known as the Pelech trilogy. The cases in the Pelech trilogy were decided under the 1968 Divorce Act instead of the new 1985 Divorce Act.

The Pelech Trilogy stood for the proposition that where there are settlement agreements in place, an applicant for spousal support must establish a radical and unforeseen change in circumstances that is causally connected to the marriage before a court can interfere with the prior agreement and make or vary an order for spousal support. In Miglin, the Supreme Court of Canada stated that this narrow test is no longer appropriate given the significant changes in both statutory law and case law since the Pelech Trilogy was decided.

Instead, the majority of the Supreme Court in Miglin set out a two stage analysis to be applied by the courts in circumstances where there is an initial application for spousal support that is inconsistent with a pre-existing agreement.

The first stage of the analysis requires the court to look at the circumstances in which the agreement was negotiated and executed, including taking into account whether there was any oppression, pressure or other vulnerabilities, and the negotiating conditions, such as the duration and whether or not there was professional assistance for the parties. Unless there is evidence of a fundamental flaw in the negotiation process, fairly negotiated separation agreements should be viewed as expressing the substantive intent of the parties and the courts should be loathe to interfere. (Miglin, supra, para. 83)

Once the court has examined the circumstances in which the agreement was negotiated, the next step is to look at the substance of the agreement. The court must look at whether or not the agreement takes into account the objectives and factors set out in the Divorce Act. The court must assess whether or not the agreement substantially complies with these factors and objectives. If the agreement does not substantially comply, it does not mean that the entire agreement should be set aside; the agreement should still be considered as a factor in determining spousal support.

If the separation agreement was fairly negotiated and substantially complies with the factors and objectives set out in the Divorce Act, the majority of the Supreme Court of Canada stated that the court should defer to the wishes of the parties and afford the agreement great weight.

However, despite this promising statement of certainty, the majority also noted that between the time the parties negotiated the separation agreement and the time of an application for spousal support, the circumstances may have changed in ways that the parties had not contemplated.

This forms the basis for the second stage of the analysis, where the court must assess the whether or not the agreement is still in substantial compliance with the factors and objectives in the Divorce Act, the extent to which it still reflects the intentions of the parties. The majority stated that the intentions of the parties will be the backdrop against which the court must assess whether giving the agreement conclusive weight is still appropriate.

Were it not for the subsequent statements by the majority, this second stage of the analysis may possibly have left the door wide open for applicants to argue a wide range of changes in circumstances that could merit judicial interference. Fortunately, the majority stressed the fact that in most cases some degree of change is foreseeable, particularly in areas such as job market changes, parenting responsibilities or transition into the job market.

It should only be a significant change in circumstances from what could have been reasonably foreseen at the time of negotiation that should merit judicial interference with a fairly negotiated settlement agreement. As the majority in Miglin state, it will be necessary to show that these new circumstances were not reasonably anticipated by the parties, and have led to a situation that cannot be condoned. (Miglin, supra, para 88)

Even if the court does find a change in circumstances that merits interference, the court cannot disregard the separation agreement entirely and must consider it as one of the factors in determining spousal support.

The majority in Miglin also expressed the opinion that this two stage analysis should be applied not only to separation agreements, but also to consideration of applications to vary an initial court order for spousal support under section 15.2 of the Divorce Act, and to vary an agreement incorporated into a court order under section 17 of the Divorce Act.

For family law practitioners, this may raise the question of whether or not it remains prudent practice to incorporate the terms of separation agreements into a consent order. This decision also raises the question of whether there may be wider applicability of the two stage analysis in Miglin to other aspects of separation agreements, such as property division. For example, Mr. Justice Fraser in Thomsett v. Thomsett [2001] B.C.J. No. 728 recommended that the parties insert a clause into a consent order for the division of assets stating that the division of assets did not derogate from the rights given to the parties under the B.C. Family Relations Act. Mr. Justice Fraser recommended this clause be included because in his view a consent order on property division should be subject to variation on the basis of unfairness in the same way that a separation agreement may be varied.

In summary, a fairly negotiated separation agreements will be given great weight in the event of a later application for spousal support, but the party seeking to enforce a waiver of spousal support will need an agreement that meets the criteria of the first stage of the analysis in Miglin.

If you are contemplating a separation agreement, the decision in Miglin emphasizes the importance of the negotiation process and of obtaining professional legal advice to ensure that the agreement substantially complies with the factors and objectives set out in the Divorce Act.

Separation and Prenuptial agreements Concerning Property Pre-Nuptial or Marriage Agreements:

On March 26, 2004, the Supreme Court of Canada released its decision in the case of Hartshorne v. Hartshorne [2004] S.C.J. No. 20, 2004 SCC 22.  This case pitted lawyer against lawyer in a dispute over the fairness of a marriage agreement signed on their wedding day.

The parties began dating in 1982 and began living together in 1985.  The husband had been practicing law since 1972.  The wife became qualified to practice law in 1981, and worked at the same firm as the husband until June of 1987 when she took maternity leave for the birth of the parties’ first child.

