Enforcing Separation Agreements in Ontario: Lessons from Khani v. Araghi

two medical professionals discussing a chart

Written on behalf of Shariff & Associates

Separation agreements are an essential tool for resolving family disputes, ensuring clarity in financial, property, and parenting matters after the breakdown of a relationship. However, legal disputes can arise when one party attempts to challenge the validity or enforceability of such an agreement.

The recent Ontario Court of Appeal decision in Khani v. Araghi, 2025 ONCA 24, provides significant insight into the importance of upholding valid separation agreements and the legal principles surrounding escrow conditions, waiver, and settlement privilege.

This case serves as a crucial reminder for separating spouses and their legal representatives about the enforceability of negotiated agreements, the significance of conduct in legal disputes, and the potential consequences of delaying appeals. Below, we examine the key issues and legal principles discussed in this landmark case.

Business Asset Disputes After Separation

Dr. Golbarg Araghi and Farhad Agha Baba Khani were married for nearly 13 years and had four children before their separation in 2017. Both were professionals—Araghi, a medical doctor and Khani, a chiropractor—who co-owned a medical office building through a corporation, Innova Medical and Rehab Inc. While Khani held a majority stake in the company (51%), Araghi owned 49%. After their separation, the disposition of this shared business asset became a significant point of contention, leading to litigation in the Commercial Court.

In January 2019, the parties negotiated a separation agreement covering key family law issues, including parenting time, child support, spousal support, and asset division. However, while Khani signed the deal, Araghi later argued that it was held in escrow pending approval by her corporate counsel. Despite her initial actions indicating acceptance of the agreement, she attempted to introduce modifications, leading Khani to seek judicial enforcement of the original agreement.

Legal Proceedings and Judicial Findings

1. The Motion Judge’s Decision

Khani brought a motion for summary judgment to enforce the separation agreement. In response, Araghi contended that the agreement was not valid because she had not signed it and that, even if she had, it remained unenforceable due to the unresolved escrow condition.

The motion judge ruled that Araghi had signed the agreement and was a valid domestic contract. However, given the escrow condition, the judge ordered a trial to determine whether it had been satisfied or waived.

2. The Trial Judge’s Decision

At trial, Araghi’s corporate counsel testified that she had reviewed the commercial aspects of the separation agreement but had raised concerns about specific financial implications. However, the trial judge found that Araghi’s conduct demonstrated an intention to proceed with the agreement regardless of those concerns. The court also noted that she had failed to communicate any objections or seek amendments at the time formally.

The trial judge concluded that the escrow condition had been either:

  • Satisfied, based on the legal counsel’s review and the lack of any subsequent modifications;
  • Waived, based on Araghi’s conduct, which indicated she had accepted the terms of the agreement and proceeded accordingly.

Additionally, the trial judge found that even if the escrow condition had not been explicitly satisfied or waived, it should have been deemed fulfilled within a reasonable timeframe. The court imposed a 21-day limit on the escrow period, emphasizing that separation agreements, particularly those involving parenting arrangements, should not be left in limbo indefinitely.

3. The Ontario Court of Appeal’s Decision

On appeal, Araghi raised several arguments challenging the trial court’s findings, including the validity of the agreement, the waiver of the escrow condition, and the application of the settlement privilege. The Ontario Court of Appeal dismissed the appeal, holding that:

  • Araghi was out of time to challenge the motion judge’s decision, as she had failed to file an appeal within the prescribed period.
  • The trial judge correctly found that she had waived the escrow condition through her conduct, particularly by treating the agreement as valid before attempting to contest it later.
  • The exception to the settlement privilege applied, allowing key communications between counsel to be considered evidence of the agreement’s validity.
  • If Araghi wished to challenge aspects of the separation agreement due to changes in circumstances, the proper legal avenue would be through family law mechanisms such as variation applications, not an appeal of the agreement’s enforceability.

Key Legal Takeaways from Khani v. Araghi

This case sets an important precedent for the enforceability of separation agreements in Ontario and highlights several critical legal principles:

1. Separation Agreements Are Presumed Valid

Courts will generally enforce separation agreements signed by both parties with legal representation unless there is evidence of duress, misrepresentation, or fundamental unfairness. The court in Khani v. Araghi upheld the principle that agreements negotiated in good faith should not be easily undone.

2. Conduct Matters in Legal Disputes

A party’s actions after signing an agreement can significantly impact its enforceability. If a party initially acts in accordance with an agreement but later attempts to dispute its validity, courts may find that they have waived certain objections.

3. Escrow Conditions Must Be Clearly Defined

If a party places a contract in escrow, it should explicitly outline the conditions that must be met for the agreement to take effect. In this case, the trial judge found that an indefinite escrow period was unreasonable and imposed a 21-day limit.

4. Timeliness is Critical in Appeals

Araghi’s appeal was partly dismissed because she failed to challenge the motion judge’s ruling within the required timeframe. Litigants must act promptly when seeking to overturn judicial decisions.

5. Settlement Privilege is Not Absolute

While legal communications in settlement negotiations are generally privileged, exceptions exist when those communications are necessary to determine whether an agreement was reached. The Court of Appeal reaffirmed that courts may consider privileged communications when they directly impact the existence of a valid contract.

Implications for Family Law Clients and Lawyers

For separating spouses, Khani v. Araghi serves as a reminder of the importance of:

  • Obtaining proper legal advice before signing any agreement.
  • Clearly documenting any conditions attached to agreements.
  • Act consistently with an agreement if they intend to rely on it later.
  • Challenging an agreement through proper legal mechanisms rather than attempting to undermine its validity retroactively.

For family law lawyers, the case reinforces the importance of:

  • Ensuring that escrow conditions are explicitly defined and time-limited.
  • Advising clients on the potential consequences of treating an agreement as enforceable before later attempting to challenge it.
  • Acting promptly when seeking to appeal a judicial decision.
  • Understanding the exceptions to the settlement privilege and when such communications may become admissible in court.

Khani v. Araghi: A Key Ontario Case on Enforcing Separation Agreements

Khani v. Araghi is a pivotal decision in Ontario family law that underscores the courts’ commitment to upholding separation agreements and ensuring that legal disputes do not unduly prolong family law proceedings. The ruling highlights the importance of clear contract terms, timely legal action, and consistent conduct in the enforcement of agreements. Whether navigating a separation, negotiating a contract, or involved in litigation, understanding these legal principles is essential to protecting your rights and ensuring fair outcomes.

Stouffville Family Lawyers Helping You Protect Your Rights with a Carefully Crafted Separation Agreement

Whether you’re facing a straightforward separation or navigating a complex family separation, the family lawyers at Shariff & Associates are here to guide you through every step of the process. We work closely with clients to draft clear, enforceable separation agreements that reflect their unique needs and protect their future interests.

Based in Whitchurch-Stouffville, our trusted family lawyers proudly assist individuals and families across York and Durham Region, including Aurora, Markham, Richmond Hill, Uxbridge, Pickering, Ajax, and Whitby. With deep experience in Ontario family law, we’ll help you understand your options and ensure you’re fully informed before finalizing any agreement. Contact us today at 905-591-4545 or online to schedule a consultation with one of our lawyers.