Court Upholds Separation Agreement in High-Net Worth Divorce

Lawyers are often asked whether Canadian courts uphold agreements between separated spouses. The quick answer is yes, they do, unless the agreement is substantially unfair, or where one party fails to provide full financial disclosure. Other reasons to set aside an agreement include duress or coercion.

In a recent B.C. case a couple settled all the financial and parenting aspects of their union, arising after a 22-year marriage, preceded by two years of cohabitation. They signed a separation agreement in October 2015 and divorced in April 2016. (TAN v. MAN 2019 BCSC 352)

A most fortunate couple, they equally shared assets valued at approximately $16 million dollars, which included business assets worth $11 million. They agreed to share equally the costs of raising their children until each had completed university and the husband agreed to pay spousal support of $2,150 per month for six years.

Her earned income was said to be $130,000 per annum, while his salary was $230,000. The agreement also provided that the husband’s company would pay his wife the sum of $567,000 a year for six years (with 5% interest) as compensation for her share of the business, which he would retain. She incorporated a holding company to receive the funds through a “butterfly” transaction, a common method of transferring funds to her on a more tax-efficient basis, and settled a family trust.

Each party had experienced family law counsel and a family law mediator assisted in their negotiations. An accountant/business valuator was also retained.

The agreement purported to be final and binding and included the following clause:

“The balance of the parties’ claims are hereby dismissed as though tried on their own merits without costs to any party.”

However, the wife became concerned that her future was not as secure as her ex-husband’s and in 2018 she brought applications for child support and increased spousal support, citing the following reasons:

1. Although she had legal advice she was vulnerable and relied on her husband’s superior knowledge of financial matters;
2. There was a material change in circumstance because she failed to understand or anticipate that her future income and her husband’s would be markedly different;
3. A change in Canada Revenue Agency policy regarding family trusts limited her to receiving taxable dividends from her holding company rather than the “income sprinkling” she expected;
4. The agreement did not comply with the spousal support objectives of the Divorce Act; a fact she only recognized after the agreement was signed.

The Court rejected her arguments and dismissed her spousal support application with the following remarks:

a) Her personal 2016 and 2017 income from employment, dividends, and miscellaneous income amounted to $197,000 and $225,000 respectively and in 2016 her holding company’s income was approximately $169,000.

b) While the husband was drawing large bonuses from his company, the funds were withdrawn to pay the wife’s annual compensation payment of $567,000 per annum. The husband’s ability to receive bonus income was no different during the marriage and was known to the wife.

c) The quantum of spousal support payable pursuant to the agreement was in line with other high income/high net worth cases, such as Hodgkinson v. Hodgkinson 2006 BCCA 158; Chutter v. Chutter 2008 BCCA 507 and MacDonald v. MacDonald 2005 BCCA 23.

The Court also declined to change the child support provisions of the agreement, adopting the husband’s argument and agreeing that the arrangements reached, whereby neither party would pay child support but that all of the children’s reasonable educational expenses and living expenses would be shared equally, was reasonable in the circumstances.

Lawdiva aka Georgialee Lang

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