Both parties had been married previously and the husband had divided significant assets after his first marriage.  At the time of the second marriage, the husband had assets of approximately $1.6 million, whereas the wife had few assets and owed $10,000 to Revenue Canada.

The husband insisted upon a marriage agreement and had his lawyer prepare one in February of 1989.  The husband said he told the wife he would not divide his assets again and he would not get married without a marriage agreement.  The wife’s lawyer wrote an opinion letter to her stating that the draft agreement was grossly unfair and that she should not sign it.  Despite the wife’s protestations and at the husband’s insistence, the parties signed the marriage agreement on their wedding day in March of 1989

The parties’ second child was born in November of 1989.  The wife did not work outside the home after the birth of their first child and she was completely dependent upon the husband for her support.  The husband provided her with a household allowance and credit cards, but they did not otherwise share bank accounts or asset information during the marriage.

The parties separated in January of 1998 after 9 years of marriage and 12½ years of cohabitation.  After the separation, the wife continued to live in the former matrimonial home with the children, one of whom has special needs.  The wife did not begin working again until July of 2001 when she re-qualified to practice law and found a position as an associate lawyer at an annual salary of $52,000.  In the year 2000, the husband’s income from his law practice was $267,000.

The husband sought to rely on the marriage agreement at trial with respect to the division of assets.  Based on the marriage agreement, the wife was entitled to 3% per year of the market value of the matrimonial home up to a maximum of 49%.  At the time of trial, the wife’s share pursuant to the marriage agreement was 27%.

The trial judge reviewed the provisions of the marriage agreement pursuant to section 65(1) of the British Columbia Family Relations Act (the “FRA”) to determine whether or not the agreement was fair.  The trial judge considered the most relevant factors in section 65(1) of the FRA to be the length of the marriage, the disproportionate contribution by the husband to the assets, the need of the wife to become or remain economically self-sufficient, the wife’s contributions to the construction of the family home, and her role in assuming the household and child rearing responsibilities, which allowed the husband to maintain his law practice.

In all the circumstances, the trial judge concluded that the marriage agreement was unfair and that a reapportionment of the family assets was appropriate.  The trial judge excluded some of the husband’s assets, but found that the family home, RRSP’s, savings and term deposits, automobile and the husband’s law practice were all family assets.

The wife was awarded a 50% interest in the former matrimonial home and a 40% interest in the remaining assets.  The husband was awarded a 60% share of the family assets, other than the family home, and he was ordered to pay $2,500 per month in spousal support per month until the wife obtained employment, after which he was to pay $1,500 per month.  The net effect was that the wife received approximately 46% of the family assets with a value of approximately $654,000 instead of the approximately $280,000 or 20% of the family assets that she would have received under the marriage agreement.

The husband appealed to the British Columbia Court of Appeal, which released its decision in October of 2002.  In a 2 to 1 decision, the Court of Appeal dismissed the husband’s appeal.  The majority found no error in the approach taken by the trial judge in determining whether or not the marriage agreement was unfair based on the factors in section 65 of the FRA, or in the determination of the reapportionment of assets.  The majority also noted that the trial judge is in the best position to determine what is required to make the division of property objectively fair.

In dissent, Mr. Justice Thackray agreed with the majority that the marriage agreement was unfair, but disagreed on the issue of the reapportionment and would have excluded the husband’s law practice from the asset division.

The husband appealed to the Supreme Court of Canada and arguments were heard in November of 2003.  In a 6 to 3 majority, the Court overturned the decisions of the trial judge and the Court of Appeal and ruled that the marriage agreement ought to be upheld.

The Honourable Mr. Justice Bastarache, writing for the majority of the Court, summarized, in part, the issues on appeal as:

whether a marriage agreement respecting the division of property, entered into after receiving independent legal advice, without duress, coercion or undue influence, can later be found to be unfair and set aside on the basis that it failed “to provide anything for the respondent’s sacrifice in giving up her law practice and postponing her career development”, notwithstanding the parties’ agreement preserved the right to spousal support.  (supra, paragraph 2)

At the outset, the majority notes that the courts should respect marriage agreements that parties make regarding the division of property, particularly where the agreement is negotiated with independent legal advice.  The Court also notes that in British Columbia the primary policy objective guiding the division of family assets is fairness.

The presumption in section 56 of the FRA is that each spouse is entitled to a 50% interest in the family assets upon a triggering event, which includes a divorce.  This presumption is subject to a marriage agreement, a separation agreement and to a claim for reapportionment under Part 6 of the FRA.

Couples entering into a marriage agreement are often trying to avoid the statutory presumption of an equal division of family assets, usually because one party is bringing more assets into the marriage.

Section 65 of the FRA limits the freedom of parties to enter into written agreement varying the statutory presumption of equal division by giving the courts the power to reapportion the assets where the division is unfair at the time of distribution.  A marriage agreement that was fair when it was entered into could still be fair if the marriage only lasted 1 year but may be unfair if the marriage lasted 30 years.

The majority of the Court in Hartshorne noted that the threshold for judicial intervention with respect to domestic contracts is lower in British Columbia than in other jurisdictions in Canada.

