In British Columbia, separation agreements play a crucial role in defining the post-relationship rights and responsibilities of couples. However, when poorly drafted, these agreements often end up being challenged in court.
Separation agreements in British Columbia must be carefully drafted to avoid costly legal disputes. Poorly drafted ones can lead to costly legal battles, making it essential to understand key legal requirements.
Things to be kept in mind while drafting a Separation Agreement
1. Full Financial Disclosure: A Legal Requirement, Not an Option
A well-drafted separation agreement must be fair, transparent, and legally sound to withstand legal scrutiny. Courts frequently set aside agreements due to a lack of full financial disclosure, unfair bargaining power, or the absence of independent legal advice (ILA). Ensuring compliance with these legal requirements helps prevent costly disputes.
One of the most common reasons separation agreements are challenged is failure to disclose financial assets, liabilities, and debts. The Supreme Court of Canada, in Rick v. Brandsema, 2009 SCC 10, emphasized that courts will intervene if an agreement is based on misleading or incomplete financial information. Similarly, in Newton v. Marzban, the court stressed that lawyers must diligently inform clients about their financial disclosure obligations to avoid breaches of contract and potential legal penalties.
To avoid future confusion and ambiguity, the agreement should include a clause in which each party declares that they have provided full disclosure of all assets and liabilities. It is crucial to clearly inform clients that they must fully disclose all relevant information to their spouse during negotiations and when entering into the agreement.
Beyond financial transparency, the negotiation process itself must also be free from coercion or unfair advantage.
2. Unconscionability: When an agreement becomes unfair
Unconscionability: When an agreement becomes unfairA separation agreement may be unenforceable if one party exploits the other’s vulnerability, whether mental, financial, or legal. Courts can declare such agreements unenforceable, especially when one party exploits the other’s vulnerability.
It is determined by two key factors;
- Inequality of Bargaining Power – when one party is significantly stronger and misuses this advantage.
- Unfair Terms – When the contract’s terms are excessively one-sided and unjust
In Rick v. Brandsema (2009), the husband concealed financial information and exploited his wife’s mental instability to secure an unfair separation agreement. The Supreme Court ruled that separation agreements are valid only when based on full disclosure and fairness. Since transparency was lacking, the court set aside the agreement.
Similarly, in Miglin v. Miglin, the Supreme Court of Canada held that a separation agreement may be set aside if it was influenced by a power imbalance, a lack of legal counsel, or foreseeable financial hardship. Courts uphold contractual autonomy but ensure agreements remain fair and equitable, requiring full financial disclosure to prevent exploitation.
By ensuring full financial disclosure and fair negotiations, lawyers can help their clients avoid costly legal battles and create agreements that withstand judicial scrutiny.
3. The Overlooked Tax Traps in Divorce Settlements
Tax implications during divorce are often overlooked but can have lasting financial consequences. From property division and pensions to spousal support and corporate assets, nearly every aspect of a separation carries tax considerations. In Canada, property transfers between spouses are generally tax-free with a written agreement, while investment properties may trigger capital gains tax. Child support is tax-neutral, but spousal support is deductible for the payer and taxable for the recipient if structured correctly. Retirement accounts like RRSPs require proper documentation to avoid penalties, and estate planning updates such as wills and beneficiary designations are essential. Consulting a lawyer to draft a separation agreement ensures compliance and financial stability post-separation.
4. Avoiding clerical errors
Small clerical errors in separation agreements can lead to costly disputes. A simple mistake, like reversing asset allocations, can create legal and financial headaches. In one case, a lawyer accidentally swapped provisions for a husband and wife, requiring an urgent correction. Not all cases are so fortunate. Clear, precise wording and an extra review can prevent such issues, ensuring a smoother and more secure transition.
5. Lack of Independent Legal Advice (ILA)
In British Columbia, separation agreements without ILA are more vulnerable to legal challenges, especially if one party later claims they were pressured into signing or did not fully understand the terms.
A clear example is Eckert v. Garnham, 2023 BCSC 55, where the BC Court of Appeal set aside a separation agreement because the husband exploited the wife’s vulnerability and actively undermined her access to ILA. He disparaged the legal advice she received, claimed his lawyer disagreed with it, and suggested her lawyer was using deceptive tactics. Despite her request for more time, he pressured her to sign immediately. The court ruled that his actions created an unfair negotiation process, giving him an improper advantage and making the agreement invalid. This case reinforces the importance of genuine, independent legal advice to ensure fairness and enforceability in separation agreements.
Proper ILA ensures that both parties fully understand their rights and obligations before signing a separation agreement. Each party must consult separate legal counsel, have sufficient time to review the terms, and not be pressured into signing.
Similarly, in Bradley v. Callahan, the court upheld a marriage agreement despite challenges because both parties had received thorough independent legal advice (ILA). This case underscores the importance of documented legal counsel in ensuring that agreements are fair, properly understood, and legally enforceable. When both parties have access to independent advice, it strengthens the validity of the agreement and reduces the likelihood of future disputes.
Conclusion
Ensuring a well-drafted and enforceable separation agreement requires careful legal guidance. If you’re navigating a separation, contact Legalbird today to ensure your separation agreement is built to last. At Legalbird, our lawyers prioritize full financial disclosure, fair negotiations, and independent legal advice during divorce. By addressing these critical areas, we protect our clients from unnecessary disputes and ensure that their agreements stand up in court.