Marriage Agreements

 

 The BC Supreme Court in Drummond v Billing 2022 BCSC 1076 reviewed the principles of law relating to marriage agreements.

 

In that case the court set aside a marriage agreement based on unfairness due to the number of years the wife was out of the work force due to child raising, and that the parties did not address that issue when the agreement was entered into, nor did they revise it from time to time as was provided for.

 

Marriage agreements are reviewable at common law as a matter of contract and under the applicable statutory regime, which in this case is governed, as noted above, by the FRAL.E.M. v. D.M.I., 2013 BCSC 450 at para. 79 [L.E.M.].

With respect to the review at common law, a marriage agreement will not be enforceable where it is unconscionable, either in the process leading up to its negotiation and execution, or if it deviates substantially from the statutory objectives set out in the relevant statues dealing with the consequences of marriage breakdown: L.E.M. at para. 81; Dhaliwal v. Dhaliwal, 2021 BCCA 72 at paras. 15–20 [Dhaliwal].

As the Court noted in Dhaliwal at para. 21, if the agreement is set aside as unconscionable, the statutory regime then applies to the division of property.

If the agreement is set aside as unconscionable, the statutory regime then applies to the division of property between spouses. Under the FRA, this starts from the presumption of equal division of family assets, a presumption that can only be displaced by demonstrating that equal division would be unfair considering the factors set out in s. 65(1) of the FRAS.B.M. v. N.M., 2003 BCCA 300 at para. 23.

If the agreement is not set aside as unconscionable, there is a second stage of review in which the agreement is to be looked at to determine whether the terms of the agreement no longer reflect the parties’ intentions at the time of execution and whether it complies at the time of trial with the objectives of the statutory regime: L.E.M. at para. 85.

The analysis is to be conducted through an examination of the factors set out in s. 65(1) of the FRA. The issue to be determined is the fairness of the agreement at the time of the triggering event, in light of the s. 65 factors, see Dhaliwal at paras. 22, 24.

The Court noted in Dhaliwal at para. 23:

This analysis does not start from a presumption that equal division of family assets would be fair but from a presumption that the division under the agreement is fair, unless otherwise shown: H.S.S. v. S.H.D., 2018 BCCA 199 at para. 71.

Finally, in Dhaliwal at paras. 26-27 the Court set out the approach to be followed in this second stage analysis as follows.

The leading decision on the approach to considering whether an agreement would be unfair in its operation at the time of trial, pursuant to s. 65 of the FRA, is Hartshorne v. Hartshorne, 2004 SCC 22. In summary, this stage of analysis requires the judge to first consider what the result at trial would be if the terms of agreement were applied. Secondly, the judge must consider the factors in s. 65(1) to determine whether the agreement operates unfairly, considered in the context of whether the parties’ current circumstances were in their contemplation at the time the agreement was entered into: Hartshorne at paras. 43–47; Santelli at para. 72. This latter stage of the analysis also considers whether the agreement operates in a way that reflects the objectives of the governing legislation: Miglin at para. 87; Nicholl at para. 30.

Where the current circumstances were not previously contemplated, the burden of establishing that the agreement operates unfairly, justifying a reapportionment of property division, is somewhat lighter: H.S.S. at para. 57. Where the current circumstances were in the parties’ contemplation at the time the agreement was made, the burden to establish that the agreement is unfair is heavier: Hartshorne at para. 47. The goal is to strike an appropriate balance between deference to the parties’ intentions and the assurance of an equitable result: H.S.S. at para. 57, citing Hartshorne at para. 47.

As noted above, the presumptions and burden of proof differ depending on the stage of the analysis. If the marriage agreement is set aside as unconscionable, the statutory regime applies and the analysis proceeds from a presumption of equal division of family assets. If the agreement is not set aside as unconscionable, the analysis under s. 65 proceeds from the presumption that the marriage agreement is fair unless otherwise shown.

Is the Agreement unconscionable?

The notice of family claim seeks an order setting aside the Agreement. This pleading is directed to a finding on unconscionability at common law. Ms. Drummond submits that the lack of identification in the Agreement of which accounts are to constitute separate property, coupled with the absence of disclosure of the amounts in those accounts, renders the Agreement unconscionable.

  1. Both parties are satisfied with the knowledge each has of the other’s assets and liabilities and neither of them desires nor requires further or better particulars of the assets and liabilities of the other for the purpose of this Agreement.

Were there circumstances of vulnerability or a fundamental flaw in the negotiation process?

The first step in the analysis is an inquiry into the circumstances surrounding the negotiation and execution of the Agreement. The Court is to consider if there were circumstances of vulnerability or a fundamental flaw in the negotiation process that vitiated the bargaining process. In the present case I find that there is no suggestion that either party laboured under a significant vulnerability nor was there a fundamental flaw in the negotiation process.

In that regard, I note that both parties had the benefit of independent legal advice. Ms. Drummond’s counsel submits that the disclosure of Mr. Brilling’s assets was deficient in that the account numbers and totals for the RBC accounts were not listed. However, there is no evidence that these accounts were significant in relation to the IG Funds, the balance of which was disclosed. It is common ground that no additional disclosure was requested.