The majority confirmed that there is no “hard and fast” rule regarding whether more or less deference should be given to marriage agreements as compared to separation agreements.  In some cases, marriage agreements should be given less deference because they are anticipatory and may not account for the actual financial circumstances of the parties when the marriage ends.

In considering the issue of deference, the majority stated that the Court ought to apply the general legal propositions from the decision in Miglin v. Miglin [2003] 1 S.C.R. 303 (S.C.C.) that marriage agreements should be given some weight, and that a court should not interfere with a pre-existing agreement unless it does not comply with the objectives of the governing legislation.  In addition, some deference should be accorded to the general proposition in Miglin that spousal support arrangements must be considered by looking at the whole agreement since financial arrangements are all connected.

The majority in Hartshorne clearly stated that in determining whether or not a marriage agreement is fair at the time of distribution, a court must consider the parties’ perspectives when the contract was formed, since the agreement should reflect what the parties thought was fair at the time.  The majority also stated that in any fairness analysis under section 65(1) of the FRA it will be important to consider the accuracy of the parties’ predictions at the time they entered their agreement compared to their circumstances at the time of distribution, if they gave consideration to the impact of the decision to enter into the marriage agreement, and “whether they adjusted their agreement during the marriage to meet the demands of a situation different from the one expected, either because the circumstances were different or simply because implications were inadequately addressed or proved to be realistic.” (supra, paragraph 44).

The suggestion that parties should review their marriage agreements during the marriage may outwardly appear to be a practical one, but it remains to be seen whether parties will actually make a concerted effort to review their marriage agreement as circumstances change.  For example, a spouse who has secured the protection of certain assets by way of a marriage agreement may not have much incentive to re-visit the agreement during the marriage.  Unlike most commercial contracts, domestic contracts like marriage agreements tend to provoke an emotional response, and the prospect of reviewing these agreements may not be relished by the spouses.

In Hartshorne, the majority found that at the time of trial the anticipated domestic and financial arrangements of the parties had unfolded as planned, and that the parties had lived out the intent of the marriage agreement to keep their property separate during the relationship.  In these circumstances, the Court stated that any finding that the marriage agreement was unfair should not be made lightly, but that the impact of sacrifices made during the relationship and the overall situation of the parties still should be considered in assessing whether the asset distribution was fair.

At this point in the judgment, the majority set out the following two stage test:

In determining whether a marriage agreement operates unfairly, a court must first apply the agreement.  In particular, the court must assess and award those financial entitlements provided to each spouse under the agreement, and other entitlements from all other sources, including spousal and child support.  The court must then, in consideration of those factors listed in s. 65(1) of the FRA, make a determination as to whether the contract operates unfairly.  At this second stage, consideration must be given to the parties’ personal and financial circumstances, and in particular to the manner in which these circumstances evolved over time.  Where the current circumstances were within the contemplation of the parties at the time the Agreement was formed, and where their Agreement and circumstances surrounding it reflect consideration and response to these circumstances, then the plaintiff’s burden to establish unfairness is heavier.  Thus, consideration of the factors listed in s. 65(1) of the FRA, taken together, would have to reveal that the economic consequences of the marriage breakdown were not shared equitably in all of the circumstances.

Although in the second stage of the test for determining fairness the Court specifically refers to the consideration of the factors set out in section 65 of the FRA, it seems that some of these factors may have been discounted somewhat in the majority’s application of the test to the facts in Hartshorne.

For example, section 65(1)(a) of the FRA lists the duration of the marriage as a factor, and the trial judge considered that a 9 year marriage and 12½ year total period of cohabitation was a relevant factor.  However, the majority found that the duration of the marriage is only relevant to the date property was acquired, and that in Hartshorne the husband had acquired the majority of the assets before the relationship.  It should be noted that the date when property was acquired or disposed of is a separate factor in section 65(1)(c) of the FRA.

In reviewing the trial judge’s approach to considering section 65(1)(e) of the FRA, which is the need for each spouse to become or remain economically independent and self-sufficient, the majority concluded that the analysis was insufficient.  The trial judge ought to have looked at all of the financial awards the wife would have received from all sources, including the division of property, child support and spousal support, before deciding the agreement was unfair.  The Court noted that an appropriate award of spousal support would have compensated the wife for the economic disadvantages she suffered from the marriage.

The majority considered it an error in law that the trial judge awarded spousal support before reapportioning the family assets because it meant that the wife’s need to become economically self-sufficient was considered twice.  The proper approach would have been to apply the marriage agreement, then determine spousal support and then decide if a reapportionment was still warranted on the result and in view of section 65(1).

The Court found that it was “highly significant” that the marriage agreement in this case preserved the right to spousal support and that the husband had a “healthy and continuous flow of income.” (supra, paragraph 58).

It was also significant that the wife had received independent legal advice at the time of negotiation, and that the wife’s lawyer had prepared a written legal opinion advising her, among other things, that the agreement was “grossly unfair”.  The wife made an informed decision to enter into the marriage agreement regardless of its flaws, and could not later rely on that legal opinion to say that she never intended to honor her part of the agreement because it was unfair at the start.  In effect, the wife should never have signed the agreement if she believed that it was unfair at the time.

