Spouses’ deal on property split was binding; Miglin doesn’t apply to all domestic contracts: SCC

Law360 Canada (May 12, 2023, 5:09 PM EDT) -- In a judgment that gives guidance to courts reviewing domestic contracts, the Supreme Court of Canada has ruled 7-0 that a briefly-married Saskatchewan couple’s post-split domestic agreement to opt out of equally dividing their assets is binding — even though the agreement doesn’t qualify as a presumptively enforceable “interspousal contract” under s. 38 of The Family Property Act (FPA) of Saskatchewan.

Justice Andromache Karakatsanis’s May 12 judgment addresses how courts should approach and weigh a domestic contract that purports to opt out of the presumptively equal asset distribution specified by a provincial matrimonial property division scheme, but which does not meet the statutory requirements that would entitle the agreement to presumptive enforceability: Anderson v. Anderson, 2023 SCC13.

The case before the Supreme Court involved a spousal agreement on property division that is not presumptively enforceable because it does not meet the requirements set out in s. 38 of the FPA (e.g. does not formally acknowledge that the parties understood the nature and effect of the terms of their agreement in the presence of independent counsel), but which the FPA enables courts to still consider and, pursuant to s. 40 of the Act, assign “whatever weight [the court] considers reasonable”.

Justice Karakatsanis’s decision is also noteworthy for its determination that the Saskatchewan Court of Appeal below erred in applying the analytical framework from Miglin v. Miglin 2003 SCC 24 (the leading case on judicial review under the Divorce Act of spousal support waivers) to reach the conclusion that the parties’ agreement should be afforded great weight.

Justice Karakatsanis agreed with the Appeal Court that the agreement at bar is binding and that there were no substantiated concerns with its fairness, but stipulated “I would not transpose the Miglin framework, which arose within a different statutory context, into provincial family property legislation.”

“While useful general principles emerge from Miglin to guide courts in approaching domestic contracts, Miglin is not, and was never intended to be, a framework of general applicability for courts in dealing with all types of domestic contracts,” Justice Karakatsanis wrote. “Rather, the judge’s interpretive exercise is statute-specific, and differences between property division and spousal support, division of powers concerns, and the distinctive features of the Saskatchewan statute, mandate a tailored analytical approach.”

David Couture, legal director of Legal Aid Saskatchewan, who with Monica Couture, represented the husband in his successful appeal to the Supreme Court of Canada, said one of the main takeaways from the case is the Supreme Court’s clarification that the Miglin analytical framework is specific to domestic contracts involving spousal support based on the federal Divorce Act. “While some principles from Miglin may apply in other situations, the framework should not be transposed into provincial family property legislation,” Couture told Law360 Canada.

“There was uncertainty in Saskatchewan regarding the enforceability of agreements relating to family property signed without certain formalities, such as the involvements of lawyers,” he added. “This decision helps to bolster the enforceability of agreements signed without these formalities, at least in Saskatchewan. As there is similar jurisdiction across the country, this could have a broader impact.”

Couture said that family law lawyers should be aware of the Anderson decision. “Clients should be cautious about the signing of any agreements, which could potentially include prenuptial or cohabitation agreements, though not specifically dealt with in this case,” he advised. “This decision may result in agreements that were otherwise assumed to be unenforceable being taken more seriously by the courts. It may also further support alternative dispute resolution and/or encourage clients to move forward with executing domestic contracts without the assistance of legal counsel.”

Christopher Butz of Regina’s Butz and Company, who with Danish Shah represented the respondent wife in the case, did not immediately respond to a request for comment.

Aaron Franks of Toronto’s Epstein Cole LLP, a senior family law practitioner and co-author of Franks & Zalev – This Week in Family Law, told Law360 Canada “this is the Supreme Court of Canada again, for the fourth or fifth time at least, saying ‘private ordering is to be encouraged’ and these agreements are presumptively valid as long as they comply with the statutory preconditions, and someone has to show a reason that a court should interfere with them.”

In his view, the court has sent a message that such agreements are important and should be respected, unless a party can show a good reason not to. “That’s important all across Canada, no matter what the differences in statutory language from province to province regarding property,” Franks advised.

Franks said Justice Karakatsanis’s “well-written” judgment “helps clarify some of the confusion that may have resulted from what the Court of Appeal said about the Miglin test and property.”

“I thought it was actually, for a Supreme Court of Canada judgment, pretty concise and pretty easy to follow,” he added.

Rollie Thompson of Toronto’s Epstein Cole LLP, another leading family law expert who also edits Canadian Family Law Quarterly and the Nova Scotia Civil Procedure Rules, told Law360 Canada “the court got one thing clearly right: the Miglin framework does not apply to property agreements. The Saskatchewan Court of Appeal was wrong to do so.”

While the decision deals with Saskatchewan legislation,“the court offers a helpful framework for determining the weight to be given to an informal property agreement that does not meet the statutory requirements for enforceability, [which] enforceability requirements vary from province to province, Thompson said. Moreover, “the court emphasizes just how difficult it will be for most informal property agreements to vary from the presumption of equal division of the family or matrimonial home.”

Thompson said he harbours “some worries about the court’s too-ready assumption of proper financial disclosure in this and similar cases. I wish Justice Karakatsanis had elaborated more carefully about the importance of full disclosure and how that was accomplished in this case, to offer better guidance in future cases.”