[        Mr. Brilling was the one who wanted a marriage agreement and it is clear that the Agreement reflected his wishes. Ms. Drummond did not want such an agreement but ultimately, she did agree, having had independent advice. Her reluctance in the circumstances does not amount to a fundamental flaw in the negotiation or execution of the Agreement.

Was the Agreement consistent with the objectives of the legislation at the time of signing?

[54]         Neither party directed submissions specifically in relation to this question. The burden of proof lies with Ms. Drummond to establish that the Agreement is unconscionable. I find that she has not discharged this burden. Accordingly, the analysis moves to the second stage.

Are the provisions for division of property unfair having regard to the factors set out in s 65(1) of the FRA?

As noted In Dhaliwal, this stage of the analysis requires the judge to first consider what the result at trial would be if the terms of the agreement were applied. Secondly, the judge must consider the factors in s. 65(1) to determine whether the agreement operates unfairly, considered in the context of whether the parties’ current circumstances were in their contemplation at the time the agreement was entered into, together with whether the agreement operates in a way that reflects the objectives of the governing legislation.

What does the Agreement provide?

The first part of the analysis at this stage is to apply the Agreement and address the financial entitlements from all sources available to each spouse under the Agreement.

 

 

The results of the operation of the Agreement are now to be assessed in light of the factors of s. 65(1) of the FRA, having regard to the intentions of the parties, whether the current circumstances were foreseen, and whether the operation of the Agreement reflects the objectives of the statute.

In engaging in the exercise, the Court is to give appropriate deference to the parties’ choices: Hartshorne v. Hartshorne, 2004 SCC 22 at para. 47 [Hartshorne]. The overall process is described in Hartshorne as follows:

[47]      The ultimate point then is this: in determining whether a marriage agreement operates unfairly, a court must first apply the agreement. In particular, the court must assess and award those financial entitlements provided to each spouse under the agreement, and other entitlements from all other sources, including spousal and child support. The court must then, in consideration of those factors listed in s. 65(1) of the FRA, make a determination as to whether the contract operates unfairly. At this second stage, consideration must be given to the parties’ personal and financial circumstances, and in particular to the manner in which these circumstances evolved over time. Where the current circumstances were within the contemplation of the parties at the time the Agreement was formed, and where their Agreement and circumstances surrounding it reflect consideration and response to these circumstances, then the plaintiff’s burden to establish unfairness is heavier. Thus, consideration of the factors listed in s. 65(1) of the FRA, taken together, would have to reveal that the economic consequences of the marriage breakdown were not shared equitably in all of the circumstances. This approach, in my view, accords with the underlying principle of the FRA, striking an appropriate balance between deference to the parties’ intentions, on the one hand, and assurance of an equitable result, on the other.

In conducting the analysis, the court should not conclude that an agreement is unfair simply by demonstrating that it deviates from the statutory matrimonial property regime, i.e., the FRA or FLAJohnstone v. Wright, 2005 BCCA 254 at para. 32, citing Hartshorne at para. 67.

The parties’ contemplation at the time of the agreement

The Agreement provides:

  1. The parties wish to confirm that:

…(iii)       either of them may choose not to pursue economic opportunities because of their relationship but each party recognizes that certain sacrifices will be made within, and because of, the relationship, and the consequences of those choices will not be used to avoid the terms of this Agreement.

That is suggestive of a contemplation that time out of the workforce represents a “sacrifice”, the consequences of which will not constitute a basis to avoid the terms of the Agreement. However, the terms of clause 33 do not appear to contemplate that there will be a period of time in which one of the parties is not employed in the workforce outside of the home.

In addition, the Agreement provides for the possibility of a review and amendment in clause 41. No such review was requested or undertaken. That is suggestive of a conclusion that the parties believed that the unfolding of events was consistent with what the Agreement contemplated.

In the result, it is not evident that the parties turned their minds to the possibility that Ms. Drummond would spend a number of years outside of the workforce as a result of pregnancy and child care responsibilities.

At the time they signed the Agreement both were employed, earning roughly equal salaries. Mr. Brilling had the IG Funds, which he wished to protect. Other than the IG Funds, there is no evidence that either party had any assets of significance. But for the IG Funds, the parties were in a situation of financial equality at the time the Agreement was executed.

At the time of trial Mr. Brilling’s participation in the workforce had not been disrupted to any significant degree. His wage earning potential was significantly higher than Ms. Drummond as a result of completion of his red seal certification. He was able to amass savings during this period. By contrast, Ms. Drummond remained out of the workforce for much of the marriage as a result of pregnancy and child care responsibilities. As noted above, the operation of the Agreement at the time of trial produces a result far from rough equality with Mr. Billing’s share being 77% of the assets, including the IG Funds but excluding the RESP, and Ms. Drummond’s 23%.

The court held  that the parties did not predict accurately at the time of the formation of the Agreement what their actual circumstances would be at the time of distribution.

   Having due regard for the intentions of the parties and operating from a presumption that the Agreement is fair, and considering the factors listed in s. 65(1) of the FRA, I find the economic consequences of the marriage breakdown were not shared equitably in all of the circumstances.

 

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