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Be Careful When Negotiating Separation Agreements – You May Be on the Hook Longer Than You Think

Be Careful When Negotiating Separation Agreements – You May Be on the Hook Longer Than You Think

Domestic contracts such as separation agreements between spouses will usually attempt to address the repercussions of any future changes to the parties’ respective situations – for example, what happens in the event that one or both of them have lost their jobs, have a lasting illness or disability, or have married someone else.

Needless to say, it is difficult to predict the future, and even more so in the context of trying to address the repercussions of such unforeseen changes on the parties support obligations to each other.
A recent case from the Ontario Superior Court of Justice illustrates the pitfalls that can arise in this context.

In Greffe v. Greffe, the parties had been married for 25 years when they separated.  The husband had been the primary wage-earner throughout the marriage, currently earning about $150,000 as a steel mill foreman and municipal councillor.  The wife had stayed home in the traditional homemaker role, to care for their children.

At the time of separation, they negotiated a separation agreement which in 2008 was incorporated into a final divorce order.   The provisions of that agreement and order obliged the husband to pay the wife $2,000 in spousal support until 2017, when the wife reached the age of 60.   In agreeing to this arrangement, the wife chose to forego receiving an additional $5,000 per month that she would be currently entitled to in combined child and spousal support, given that the youngest child lived with her and was still financially dependent.  Equalization between the parties was also waived as part of this settlement.

Subsequently, the husband subsequently lost his job at the steel mill, and was not re-elected as municipal councillor.  As a result, his income went from $150,000 in 2009, to about $97,000 in 2010 (including the severance package he received from his former employer).  He was now earning $45,000 at a new job, and still had a long way to go before he would be entitled to his pension.

In light of his changed circumstances, the husband brought a motion to the court to have the support order and underlying separation agreement varied.

The court reviewed the terms of that separation agreement, which it characterized as “remarkably rigid on the issue of the spousal support obligation and its irrevocability”.    It noted that the husband’s job loss was one of the four stipulated factors that could compel a reduction in spousal support, but pointed out that this event could not be considered in isolation.

Indeed, after scrutinizing the husband’s pension entitlement, the court observed that the husband’s early job loss had not actually affected his pension entitlement.  He was still entitled to receive the pension at the same time and at the same age as if he had not been let go.

More importantly, the mere fact of his job loss had not amounted to the “material change in the circumstances” that the agreement expressly called for as a pre-condition to it being varied.  The fact that the husband lost his steel mill job was not unforeseeable:  the agreement specifically contemplated precisely such an eventuality and in fact had a formula for reviewing spousal support in such an event.

(The court also pointed out that despite the significant drop in the husband’s annual income, he had continued to take frequent trips and had purchased a $45,000 car.   While commenting that the husband was entitled to lead the lifestyle that he chose, the court said he did so “at his own” peril, and noted that the wife should not be penalized for his failure to set aside a reserve from which to draw if his income changed).

Simply put:  While the parties’ separation agreement envisioned that the husband might experience a significant reduction in income – and directed a reduction in his support obligation pursuant to a strict formula if that happened – in this case the threshold that had been agreed by the parties have not been met.   The agreement had been reached with the benefit of legal advice on both sides, and was effectively water-tight.  The court accordingly dismissed the motion.

This case shows that it’s important to get good legal advice when you are negotiating a separation agreement, to ensure that it incorporates clear and comprehensive provisions that deal with the effect of any change in circumstances.

For the full text of the decision, see:

Greffe v. Greffe (2012), 2012 ONSC 858   http://canlii.ca/t/fq0qj