The Importance of Due Diligence Before Signing a Separation Agreement
Written on behalf of Shariff & Associates
Separation agreements can resolve some of the most significant financial and family issues arising after the end of a relationship. Once signed, however, a party may later argue that the agreement should not be enforced because they did not understand what they were agreeing to.
In a recent Ontario Court of Appeal decision, the Court considered when a separation agreement may be set aside because one spouse allegedly did not understand its nature or consequences. The decision also highlights the importance of procedural fairness when serious allegations such as dishonesty or deception arise during family law proceedings.
Former Spouses Negotiate a Separation Agreement
In MacEwan v. Daljit, the former spouses separated in 2015 after a 12-year marriage. Both worked as realtors and initially met together with a family law lawyer who provided information regarding the issues arising from their separation. They later worked with a divorce consultant who helped them negotiate financial terms. The consultant was not legally trained and repeatedly recommended that both spouses obtain independent legal advice before signing an agreement.
Their eventual agreement addressed equalization, division of the matrimonial home proceeds, income calculations, child support, spousal support, and profit-sharing payments arising from the former husband’s business. Although it contemplated a possible later separation agreement, it expressly provided that it would remain final unless amended or replaced.
Husband Declines Independent Legal Advice
Before signing, the former husband brought the documents to a real estate lawyer to witness his signature. The lawyer recommended that he first obtain advice from a family lawyer, but he did not do so.
The former wife obtained legal advice before signing. Some handwritten revisions were made, primarily concerning support, and both spouses later initialled those changes.
More than two years later, the former husband challenged the agreement. Among other things, he alleged that he had not received legal advice or adequate financial disclosure and that the agreement contained mistakes.
Husband Challenges Two Financial Provisions
At the hearing, the former husband narrowed his challenge to two provisions.
The first concerned a $119,508 payment to the former wife from the proceeds of the matrimonial home. He argued that an earlier draft required payment from the overall sale proceeds, while the final agreement required payment from his individual share.
The second concerned profit-sharing payments. He maintained that an earlier draft limited those payments to eight years, while the final agreement did not contain that time limit. He said he had reviewed the earlier draft but only briefly reviewed the final agreement before signing and did not notice or agree to the changes.
Lower Court Sets Aside the Agreement
The lower court rejected several aspects of the former husband’s challenge. It found that he was an experienced and sophisticated businessperson, that he chose not to obtain independent legal advice despite repeated recommendations, and that there was no inequality of bargaining power.
However, the lower court concluded that the former wife had dishonestly and unilaterally altered the disputed provisions without bringing them to the former husband’s attention. Based on this finding of “trickery,” the lower court held that the former husband had not understood the nature and consequences of the agreement and set the entire agreement aside.
The former wife appealed.
Court of Appeal Finds Procedural Unfairness
The Court of Appeal concluded that the finding of dishonesty could not stand. The former husband had not alleged in his pleadings or affidavit that the former wife secretly changed the agreement. His position was that provisions had changed between drafts and that he had not appreciated or agreed to those changes before signing.
The former wife was therefore not put on notice that she was accused of fraud, deception, or trickery, nor was the allegation that she had secretly altered the agreement directly put to her during cross-examination.
The Court emphasized that parties must know the case they are required to answer. Although family law proceedings may permit some procedural flexibility, decisions should generally respond to the arguments advanced by the parties rather than rest on a new theory introduced during the proceeding. The finding that the former wife acted dishonestly was therefore procedurally unfair and could not support setting aside the agreement.
When Can an Ontario Separation Agreement Be Set Aside?
Section 56(4) of Ontario’s Family Law Act allows a court to set aside a domestic contract or part of one where:
- A party failed to disclose significant assets, debts, or liabilities;
- A party did not understand the nature or consequences of the agreement; or
- The agreement may otherwise be set aside under the law of contract.
The Court explained that the person challenging the agreement must first establish that one of these grounds applies. The court then determines whether it should exercise its discretion to set the agreement aside.
Courts Consider the Circumstances Surrounding the Agreement
When deciding whether someone understood a domestic contract, courts may consider a range of circumstances. Personal vulnerabilities can include language barriers, significant health concerns, a party’s level of sophistication, or an imbalance of power in the relationship.
External pressures can include financial or emotional pressure, time constraints, pressure not to obtain independent legal advice, or misrepresentations about the agreement.
Courts may also consider procedural safeguards such as financial disclosure, independent legal advice, and assistance from other professionals. No single factor is necessarily decisive.
Parties Have a Responsibility to Protect Their Interests
The Court also discussed what it described as an element of “personal due diligence” when entering into a domestic contract. Parties are generally expected, within their individual capacities and circumstances, to take reasonable steps to protect their interests. These can include carefully reading an agreement before signing, asking questions about unclear provisions, and addressing known problems before execution.
A person who signs despite known concerns or chooses not to take reasonable protective measures may face difficulty later attempting to avoid the agreement.
Former Husband Had Been Encouraged to Obtain Legal Advice
Applying these principles, the Court noted that there were no identified personal vulnerabilities affecting the former husband and no inequality of bargaining power. He was commercially sophisticated and had repeatedly been advised to obtain independent legal advice. He nevertheless chose not to do so.
The lower court had also rejected his complaints concerning financial disclosure. Once the finding of dishonesty was removed from the analysis, the Court found no remaining basis to conclude that he had failed to understand the nature or consequences of the agreement. The Court of Appeal therefore allowed the appeal and restored the separation agreement.
Separation Agreements Remain an Important Part of Family Law Settlements
The decision reflects the balance courts must strike when reviewing domestic contracts. Separation agreements are often negotiated in difficult financial and emotional circumstances, and Ontario law provides mechanisms for addressing agreements affected by serious problems in their formation.
At the same time, courts generally respect the ability of separating spouses to make their own agreements. Whether an agreement can later be challenged will depend on the circumstances in which it was negotiated and signed, including disclosure, legal advice, bargaining power, vulnerabilities, external pressures, and the steps each party took to understand its terms.
Contact Shariff & Associates for Trusted Advice on Separation Agreements in Markham-Stouffville
Shariff & Associates provides comprehensive legal advice on separation agreements, domestic contracts, independent legal advice, financial disclosure, property division, and support obligations. Our team of experienced family and divorce lawyers proudly serve clients in Markham, Stouffville and throughout the GTA, as well as historically underserved communities such as Ajax, Brooklin, Aurora, Newmarket, Uxbridge, Whitby, Oshawa, Mount Albert, Ballantrae, and Zephyr. To schedule a consultation about your separation agreement, please contact us online or call 905-591-4545.