How a Homemade Separation Agreement Sparked Several Trips to Court
In this age of do-it-yourself separation agreements, here’s what’s become a rather common tale: It’s of a couple who tried to draft their own agreement, but who ended up in court several times, to settle their disputes over what they meant versus what they wrote, and to resolve what the proper legal interpretation of their document really was.
The former spouses, who had been married almost 10 years, separated over the Christmas holidays in 2013 while living in Bermuda. They drafted their own separation agreement shortly after. Although they both spoke French as their first language, the wife drafted the agreement in English with input from the husband. Both were well-educated, and neither of them received independent legal advice at the time.
At that point and for several years after, the husband was earning in excess of US$1 million a year tax free, to the knowledge of the wife. However, with the spouses’ concurrence the agreement treated the husband as if he earned about US$300,000 per year, and stated that child support would be calculated accordingly under Canadian law. However, it was murky on how the Child Support Guidelines might factor in, and instead set a “minimum” yearly child support payment of $70,000, regardless. For the first few years after separation the husband freely paid that amount of child support annually.
Although the agreement was intended to address all the post-separation issues between them, its interpretation had nonetheless become a source of continuing conflict between them over the years. It all came to a head when the husband retired at age 40, which the couple had discussed and agreed to during their marriage.
Specifically, at that point the fundamental basis for the husband’s post-retirement child support obligations suddenly became unclear. The wife claimed the agreement clearly stated two things: 1) that if the husband was still working, he had to pay child support based on the Guidelines amount, and – with the US exchange rate factored in – he now owed child support arrears of almost $1 million; and 2) that if he had ceased working, then he was to pay child support based on an imputed income of about US$300,000 annually.
There was also the issue of whether the husband’s annual income should have been grossed up over the years, to account for the fact that he earned his money in U.S. dollars, tax free. The homemade separation agreement was also silent on this point.
The wife therefore applied to the court for some remedies, but even those were not clearly stated in her materials. The court deduced that she might be asking to have the agreement enforced, or possibly was asking to have it set aside based on duress, lack of full financial disclosure by the husband, and unconscionability. Either way, the husband countered that he was paying exactly what the agreement called for, which was $70,000 a year regardless of his actual income, and regardless of what the Guidelines called for.
In reviewing the materials, the court began by stating it was “quickly apparent” that the agreement had not been drafted by a lawyer, and that it contained some “unusual provisions.” The court said:
This Agreement is far from clear. The [husband] was working at the time of its execution and, if the parties wanted to calculate child support based on this high income, they could have easily provided some projected calculations to demonstrate their understanding of the Guidelines. There is no text of the Guidelines and specifically no reference to section 4. There is no mention of a gross-up for taxes.
Nonetheless, in light of the agreement’s ambiguity the court tried to find evidence to shed light on what the couple may have intended when they drafted it. But even this additional material, consisting primarily of affidavits from each of them, was contradictory. The court then looked at the former spouses’ subsequent conduct, including an email they exchanged which was written in French. The court noted that in that correspondence the wife was never asking for Guidelines-level support; rather, she asked merely for an adjustment based on “inflation” and requested to be paid what was “reasonable” in the circumstances.
In the end – and after rejecting the husband’s suggestion that the wife was “cherry picking” the parts of the contract that suited her – the court concluded that it simply could not presently interpret the provisions of this homemade separation agreement on the record before it. This also meant it had to defer the decision on whether the husband owed nearly $1 million in arrears, as the wife claimed.
Instead, the court found it best to entertain an application to possibly set aside the agreement at a later date, should the wife care to bring one. There were other issues between the parties that were being dealt with in other hearings, and it was best to resolve those first.
For the full text of the decision, see:
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