The case arose in Saskatchewan when Karen and James Anderson split up after three years of marriage. Both had been married before and brought assets into their childless marriage, including houses, vehicles, personal property, RRSPs and pensions. On July 19, 2015, the parties met with two friends, who brought the pair together to discuss the possibility of reconciliation. When it quickly became clear that a reconciliation was not going to happen, the parties signed an agreement, prepared by the wife, that stated that each would keep their own property and give up their rights to the other’s property except for the family home and household goods, which they owned jointly. Their signatures to the deal were witnessed by their friends. There was no financial disclosure. Nor did either party take independent legal advice before signing, despite the wife advising her husband that he “think it over and talk to a lawyer.”

The wife later filed for divorce. The husband counter-filed, asking the court to divide the family property given that the agreement was signed without legal advice, and in his view, under duress.

The trial judge found the lack of independent legal advice “most troubling” and ruled that the agreement was unenforceable as it was more akin to an agreement to agree than a contract. The trial judge equalized the family property under the FPA and, based on the two valuation dates he picked (the date of the husband’s counter-petition and the date of adjudication), he ruled that the wife owed the husband about $90,000.

The wife successfully appealed to the Saskatchewan Court of Appeal, which held that the parties’ agreement was a binding contract and, having regard to the Miglin framework, was entitled to great weight. The Court of Appeal ruled that the jointly owned family property should be valued at the date closest in time to the agreement, and divided it using values found by the trial judge as of December 2015, the date of the wife’s divorce petition. The husband was ordered to pay the wife $4,915.

In allowing the husband’s appeal, Justice Karakatsanis ruled that the family home and household goods should be valued and divided as of the date of the trial, meaning the wife owed the husband $43,383.

“In the instant case, the agreement between the wife and the husband was binding. It was fair and equitable, given the criteria and objectives of the FPA,” Justice Karakatsanis held.

“The agreement is short and uncomplicated and reflects the intention of the parties to effect a clean break from their partnership,” she explained.

“The parties were best positioned to organize the limited family property resulting from their short marriage and, given all the circumstances, the most fair and equitable solution is for their simple agreement to be given effect.”

Justice Karakatsanis emphasized that “domestic contracts should generally be encouraged and supported by courts, within the bounds permitted by the legislature, absent a compelling reason to discount the agreement. This deference flows from the recognition that self‑sufficiency, autonomy and finality are important objectives in the family law context.”

Explaining how judges are to evaluate agreements that are not presumptively binding under the FPA, Justice Karakatsanis said the court must first assess the agreement for its procedural integrity in cases where concerns such as undue pressure or vulnerability are raised, in order to determine whether the parties executed the agreement freely and understood its meaning and consequences.

“While safeguards like financial disclosure and independent legal advice provide critical protection in the family law context, they are not required by the legislation and their absence, without more, does not necessarily impugn the fairness of an agreement,” Justice Karakatsanis reasoned. “Given the respect for spousal autonomy reflected in both the legislation and the jurisprudence, unless the court is satisfied that the agreement arose from an unfair bargaining process, an agreement is entitled to serious consideration under s. 21 of the FPA.”

Then, “once the court is satisfied that an agreement is entitled to consideration, it may assess the substantive fairness of the agreement, in order to determine how much weight to afford the agreement in fashioning an order for property division,” Justice Karakatsanis explained. “The weight to ascribe to the substance of the agreement will ultimately be determined by what is fair and equitable according to the scheme set out by the FPA.”

Justice Karakatsanis reminded courts that they “must approach family law settlements with a view to balancing the values of contractual autonomy and certainty with concerns of fairness.”  

“Domestic contracts present unique advantages and concerns,” she wrote. “On the one hand, parties are generally better positioned than courts to understand the distinctive needs and circumstances of their private relationship. On the other, parties to domestic contracts are particularly vulnerable to unfairness and exploitation, given the unique environment in which domestic contracts are negotiated and concluded. The court’s jurisprudence on domestic contracts, including Miglin, signals to courts to approach domestic contracts with caution and to have regard to important procedural protections that help ensure the deal struck is fair.”

Moreover, while the Supreme Court has long supported the freedom of parties to settle their domestic affairs privately, “respect for private ordering cannot be permitted to thwart the public policy objectives enshrined in family law legislation,” Justice Karakatsanis said. “In essence, courts must review domestic contracts with particular sensitivity to the vulnerabilities that can arise in the family law context, without presuming that spouses lack the agency to contract simply because the agreement was negotiated in an emotionally stressful context.”

Justice Karakatsanis noted, too, that the Miglin framework “is not a panacea for all domestic contracts.”

“Rather, the analysis to be undertaken in determining whether to give weight to a domestic contract must be determined by reference to the distinctive nature of the underlying statutory scheme,” she stipulated. “This is especially so given our country’s constitutional makeup: spousal support in the context of a divorce is dealt with under the federal Divorce Act, whereas family property division, for instance, falls within the province’s jurisdiction over property and civil rights. To automatically import a structured analysis grounded in federal legislation to interpret a discretionary provision in a provincial statute risks undermining the province’s legislative authority.”

Photo of Justice Andromache Karakatsanis Jessica Deeks Photography SCC Collection

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