In all the circumstances, the majority concluded that the marriage agreement was fair at the time of distribution, and that it should be upheld.  The Court acknowledged that this would potentially re-open the issue of spousal support, which had been discontinued by court order in February of 2002.

Having concluded that the marriage agreement was fair, the Court went on to consider whether the trial judge erred in finding that the husband’s law corporation was a family asset.  In very brief reasons, the Court noted that section 59(1) of the FRA excludes as family assets any property owned exclusively by one spouse for a business purpose where the other spouse has not contributed directly or indirectly to the acquisition or operation of the business.   The Court also noted that the value of the husband’s law practice had not increased since the marriage, and concluded it was not a family asset.

This portion of the majority’s decision is contrary to many other decisions under this section of the FRA.  Most often, the spouse who remains at home and attends to child care and domestic management would be seen as making an indirect contribution.

As noted by the Honourable Madam Justice Deschamps for the minority in Hartshorne, section 59(2) of the FRA recognizes savings through effective household management or child rearing responsibilities as an indirect contribution.  The minority agreed with the trial judge’s finding that the law practice was a family asset, but would have excluded it from the division of assets.  The husband relied on his practice to generate the revenue from which he would be paying spousal support, and it would amount to “double dipping” if the wife also received a share of the business.

The minority of 3 justices in Hartshorne dissented from the majority’s finding that the marriage agreement was fair, and did not endorse the two stage analysis of the majority.

In the view of the minority, this was not a case about the ability of parties to enter into marriage agreements, but was a case about “giving effect to the explicit legislative intention that only fair agreements be upheld.” (supra, paragraph 69).  The minority’s position was that to give any weight to unfair agreements, as is the result of the majority’s decision, would defeat the intent of the FRA to encourage parties to enter into fair marriage agreements by granting judges the discretion to reapportion assets.

The minority emphasized that deference must be accorded to the trial judge and to the British Columbia legislature.  With respect to the trial judge, considerable deference should be shown for the reapportionment she determined, particularly where, as in Hartshorne, there was a long trial and complex factual assessments were required.

With respect to the legislature, it chose a less restrictive standard for judicial review of marriage agreements in British Columbia than other jurisdictions, and that decision should be recognized by the courts and shown deference.  The likely net effect of the majority’s decision is that the standard of “fairness” established by the FRA has now been changed to “unconscionability”, which is not the standard set by the legislature.

The minority would have drawn on the decision in Miglin requiring an examination of the circumstances surrounding the negotiation and execution of the marriage agreement, which could be indicators of whether or not the agreement had characteristics of a fair or unfair deal.  The real determination of fairness in accordance with section 65(1) of the FRA, however, must be made at the time of application to the court.

The test proposed by the minority would be for the trial judge to review the asset division in the marriage agreement in light of the factors set out in section 65(1) of the FRA, and if it is fair at that time then the agreement should stand.  If it is unfair, the court can reapportion the family assets to achieve fairness.

The minority noted that section 65(1) of the FRA does not include marriage agreements as a factor to consider in the list of factors for assessing fairness, unlike the inclusion of agreements in section 15.2(4)(c) of the Divorce Act which was considered in Miglin.

The minority also disagreed with the majority’s approach in first applying the marriage agreement, then determining spousal support and finally deciding whether the result was fair on the basis of the factors in the FRA, since this approach gives undue weight to the marriage agreement.

In evaluating the trial judge’s findings of fact, the minority differed with the majority’s view that by choosing to sign an unfair agreement, the wife indicated she was not concerned about it.  To the minority, this analysis confused fairness with unconscionability.  Obtaining independent legal advice prior to signing an unfair agreement does not make the agreement fair, but it may be a bar to setting it aside on the basis of unconscionability.

The minority looked at the circumstances surrounding the execution of the marriage agreement in Hartshorne and found there were indications that the wife was in a vulnerable position when the agreement was negotiated, which could demonstrate possible unfairness and would require the trial judge to review the agreement “with increased scrutiny.” (supra, paragraph 90)

In all the circumstances, the minority would have upheld the trial judge’s decision except with respect to the division of the husband’s law practice. 

What are the lessons learned from Hartshorne?  If you are the party seeking to protect your assets from division under the FRA, the verdict on marriage agreements is “I Do”, and you should ensure that you have a marriage agreement in place before you walk down the aisle.

If you are the party being asked to enter into a marriage agreement waiving a claim to assets, you might want to think about saying “I Don’t” to signing on the dotted line, especially if you have had legal advice indicating that the agreement is unfair.    

Separation Agreements  

Case Comment on Miglin v. Miglin: Are Separation Agreements Finally Final? On April 17, 2003, the Supreme Court of Canada released the long-awaited judgment in Miglin v. Miglin [2003] S.C.J. No. 21, 2003 SCC 24, regarding separation agreements. All nine justices of the Supreme Court of Canada heard the appeal from the Ontario Court of Appeal. Judgment for the majority of seven justices was written by Mr. Justice Bastarache and Madam Justice Arbour. Mr. Justice LeBel wrote the dissenting reasons for himself and Mr. Justice Deschamps.

