BACKGROUND
The Applicant wife, Ms. Stewart and the Respondent husband, Mr. Karalis married on March 15, 1985, and remained together for 38 years until Ms. Stewart moved out of the matrimonial home on March 8, 2023. This case involves the wife’s application to set aside the parties’ Separation Agreement and its attached schedules. The husband had a successful career in education, working his way up from teacher to principal, and subsequently working part-time at Fanshawe College post-retirement while collecting from his pension. The wife worked in a law firm as a collections manager until 1987, then worked for a print craft company until the parties’ daughter Eleni was born in 1991. Thereafter, the wife stayed home full-time to care for Eleni and manage the household. She has been out of the workforce ever since.
ISSUES
- The overarching issue at trial is the threshold question of whether the parties’ Separation Agreement and its schedules should be set aside. If so, the matter would move to a second phase whereby spousal support and equalization would be dealt with.
ANALYSIS
The court cited section 56(4) of the Family Law Act (“FLA”) which states that a domestic contract, including a Separation Agreement, can be set aside if a party failed to disclose significant assets or debts existing when the contract was made, if a party did not understand the nature or consequences of the domestic contract, or otherwise in accordance with contract law.
Did the husband fail to disclosure significant assets?
The asset in question in this case is the husband’s pension. The court quotes Virc v. Blair 2017 ONCA 397,explaining that to comply with the duty to disclose, the onus is on the husband to prove he provided credible evidence as to its value. Disclosing the mere existence of the asset is not sufficient. The wife was aware the husband’s pension existed but considered it as an income stream rather than an asset to be divided. The court stated that the pension was considered an asset and its value should have been included in his disclosure. The asset also needs to be considered “significant” to defy section 56(4)(a) of the FLA. The husband’s pension paid him close to $280K since the date of separation in 2023. As such, the court considered the pension to be a significant asset, putting the Separation Agreement within the discretion of the court to set aside.
Did the wife not understand the nature or consequences of the contract?
This was a clear issue in the eyes of the court. The court accepted that wife did not understand the concept of equalization of net family property nor did she have independent legal advice to explain same to her.
Is the domestic contract in accordance with the law in any circumstance?
The court made it clear that the husband’s failure to disclose his pension could be enough to justify setting aside the agreement, however, there are other circumstances that could lead it to the same result in contract law principles such as duress.
The court found that the wife signed the Separation Agreement under economic duress as she had committed herself to an unconditional condominium purchase and needed her share of the interest in the matrimonial home to close the transaction. The husband knew that the wife was legally obligated to close the transaction and took advantage of her vulnerable position. The court was satisfied that the Separation Agreement should be set aside on that basis.
Should the court use its discretion to set aside the agreement?
The court found multiple grounds upon which to set aside the Separation Agreement but still considered whether to exercise their discretion to do so. Drawing from the factors in LeVan v. LeVan 2008 ONCA 388, the court considered the following case-specific factors:
- The husband failed to disclose the substantial value of his pension;
- The wife had no independent legal advice;
- The wife did not understand the meaning or process of equalization; and
- The wife was under duress, the husband was aware of this, and took advantage of the duress.
CONCLUSION
Ultimately, the court decided that in light of the factors above, and in considering the overall fairness of the contract, the Separation Agreement is unconscionable and there was no hesitation in setting the agreement aside. One thing that the parties agreed on, however, was that the husband’s buyout of the wife’s interest in the matrimonial home should not be disturbed.
Categories: Separation Agreement