Jun 16, 2014

Supreme Court Releases Decision on Property Claims, Separation Agreements and Indepedent Legal Advice

Giebelhaus v. Giebelhaus, 2012 BCSC 1100 (CanLII)
The Supreme Court has recently released its decision in Giebelhaus v. Giebelhaus, a case in which the husband asked the court to divide property, in the face of a separation agreement he had signed on the subject, under s. 65 of the Family Relation Act. As usual, I'm not so much interested in the particular facts of the case as I am in the court's review of the law.
The court reviewed two important decisions, J.K.T. v. A.J.T., a recent case of our Supreme Court, and Hartshorne v. Hartshorne, a 2004 case of the Supreme Court of Canada. In J.K.T., the court outlined the principles to be considered on applications under s. 65:
[88] ... the onus is on the party seeking to vary the agreement to establish that it is unfair; fairness is not to be equated with equality or near equality. ...
[89] ... in relation to the division of family property, that such a division may have to be unequal in order to be fair. ...
[90] ... the question of fairness in family property matters ought not to be approached from a commercial perspective. It is necessary to examine whether the agreement reached was actually fair. ...
[91] ... s. 65 of the FRA does not permit the Court to set aside agreements; it only authorizes reapportionment on the basis of unfairness.
The court then quotes Hartshorne for the basic test to determine the fairness of marriage agreements (important bits in bold):
[47] ... 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.
The court in Giebelhaus then applied the first stage of the Hartshorne test to see what the parties would be left with under their separation agreement and concluded that the husband would be left with assets totalling $130,265 while the wife would receive, including the family home, assets totalling $242,564.
The court then applied the second stage of the Hartshorne test to see whether the separation agreement was fair in light of the factors set out in s. 65(1) of the Family Relations Act. This is what s. 65(1) says:
If the provisions for division of property between spouses under section 56, Part 6 or their marriage agreement, as the case may be, would be unfair having regard to
(a) the duration of the marriage,

(b) the duration of the period during which the spouses have lived separate and apart,
(c) the date when property was acquired or disposed of,
(d) the extent to which property was acquired by one spouse through inheritance or gift,
(e) the needs of each spouse to become or remain economically independent and self sufficient, or

(f) any other circumstances relating to the acquisition, preservation, maintenance, improvement or use of property or the capacity or liabilities of a spouse,
the Supreme Court, on application, may order that the property covered by section 56, Part 6 or the marriage agreement, as the case may be, be divided into shares fixed by the court.
Considering the length of the parties' 14 year marriage, the needs of each spouse to become or remain economically independent and self sufficient, and the general s. 65(1)(f) catch-all factor, "any other circumstances relating to the capacity or liabilities of a spouse," the court concluded that the separation agreement was unfair and its division of assets therefore "outside of a reasonable range." The court awarded the husband a further $45,000, leaving him with $175,265 and the wife with $197,564... not exactly an equal division but significantly better than the original agreement.
There was, however, one other wrinkle in this case: the husband had obtained independent legal advice in signing the agreement — a fact relied on by the wife in her defence of the agreement. The husband claimed the advice he received was in adequate and that, as a result, he did not fully understand the wife's financial circumstances when he made the decision to sign the separation agreement.
This gave the court the opportunity to discuss the meaning and necessary content of independent legal advice when executing family law agreements (cites omitted):
[44]The meaning of independent legal advice in the family law context was well described by Pitfield J. in Gurney v. Gurney, 2000 BCSC 6:
[29] In the family law context, providing independent legal advice must mean more than being satisfied that a party understands the nature and contents of the agreement and consents to its terms. The solicitor should make inquiries of the party so as to be fully apprised of the circumstances surrounding the agreement. The party should be advised of his or her legal rights and obligations in relation to the subject matter of the agreement and advised of the consequences associated with a refusal to sign. The solicitor should offer his or her opinion on the question of whether it is appropriate for the party to sign the agreement in all of the circumstances. It is only with that kind of advice that the party can make an informed decision about the advisability of entering into the agreement as opposed to pursuing some other course. ...
[45] In Bradshaw v. Bradshaw, 2011 BCSC 1103, which refers to Gurney, the Court summarized the principles concerning independent legal advice in the family law context as follows:
[49] Independent legal advice, in the family law context, is important because it ensures that the spouses are fully aware of their statutory and common law rights and obligations. It safeguards against one spouse taking unfair advantage of another and redresses or at least minimizes disparity of bargaining power between them... In Gurney, Pitfield J. found that "the lack of independent legal advice in this case is not fatal and the agreement should not be set aside because of its absence" (at para. 30). Indeed, the absence of independent legal advice will not, by itself, invalidate an agreement ... Nor will the receipt of independent legal advice automatically cure or neutralize one or both spouses' vulnerabilities; in other words, it will not protect an otherwise invalid or unfair contract ...
[46] I return to s. 65(1)(f) and the factors of the capacities or liabilities of a spouse. I have found the claimant did not have an accurate understanding of the respondent’s income as he had no idea of the value of her pensions. ... In the words of Bradshaw, he was not "fully aware" of his rights and obligations. When these facts are taken into account, I conclude the agreement is unfair. The respondent received the matrimonial home and retained all her pensions. She gave up little. The claimant gave up much. In the result, the statute permits the Court to divide the property appropriately.

The lesson from Giebelhaus for counsel is simple:

  • ensure you understand the circumstances surrounding the agreement;

  • advise the client as to his or her rights and obligations in relation to the topics covered in the agreement;

  • advise the client as to the consequences of not signing the agreement; and,

  • give the client your opinion as to whether it is appropriate for the client to sign the agreement in all of the circumstances.

The lesson for parties seeking independent legal advice is more important:

  • not having legal advice will not necessarily let you out of an agreement you have signed; however,

  • having legal advice will not leave you stuck with an invalid or unfair contract, especially if the advice you got was substandard.

In other words, although ensuring that your spouse gets independent legal advice will help to prevent your spouse from claiming "I didn't know what I was doing" to get out of an agreement, if the agreement is fundamentally bad or unfair, all the legal advice in the world won't bullet-proof your agreement.