This decision has been awaited by family law practitioners because it represented an opportunity for the Supreme Court of Canada to clarify the proper approach to an application for spousal support under section 15.2 of the Divorce Act (Canada) where the spouses have executed a separation agreement releasing any future claim for spousal support. The state of the law regarding the certainty of separation agreements was previously governed by a trilogy of cases known as the Pelech trilogy. The cases in the Pelech trilogy were decided under the 1968 Divorce Act instead of the new 1985 Divorce Act.

The Pelech Trilogy stood for the proposition that where there are settlement agreements in place, an applicant for spousal support must establish a radical and unforeseen change in circumstances that is causally connected to the marriage before a court can interfere with the prior agreement and make or vary an order for spousal support. In Miglin, the Supreme Court of Canada stated that this narrow test is no longer appropriate given the significant changes in both statutory law and case law since the Pelech Trilogy was decided.

Instead, the majority of the Supreme Court in Miglin set out a two stage analysis to be applied by the courts in circumstances where there is an initial application for spousal support that is inconsistent with a pre-existing agreement.

The first stage of the analysis requires the court to look at the circumstances in which the agreement was negotiated and executed, including taking into account whether there was any oppression, pressure or other vulnerabilities, and the negotiating conditions, such as the duration and whether or not there was professional assistance for the parties. Unless there is evidence of a fundamental flaw in the negotiation process, fairly negotiated separation agreements should be viewed as expressing the substantive intent of the parties and the courts should be loathe to interfere. (Miglin, supra, para. 83)

Once the court has examined the circumstances in which the agreement was negotiated, the next step is to look at the substance of the agreement. The court must look at whether or not the agreement takes into account the objectives and factors set out in the Divorce Act. The court must assess whether or not the agreement substantially complies with these factors and objectives. If the agreement does not substantially comply, it does not mean that the entire agreement should be set aside; the agreement should still be considered as a factor in determining spousal support.

If the separation agreement was fairly negotiated and substantially complies with the factors and objectives set out in the Divorce Act, the majority of the Supreme Court of Canada stated that the court should defer to the wishes of the parties and afford the agreement great weight.

However, despite this promising statement of certainty, the majority also noted that between the time the parties negotiated the separation agreement and the time of an application for spousal support, the circumstances may have changed in ways that the parties had not contemplated.

This forms the basis for the second stage of the analysis, where the court must assess the whether or not the agreement is still in substantial compliance with the factors and objectives in the Divorce Act, the extent to which it still reflects the intentions of the parties. The majority stated that the intentions of the parties will be the backdrop against which the court must assess whether giving the agreement conclusive weight is still appropriate.

Were it not for the subsequent statements by the majority, this second stage of the analysis may possibly have left the door wide open for applicants to argue a wide range of changes in circumstances that could merit judicial interference. Fortunately, the majority stressed the fact that in most cases some degree of change is foreseeable, particularly in areas such as job market changes, parenting responsibilities or transition into the job market.

It should only be a significant change in circumstances from what could have been reasonably foreseen at the time of negotiation that should merit judicial interference with a fairly negotiated settlement agreement. As the majority in Miglin state, it will be necessary to show that these new circumstances were not reasonably anticipated by the parties, and have led to a situation that cannot be condoned. (Miglin, supra, para 88)

Even if the court does find a change in circumstances that merits interference, the court cannot disregard the separation agreement entirely and must consider it as one of the factors in determining spousal support.

The majority in Miglin also expressed the opinion that this two stage analysis should be applied not only to separation agreements, but also to consideration of applications to vary an initial court order for spousal support under section 15.2 of the Divorce Act, and to vary an agreement incorporated into a court order under section 17 of the Divorce Act.

For family law practitioners, this may raise the question of whether or not it remains prudent practice to incorporate the terms of separation agreements into a consent order. This decision also raises the question of whether there may be wider applicability of the two stage analysis in Miglin to other aspects of separation agreements, such as property division. For example, Mr. Justice Fraser in Thomsett v. Thomsett [2001] B.C.J. No. 728 recommended that the parties insert a clause into a consent order for the division of assets stating that the division of assets did not derogate from the rights given to the parties under the B.C. Family Relations Act. Mr. Justice Fraser recommended this clause be included because in his view a consent order on property division should be subject to variation on the basis of unfairness in the same way that a separation agreement may be varied.

In summary, a fairly negotiated separation agreements will be given great weight in the event of a later application for spousal support, but the party seeking to enforce a waiver of spousal support will need an agreement that meets the criteria of the first stage of the analysis in Miglin.

If you are contemplating a separation agreement, the decision in Miglin emphasizes the importance of the negotiation process and of obtaining professional legal advice to ensure that the agreement substantially complies with the factors and objectives set out in the Divorce Act.

Separation and Prenuptial agreements Concerning Property B.C. Pre-Nuptial or Marriage Agreements:
Should it be “I Do” or “I Don’t”
After Hartshorne v. Hartshorne?
On March 26, 2004, the Supreme Court of Canada released its decision in the case of Hartshorne v. Hartshorne [2004] S.C.J. No. 20, 2004 SCC 22.  This case pitted lawyer against lawyer in a dispute over the fairness of a marriage agreement signed on their wedding day.

