Separation agreements are notoriously uncertain. Unlike commercial agreements where the Courts will generally presume the parties took proper care of their own interests, in separation agreements the Courts look anxiously to see if there is any unfairness or lack of proper disclosure.
Today’s Supreme Court of Canada decision in Rick v. Brandsema, 2009 SCC 10 makes the need for full disclosure and a lack of any undue influence very clear. The Court’s legal reasoning may be summarized as follows:
The singularly emotional environment that follows the disintegration of a spousal relationship means that the negotiation of separation agreements takes place in a uniquely difficult and vulnerable context. Special care must therefore be taken to ensure that the assets of the former relationship are distributed through a process that is, to the extent possible, free from informational and psychological exploitation. Where exploitation results in an agreement that deviates substantially from the objectives of the governing legislation, the resulting agreement may be found to be unconscionable and, as a result, unenforceable.
While parties are generally free to decide for themselves what bargain they are prepared to make, decisions about what constitutes an acceptable settlement can only authoritatively be made if both parties come to the negotiating table with the information they need to consider what concessions to accept or offer. This requires that there be a duty on separating spouses to provide full and honest disclosure of all relevant financial information in order to help protect the integrity of the negotiating process. This duty not only anchors the ability of separating spouses to genuinely decide for themselves what constitutes an acceptable bargain, it helps ensure the finality of agreements. An agreement negotiated with full and honest disclosure and without exploitative tactics will likely survive judicial scrutiny.
Whether defective disclosure will justify judicial intervention, however, will depend on the circumstances of each case, including the extent of the misinformation and the degree to which it may have been deliberately generated.
The Court writes:
[1] This Court has frequently recognized that negotiations following the disintegration of a spousal relationship take place in a uniquely difficult context. The reality of this singularly emotional negotiating environment means that special care must be taken to ensure that, to the extent possible, the assets of the former relationship are distributed through negotiations that are free from informational and psychological exploitation.
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[44] Where, therefore, “there were any circumstances of oppression, pressure, or other vulnerabilities”, and if one party’s exploitation of such vulnerabilities during the negotiation process resulted in a separation agreement that deviated substantially from the legislation, the Court in Miglin concluded that the agreement need not be enforced (paras. 81-83).
[45] Notably, the Court also stressed the importance of respecting “the parties’ right to decide for themselves what constitutes for them, in the circumstances of their marriage, mutually acceptable equitable sharing” (para. 73). Parties should generally be free to decide for themselves what bargain they are prepared to make. And it is true that most separating spouses appear to determine their agreements without judicial participation (Craig Martin, “Unequal Shadows: Negotiation Theory and Spousal Support Under Canadian Divorce Law” (1998), 56 U. T. Fac. L. Rev. 135, at p. 137).
[46] This contractual autonomy, however, depends on the integrity of the bargaining process. Decisions about what constitutes an acceptable bargain can only authoritatively be made if both parties come to the negotiating table with the information needed to consider what concessions to accept or offer. Informational asymmetry compromises a spouse’s ability to do so (Leskun v. Leskun, 2006 SCC 25, [2006] 1 S.C.R. 920, at para. 34; Marcia Neave, “Resolving the Dilemma of Difference: A Critique of ‘The Role of Private Ordering in Family Law’” (1994), 44 U.T.L.J. 97, at p. 117; Penelope E. Bryan, “Women’s Freedom to Contract at Divorce: A Mask for Contextual Coercion” (1999), 47 Buff. L. Rev. 1153, at p. 1177).
[47] In my view, it flows from the observations and principles set out in Miglin that a duty to make full and honest disclosure of all relevant financial information is required to protect the integrity of the result of negotiations undertaken in these uniquely vulnerable circumstances. The deliberate failure to make such disclosure may render the agreement vulnerable to judicial intervention where the result is a negotiated settlement that is substantially at variance from the objectives of the governing legislation.
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