Will the Court Uphold an Agreement to Divide Family Property Signed Without Independent Legal Advice? Case Comment on Anderson v Anderson, 2023 SCC 13
December 5, 2024
Dividing family property after the end of a spousal relationship can be complicated and time-consuming. It can be tempting to draft an agreement with your ex-spouse without the help of a lawyer, in an attempt to avoid the delay and expense that can come with seeking representation. What happens if an agreement is signed without lawyers, and one party later asks the Court to set the agreement aside because they feel it is unfair? Will the Court uphold the original agreement, or replace it with a new division of property?
In the decision of Anderson v Anderson (2023 SCC 13), the Supreme Court of Canada examined this issue. This case began in Saskatchewan and discusses how the Court will treat “domestic contracts” that divide family property, compared to “interspousal contracts” under Saskatchewan’s Family Property Act (S.S. 1997, c. F-6.3).
Overview of the Legislation
The Family Property Act sets out how family property is divided when spouses separate. Under section 21, it defaults to a presumption of equal distribution of family property. However, spouses are permitted to contract out of equal division of property if it is fair and equitable to do so. Whether it is fair and equitable varies depending on the circumstances.
The Family Property Act identifies two types of agreements that spouses can enter to divide their property. The first are “interspousal contracts” under section 38. These are formal agreements with specific requirements, including that the parties must acknowledge in writing that they understand the nature and effect of the agreement signed, in the presence of independent counsel. This means that each party must have his or her own lawyer. Under section 24(2), interspousal contracts must also not be unconscionable or grossly unfair. A valid interspousal contract that meets these requirements is enforceable in Court.
The second type of agreement, recognized under section 40 of The Family Property Act, is called a “domestic contract”. A domestic contract is an agreement signed by spouses that does not meet the requirements to be an “interspousal contract”. Independent legal advice has not been obtained by the parties prior to execution of a domestic contract. Domestic contracts may still be considered by a court but are not automatically enforceable like interspousal contracts. Domestic contracts will be given whatever weight the court considers reasonable.
Facts of Anderson v Anderson
In this case, a husband and wife separated after three years of marriage. Both had entered the marriage with substantial individual assets. Upon separation, they signed a domestic contract stating each would keep the property in his or her name, and give up the right to the other’s property, except for the family home and household goods, which would be divided equally. They did not obtain independent legal advice and did not exchange financial disclosure prior to signing. The husband later applied to the Saskatchewan Court of Queen’s Bench (as it was then called), asking the Court to set aside the contract and order equal division of all assets. He argued that the agreement was signed without independent legal advice and under duress.
Trial Level
The trial judge found that the domestic contract was not enforceable. He found the lack of legal representation meant the parties could not have fully known what they were agreeing to. He also found that the agreement was not binding because it was not complete, as it deferred dealing with the family home to a later date. He ordered that the assets be divided equally under the Family Property Act.
Court of Appeal
The wife appealed. The Saskatchewan Court of Appeal overturned the trial decision. It found that the trial judge placed too much emphasis on the lack of independent legal advice, given the same is not a requirement for a domestic contract, and that the husband and wife understood the essential terms of the agreement. The Court of Appeal held that the agreement was binding. The Court of Appeal determined that the domestic contract carried great weight and redistributed the family property based on its terms.
Supreme Court of Canada
The husband appealed to the Supreme Court of Canada. The Supreme Court agreed with the Court of Appeal that the trial judge had erred but found a different result. The Court outlined a useful framework to guide courts in the interpretation of domestic contracts:
- Domestic contracts should be encouraged and supported by courts within the bounds allowed by the legislation, unless there is a compelling reason to discount the agreement;
- Judges must approach family law settlements with balancing the values of contractual autonomy, certainty, and fairness in mind. They must recognize that family law negotiations often take place in emotionally charged contexts which may result in imbalance and exploitation; and
- Concerns about vulnerabilities can be countered by safeguards such as full disclosure of financial information and independent legal advice.
From these principles, the Court developed a two-stage framework for determining what weight to give a domestic contract. At the first stage, courts must assess the procedural integrity of the agreement. This means they must determine whether the parties executed the agreement freely and understood its meaning and consequences. This is done by looking at the bargaining process for undue pressure or exploitation of a power imbalance or vulnerability. If the agreement arose from an unfair bargaining process, it is likely to be set aside in Court.
If the agreement passes the first stage, the court will assess the substantive fairness of the agreement. The less fair and equitable a court determines the agreement is, the less weight it will be given. Fairness and equity are evaluated in the context of The Family Property Act’s objectives, such as:
- The starting presumption of equal division of family property and the factors set out in section 21(3) to deviate from that presumption; and
- That departures from equal division of the family home are only justified under section 22 in extraordinary circumstances or where equal division would be unfair to a custodial parent.
In assessing a domestic contract, the overarching question is whether the agreement is within a range of fair and equitable possibilities considered by The Family Property Act. It is not necessary for the agreement to resolve all issues of property division.
Ultimately in this case, the Supreme Court found that the agreement was binding and dismissed the husband’s appeal. The Court held that the husband had understood what he was signing at the time, and there was no evidence that the lack of financial disclosure made the husband vulnerable.
Conclusion
Domestic contracts under The Family Property Act can be enforceable in varying degrees. However, these contracts will not be automatically enforceable and will be subject to scrutiny by the courts. In the midst of a difficult spousal separation, the appeal of a quick and casual agreement signed without legal advice is understandable. However, entering into a domestic contract creates risk of signing a vague, incomplete, or unfair agreement that does not comply with the legislation. Although it may seem quick and inexpensive at the outset, a domestic contract can lead to complexity, delay, and huge expense down the road if one party applies to Court to set the agreement aside. To avoid these issues, it is best to obtain
independent legal advice and enter into an interspousal contract. Independent legal advice acts as a safeguard against concerns about vulnerability, unequal bargaining power, and unfairness in family property division.
If you have questions about dividing your family property or need advice in the preparation of an interspousal contract, please do not hesitate to contact our office.
About the Author:
Zina L. B. Scott is an associate lawyer in the Regina office and practices primarily family law, child protection, insurance defence, and civil litigation.
Written with assistance from 2024 summer student, Sydney Sulymka.
About McKercher LLP:
For nearly 100 years, McKercher LLP has grown deep roots across Saskatchewan, serving the community from offices in Saskatoon and Regina. Now, as one of the province’s largest and most established full-service law firms, we proudly carry on this legacy – following a client-first philosophy as we provide legal services and real solutions for the people who rely on us.
This post is for information purposes only and should not be taken as legal opinions on any specific facts or circumstances. Counsel should be consulted concerning your own situation and any specific legal questions you may have.