The parties began dating in 1982 and began living together in 1985.  The husband had been practicing law since 1972.  The wife became qualified to practice law in 1981, and worked at the same firm as the husband until June of 1987 when she took maternity leave for the birth of the parties’ first child.

Both parties had been married previously and the husband had divided significant assets after his first marriage.  At the time of the second marriage, the husband had assets of approximately $1.6 million, whereas the wife had few assets and owed $10,000 to Revenue Canada.

The husband insisted upon a marriage agreement and had his lawyer prepare one in February of 1989.  The husband said he told the wife he would not divide his assets again and he would not get married without a marriage agreement.  The wife’s lawyer wrote an opinion letter to her stating that the draft agreement was grossly unfair and that she should not sign it.  Despite the wife’s protestations and at the husband’s insistence, the parties signed the marriage agreement on their wedding day in March of 1989

The parties’ second child was born in November of 1989.  The wife did not work outside the home after the birth of their first child and she was completely dependent upon the husband for her support.  The husband provided her with a household allowance and credit cards, but they did not otherwise share bank accounts or asset information during the marriage.

The parties separated in January of 1998 after 9 years of marriage and 12½ years of cohabitation.  After the separation, the wife continued to live in the former matrimonial home with the children, one of whom has special needs.  The wife did not begin working again until July of 2001 when she re-qualified to practice law and found a position as an associate lawyer at an annual salary of $52,000.  In the year 2000, the husband’s income from his law practice was $267,000.

The husband sought to rely on the marriage agreement at trial with respect to the division of assets.  Based on the marriage agreement, the wife was entitled to 3% per year of the market value of the matrimonial home up to a maximum of 49%.  At the time of trial, the wife’s share pursuant to the marriage agreement was 27%.

The trial judge reviewed the provisions of the marriage agreement pursuant to section 65(1) of the British Columbia Family Relations Act (the “FRA”) to determine whether or not the agreement was fair.  The trial judge considered the most relevant factors in section 65(1) of the FRA to be the length of the marriage, the disproportionate contribution by the husband to the assets, the need of the wife to become or remain economically self-sufficient, the wife’s contributions to the construction of the family home, and her role in assuming the household and child rearing responsibilities, which allowed the husband to maintain his law practice.

In all the circumstances, the trial judge concluded that the marriage agreement was unfair and that a reapportionment of the family assets was appropriate.  The trial judge excluded some of the husband’s assets, but found that the family home, RRSP’s, savings and term deposits, automobile and the husband’s law practice were all family assets.

The wife was awarded a 50% interest in the former matrimonial home and a 40% interest in the remaining assets.  The husband was awarded a 60% share of the family assets, other than the family home, and he was ordered to pay $2,500 per month in spousal support per month until the wife obtained employment, after which he was to pay $1,500 per month.  The net effect was that the wife received approximately 46% of the family assets with a value of approximately $654,000 instead of the approximately $280,000 or 20% of the family assets that she would have received under the marriage agreement.

The husband appealed to the British Columbia Court of Appeal, which released its decision in October of 2002.  In a 2 to 1 decision, the Court of Appeal dismissed the husband’s appeal.  The majority found no error in the approach taken by the trial judge in determining whether or not the marriage agreement was unfair based on the factors in section 65 of the FRA, or in the determination of the reapportionment of assets.  The majority also noted that the trial judge is in the best position to determine what is required to make the division of property objectively fair.

In dissent, Mr. Justice Thackray agreed with the majority that the marriage agreement was unfair, but disagreed on the issue of the reapportionment and would have excluded the husband’s law practice from the asset division.

The husband appealed to the Supreme Court of Canada and arguments were heard in November of 2003.  In a 6 to 3 majority, the Court overturned the decisions of the trial judge and the Court of Appeal and ruled that the marriage agreement ought to be upheld.

The Honourable Mr. Justice Bastarache, writing for the majority of the Court, summarized, in part, the issues on appeal as:

whether a marriage agreement respecting the division of property, entered into after receiving independent legal advice, without duress, coercion or undue influence, can later be found to be unfair and set aside on the basis that it failed “to provide anything for the respondent’s sacrifice in giving up her law practice and postponing her career development”, notwithstanding the parties’ agreement preserved the right to spousal support.  (supra, paragraph 2)

At the outset, the majority notes that the courts should respect marriage agreements that parties make regarding the division of property, particularly where the agreement is negotiated with independent legal advice.  The Court also notes that in British Columbia the primary policy objective guiding the division of family assets is fairness.

The presumption in section 56 of the FRA is that each spouse is entitled to a 50% interest in the family assets upon a triggering event, which includes a divorce.  This presumption is subject to a marriage agreement, a separation agreement and to a claim for reapportionment under Part 6 of the FRA.

Couples entering into a marriage agreement are often trying to avoid the statutory presumption of an equal division of family assets, usually because one party is bringing more assets into the marriage.

