Separation Agreements: A Blessing or a Curse for Women?

Womens’ Rights groups including the Legal Education Action Fund (LEAF), who intervened in the decision, are rejoicing at the Supreme Court of Canada’s decision in Rick v Brandsema, 2009 SCC 10 [Rick]. The top court overturned the BC Court of Appeal decision awarding Nancy Rick, compensation amounting to $650,000 based in part on the exploitative tactics used by her former husband. Rick considers the implications of separation agreements on women and reaches a conclusion that is beneficial to all parties involved. Regina Lee previously considered Rick here. In this post, I will focus on the womens’ rights issues raised in the case.

Facts

Married for 27 years, Nancy Rick and Berend Brandsema separated in 2000. They signed a separation agreement in December 2001 and finally got divorced in January 2002. At issue in Rick was the validity of the separation agreement in light of the husband’s exploitation of his wife, Nancy’s vulnerabilities.

During the course of their marriage, the couple acquired a dairy farm, Brandy Farm Inc, of which they were equal shareholders. As with all marriages with a span of 27 years, they also acquired family assets consisting of vehicles, RRSP’s and real property. They had four living children of whom two were under the age majority and were dependants. During the marriage, Nancy took on the role of the homemaker as well as contributed to the operation of the farm.

The parties hired a mediator to divide the assets equally among them as per their mutual consent. During the first of these negotiations in February of 2001, the mediator divided the assets such that the husband kept the business, whereas Nancy kept the house and a lump-sum payment of $750,000 “in order to equalize the parties’ net family property and assets,” with no spousal support payments. After repeated requests to the husband, the husband finally produced financial statements almost seven months later. A revised separation agreement was finally signed on December 13th, 2001. However, the $750,000 lump-sum payment to the wife was not mentioned in the agreement.

On March 6th, 2002, the wife brought an action to set aside the separation agreement on grounds of unconscionability and misrepresentation. The trial judge found that the husband knowingly presented misleading financial information exaggerating the company’s corporate debt figure and underestimating the value of the assets. Furthermore, the husband was found to have taken advantage of the wife’s mental instability and vulnerable state of mind.

Analysis

Justice Abella, on behalf of the court acknowledged that “[t]he negotiation of separation agreements presents a unique set of circumstances, power relations, and vulnerabilities for women” and furthermore that the law must take “’social and socio-economic realities’ that shape parties’ roles in spousal relationships” into account because they have “the potential to negatively impact settlement negotiations upon marriage breakdown”

Vulnerabilities of a Party

Abella J. observed that the reality of the situation is that one party may have power and dominance financially or otherwise over the other. This power dynamic can produce an environment where either one or both contracting party is emotionally vulnerable. This in turn leads to an imbalance in power where one spouse is preying on or influencing the other that makes the agreement unconscionable. In this case, the husband was the dominant spouse – physically and financially. Having more power in the relationship, he exploited his wife’s vulnerability and mental instability. This exploitation led to the courts determining that the agreement was unconscionable.

Full and Honest Disclosure

Abella J. opined that the best way to deal with such an emotionally vulnerable situation is to have the separation agreement based on full and honest disclosure. Where “an agreement is based on misinformation, it cannot be said to be a true bargain which is entitled to judicial deference.” Without being a true bargain, the agreement is essentially unenforceable.

Decision and its Implications

In Rick, the SCC determined that the “psychologically exploitative conduct” in conjunction with the misleading financial information led to the conclusion that the agreement was unconscionable and therefore, unenforceable. In other words, the husband’s breach of his duty to make a full and honest financial disclosure along with the exploitation of his wife’s mental instability compelled the court to find that the agreement was unconscionable.

This decision has broad ranging implications for parties entering into separation agreements, especially vulnerable women. Perhaps by definition, separation agreements are forged in an emotionally charged environment. Adding an element of secrecy to amplifies the potential for exploitation for all parties involved. The weaker party is exploited and loses financial status whereas the dominant party risks expensive and time-consuming litigation.

Rick stands for the proposition that a right to equality exists when negotiating separation agreements. The full disclosure requirement forces parties to be honest and disclose all information about the financial affairs with the other. A party’s vulnerable mental state is taken into account in such a way that evens the playing field.

However, as Alison Brewin, West Coast LEAF Executive director explained, “legal advice does not automatically mean both parties are equal.” In Rick Brewin continued, “The Supreme Court recognized that having some legal advice does not ensure a fair agreement. Too often, women in BC can only access a few hours of legal representation. If the Court of Appeal decision had stood, imagine what it might have meant for women trying to challenge an unfair agreement.”

Future Outlook of Women’s Rights

This decision has numerous impacts on the future outlook of women’s rights. Organizations such as LEAF and West Cost LEAF that support and advocate for women’s rights understand the importance of this decision to influence and advance family law and thereby women’s economic potential.

In Rick, vulnerable parties now have a precedent in support of equality of bargaining power in divorce proceedings. In this sense, Rick brings equity and fairness to bear on the longstanding norm of negotiation-based resolutions in family law. As such, the decision is of tremendous benefit to vulnerable parties in divorce proceedings, who unfortunately remain, today, prominently women.