In D’Andrade v. Schrage, a recent decision of the Ontario Superior Court of Justice, the court tackled the question of how much personal disclosure is required whenever spouses negotiate their separation agreements, specifically whether they are obliged to disclose the existence of an extra-marital affair.
The husband and wife started living together in 1998, and got married in 2001. At the time, the husband – who had been married twice before — was in his 60s, while the wife was in her 30s. It was her first marriage.
Throughout their relationship, the husband had the wife sign a succession of domestic agreements, providing her with financial support but making it clear in a specific clause that any payments were gratuitous and were not to be considered as legal support or maintenance, and emphasizing that he was under no legal obligation to her whatsoever. Essentially, this “husband’s discretion” clause gave the husband the power in the event of separation to use his judgment in giving the wife whatever financial assistance he considered was fair.
The last of these agreements was entered into in 2007. It provided that the wife released all her rights to spousal support, and to an equalization of net family property; it also set out her entitlements to various properties that they owned together.
However, this 2007 agreement was different from all the prior ones in two respects: for one thing, it inadvertently omitted the “husband’s discretion” clause that had appeared in every other prior version. More importantly, the 2007 agreement had been negotiated and entered into at a time when – unbeknownst to the husband — the wife was having an affair, and was considering separating from the husband. With the assistance of her lawyer, the wife negotiated with this potential prospect in mind.
The husband paid the wife almost everything she was entitled to under that 2007 agreement; however, he found out about the affair and did not go through with the obligation to buy her a home worth at least $250,000 as he had promised.
The wife came to court arguing that the 2007 agreement should be enforced, and that – because the “husband’s discretion” clause was missing – the issue of the amount of support she should get was now wide open. In opposition, the husband claimed that the 2007 agreement should be set aside; he argued that the wife had a duty to negotiate and execute the 2007 agreement in utmost good faith. Specifically, he claimed that the 2007 agreement was invalid and should be set aside because when the wife signed it, she was having an affair and was contemplating separation.
The court found for the wife, holding that the agreement should be enforced.
First of all, the court confirmed that in principle it had the power to set aside any domestic contract under the Family Law Act, in cases where one party had failed to disclose significant assets or debts, or failed to understand the nature or consequences of the domestic contract.
Next, respecting the omission of the “husband’s discretion” clause in the 2007 version of the agreement, the court found that there was no evidence that there was a fraudulent or innocent omission on the part of his lawyer who did the drafting. The contract could not be set aside on that basis alone.
The court then considered – but ultimately rejected – the husband’s argument that the wife’s failure to disclose her affair and possible intention to leave was evidence of a lack of good faith and therefore fatal to the agreement’s validity. To the contrary, it found that not only was there no concrete evidence to show that the wife had actually decided to separate from the husband when the 2007 agreement was signed, but also that it was unreasonable to expect that as part of the negotiating process either party must disclose their respective thoughts about the likelihood of separating, or their involvement in any extra-marital affairs. On this point, the court wrote:
“To require spouses to disclose their thoughts about the likelihood of separation or their involvements in extra-marital sexual activity before signing a marriage contract could have serious implications for the survival of marital relationships. If the obligation to disclose is limited to thoughts of separation, the question becomes how serious those thoughts of separation were. Does there have to be evidence that the decision to separate has been actually made? If there does, the evidence in this case does not reach that threshold. Among other things, it was Mr. Schrage who actually made the decision that he and Ms. D’Andrade should separate. If this is not the threshold then what is? Is it any thought of separation or only serious thoughts of separation? If it is the latter, how “serious” is serious enough?”
(The court also found that the wife’s lawyer had no duty toward the husband, and therefore was under no obligation during negotiations to disclose the wife’s possible intentions, either.)
Finally, the court emphasized that domestic contracts are financial arrangements; they are not aimed at enforcing personal obligations, such as the duty to remain faithful. As such, the only duty of fairness that arises on parties that is the one in connection with disclosing their individual financial situations.
As a result, the court upheld the 2007 agreement in this case.
For the full text of the decision, see: D’Andrade v. Schrage, 2011 ONSC 1174 http://canlii.ca/s/16sor