Section 65 of the FRA limits the freedom of parties to enter into written agreement varying the statutory presumption of equal division by giving the courts the power to reapportion the assets where the division is unfair at the time of distribution.  A marriage agreement that was fair when it was entered into could still be fair if the marriage only lasted 1 year but may be unfair if the marriage lasted 30 years.

The majority of the Court in Hartshorne noted that the threshold for judicial intervention with respect to domestic contracts is lower in British Columbia than in other jurisdictions in Canada.

The majority confirmed that there is no “hard and fast” rule regarding whether more or less deference should be given to marriage agreements as compared to separation agreements.  In some cases, marriage agreements should be given less deference because they are anticipatory and may not account for the actual financial circumstances of the parties when the marriage ends.

In considering the issue of deference, the majority stated that the Court ought to apply the general legal propositions from the decision in Miglin v. Miglin [2003] 1 S.C.R. 303 (S.C.C.) that marriage agreements should be given some weight, and that a court should not interfere with a pre-existing agreement unless it does not comply with the objectives of the governing legislation.  In addition, some deference should be accorded to the general proposition in Miglin that spousal support arrangements must be considered by looking at the whole agreement since financial arrangements are all connected.

The majority in Hartshorne clearly stated that in determining whether or not a marriage agreement is fair at the time of distribution, a court must consider the parties’ perspectives when the contract was formed, since the agreement should reflect what the parties thought was fair at the time.  The majority also stated that in any fairness analysis under section 65(1) of the FRA it will be important to consider the accuracy of the parties’ predictions at the time they entered their agreement compared to their circumstances at the time of distribution, if they gave consideration to the impact of the decision to enter into the marriage agreement, and “whether they adjusted their agreement during the marriage to meet the demands of a situation different from the one expected, either because the circumstances were different or simply because implications were inadequately addressed or proved to be realistic.” (supra, paragraph 44).

The suggestion that parties should review their marriage agreements during the marriage may outwardly appear to be a practical one, but it remains to be seen whether parties will actually make a concerted effort to review their marriage agreement as circumstances change.  For example, a spouse who has secured the protection of certain assets by way of a marriage agreement may not have much incentive to re-visit the agreement during the marriage.  Unlike most commercial contracts, domestic contracts like marriage agreements tend to provoke an emotional response, and the prospect of reviewing these agreements may not be relished by the spouses.

In Hartshorne, the majority found that at the time of trial the anticipated domestic and financial arrangements of the parties had unfolded as planned, and that the parties had lived out the intent of the marriage agreement to keep their property separate during the relationship.  In these circumstances, the Court stated that any finding that the marriage agreement was unfair should not be made lightly, but that the impact of sacrifices made during the relationship and the overall situation of the parties still should be considered in assessing whether the asset distribution was fair.

At this point in the judgment, the majority set out the following two stage test:

In determining whether a marriage agreement operates unfairly, a court must first apply the agreement.  In particular, the court must assess and award those financial entitlements provided to each spouse under the agreement, and other entitlements from all other sources, including spousal and child support.  The court must then, in consideration of those factors listed in s. 65(1) of the FRA, make a determination as to whether the contract operates unfairly.  At this second stage, consideration must be given to the parties’ personal and financial circumstances, and in particular to the manner in which these circumstances evolved over time.  Where the current circumstances were within the contemplation of the parties at the time the Agreement was formed, and where their Agreement and circumstances surrounding it reflect consideration and response to these circumstances, then the plaintiff’s burden to establish unfairness is heavier.  Thus, consideration of the factors listed in s. 65(1) of the FRA, taken together, would have to reveal that the economic consequences of the marriage breakdown were not shared equitably in all of the circumstances.

Although in the second stage of the test for determining fairness the Court specifically refers to the consideration of the factors set out in section 65 of the FRA, it seems that some of these factors may have been discounted somewhat in the majority’s application of the test to the facts in Hartshorne.

For example, section 65(1)(a) of the FRA lists the duration of the marriage as a factor, and the trial judge considered that a 9 year marriage and 12½ year total period of cohabitation was a relevant factor.  However, the majority found that the duration of the marriage is only relevant to the date property was acquired, and that in Hartshorne the husband had acquired the majority of the assets before the relationship.  It should be noted that the date when property was acquired or disposed of is a separate factor in section 65(1)(c) of the FRA.

In reviewing the trial judge’s approach to considering section 65(1)(e) of the FRA, which is the need for each spouse to become or remain economically independent and self-sufficient, the majority concluded that the analysis was insufficient.  The trial judge ought to have looked at all of the financial awards the wife would have received from all sources, including the division of property, child support and spousal support, before deciding the agreement was unfair.  The Court noted that an appropriate award of spousal support would have compensated the wife for the economic disadvantages she suffered from the marriage.

The majority considered it an error in law that the trial judge awarded spousal support before reapportioning the family assets because it meant that the wife’s need to become economically self-sufficient was considered twice.  The proper approach would have been to apply the marriage agreement, then determine spousal support and then decide if a reapportionment was still warranted on the result and in view of section 65(1).

The Court found that it was “highly significant” that the marriage agreement in this case preserved the right to spousal support and that the husband had a “healthy and continuous flow of income.” (supra, paragraph 58).

It was also significant that the wife had received independent legal advice at the time of negotiation, and that the wife’s lawyer had prepared a written legal opinion advising her, among other things, that the agreement was “grossly unfair”.  The wife made an informed decision to enter into the marriage agreement regardless of its flaws, and could not later rely on that legal opinion to say that she never intended to honor her part of the agreement because it was unfair at the start.  In effect, the wife should never have signed the agreement if she believed that it was unfair at the time.

In all the circumstances, the majority concluded that the marriage agreement was fair at the time of distribution, and that it should be upheld.  The Court acknowledged that this would potentially re-open the issue of spousal support, which had been discontinued by court order in February of 2002.

Having concluded that the marriage agreement was fair, the Court went on to consider whether the trial judge erred in finding that the husband’s law corporation was a family asset.  In very brief reasons, the Court noted that section 59(1) of the FRA excludes as family assets any property owned exclusively by one spouse for a business purpose where the other spouse has not contributed directly or indirectly to the acquisition or operation of the business.   The Court also noted that the value of the husband’s law practice had not increased since the marriage, and concluded it was not a family asset.

This portion of the majority’s decision is contrary to many other decisions under this section of the FRA.  Most often, the spouse who remains at home and attends to child care and domestic management would be seen as making an indirect contribution.

As noted by the Honourable Madam Justice Deschamps for the minority in Hartshorne, section 59(2) of the FRA recognizes savings through effective household management or child rearing responsibilities as an indirect contribution.  The minority agreed with the trial judge’s finding that the law practice was a family asset, but would have excluded it from the division of assets.  The husband relied on his practice to generate the revenue from which he would be paying spousal support, and it would amount to “double dipping” if the wife also received a share of the business.

The minority of 3 justices in Hartshorne dissented from the majority’s finding that the marriage agreement was fair, and did not endorse the two stage analysis of the majority.

In the view of the minority, this was not a case about the ability of parties to enter into marriage agreements, but was a case about “giving effect to the explicit legislative intention that only fair agreements be upheld.” (supra, paragraph 69).  The minority’s position was that to give any weight to unfair agreements, as is the result of the majority’s decision, would defeat the intent of the FRA to encourage parties to enter into fair marriage agreements by granting judges the discretion to reapportion assets.

The minority emphasized that deference must be accorded to the trial judge and to the British Columbia legislature.  With respect to the trial judge, considerable deference should be shown for the reapportionment she determined, particularly where, as in Hartshorne, there was a long trial and complex factual assessments were required.

With respect to the legislature, it chose a less restrictive standard for judicial review of marriage agreements in British Columbia than other jurisdictions, and that decision should be recognized by the courts and shown deference.  The likely net effect of the majority’s decision is that the standard of “fairness” established by the FRA has now been changed to “unconscionability”, which is not the standard set by the legislature.

The minority would have drawn on the decision in Miglin requiring an examination of the circumstances surrounding the negotiation and execution of the marriage agreement, which could be indicators of whether or not the agreement had characteristics of a fair or unfair deal.  The real determination of fairness in accordance with section 65(1) of the FRA, however, must be made at the time of application to the court.

The test proposed by the minority would be for the trial judge to review the asset division in the marriage agreement in light of the factors set out in section 65(1) of the FRA, and if it is fair at that time then the agreement should stand.  If it is unfair, the court can reapportion the family assets to achieve fairness.

The minority noted that section 65(1) of the FRA does not include marriage agreements as a factor to consider in the list of factors for assessing fairness, unlike the inclusion of agreements in section 15.2(4)(c) of the Divorce Act which was considered in Miglin.

The minority also disagreed with the majority’s approach in first applying the marriage agreement, then determining spousal support and finally deciding whether the result was fair on the basis of the factors in the FRA, since this approach gives undue weight to the marriage agreement.

In evaluating the trial judge’s findings of fact, the minority differed with the majority’s view that by choosing to sign an unfair agreement, the wife indicated she was not concerned about it.  To the minority, this analysis confused fairness with unconscionability.  Obtaining independent legal advice prior to signing an unfair agreement does not make the agreement fair, but it may be a bar to setting it aside on the basis of unconscionability.

The minority looked at the circumstances surrounding the execution of the marriage agreement in Hartshorne and found there were indications that the wife was in a vulnerable position when the agreement was negotiated, which could demonstrate possible unfairness and would require the trial judge to review the agreement “with increased scrutiny.” (supra, paragraph 90)

In all the circumstances, the minority would have upheld the trial judge’s decision except with respect to the division of the husband’s law practice. 

What are the lessons learned from Hartshorne?  If you are the party seeking to protect your assets from division under the FRA, the verdict on marriage agreements is “I Do”, and you should ensure that you have a marriage agreement in place before you walk down the aisle.

If you are the party being asked to enter into a marriage agreement waiving a claim to assets, you might want to think about saying “I Don’t” to signing on the dotted line, especially if you have had legal advice indicating that the agreement is unfair.