When spouses divorce or separate, the division of property and equalization feature prominently as parties plan their financial futures. When parties negotiate a separation agreement it is important to get these decisions right as the ramifications can be long lasting and it can be difficult to vary an existing agreement at a later time.
A recent case out of New York has received a lot of attention due to some unique factors, including the complexities involved in a very high net worth divorce. Despite being from a different jurisdiction, the case highlights some universal issues that may arise in seeking to vary the terms of a signed separation agreement, including mental health considerations and allegations of duress when signing the document.
The case, filed by Libbie Mugrabi to reopen a reported $100 million divorce that was settled last December, claims that her former spouse had not complied with the terms of the settlement. In particular, Ms. Mugrabi reportedly alleges that David Mugrabi purposely damaged artworks that were to be provided to her under the settlement, sending a water-damaged Andy Warhol and a damaged Basquiat.
In seeking to revisit the terms of the separation agreement, Ms. Mugrabi alleged that she had felt pressured to sign the agreement and that she signed it under duress while her judgement was clouded from the antidepressant Lexapro that she had been prescribed. She reported feeling bullied and intimidated by the parties’ legal teams and signed at a time when her dosage of Lexapro was reduced which interfered with her ability to fully understand the agreement she signed. The Mugrabi case, despite being American, serves to illustrate some of the challenges that can emerge in dividing extensive or complex assets and negotiating domestic contracts at a vulnerable time when a party might face mental health issues.
Negotiating a Separation Agreement at a Time of Vulnerability
After parties enter into separation agreements, circumstances may change leading one party to seek to vary the provisions of the agreement. The general principle outlined by the Supreme Court of Canada is that parties who have separated should be held to their agreements on the grounds that individuals are free to make bargains and decide for themselves what is appropriate. Carefully negotiated agreements can bring clarity and finality and therefore often carry considerable weight. However, this depends on the integrity of the bargaining process, and separation agreements can be overridden when the circumstances surrounding the negotiations provide reasons to discount it.
Section 56 of Ontario’s Family Law Act, outlines the circumstances where a judge can set aside or vary an existing agreement, and includes situations where a party did not provide full disclosure of financial assets and liabilities, did not fully comprehend the agreement, and where the agreement or the way it was negotiated is contrary to law. The Supreme Court of Canada has recognized that separation agreements cannot be viewed in the same light as commercial contracts, as they are concluded at a time of “intense personal and emotional turmoil, in which one or both of the parties may be particularly vulnerable” which does not accord with making rational economic decisions. Some of these vulnerabilities were recognized in Leopold v. Leopold, where the court noted the potential of a power imbalance and that one party may have financial power or possess influence over children, and that courts may need to curtail one spouse’s power over the other.
Entering Into a Separation Agreement under Duress
A party alleging that they signed a separation agreement under duress bears the burden of establishing that duress existed, which must extend beyond mere antagonism or stress. In Martin v. Sansome, the Ontario Court of Appeal found that even though one party appreciated the contract was not good for her interests, it did not equate to understanding the nature and consequences of the contract, finding that she did not understand the implications of the document she had signed nor what they really meant. Consequently, the domestic contract was set aside. The presence of independent legal advice may mitigate against any negotiating abuses and is often relevant when reviewing the fairness of an agreement and whether a party understood the nature and consequences of an agreement or whether duress influenced the agreement. Yet, the presence of professional advice does not necessarily on its own compensate for any vulnerability. Instead, the focus is always on the specific knowledge and understanding of the parties. And if they understand the consequences of the agreement and enter it voluntarily it will generally be upheld.
Remediating Financial Unfairness in Property Equalization
During a separation or divorce, a party may allege that a spouse has damaged matrimonial property or depleted assets in which they carry an interest. This is commonly raised in relation to the equalization of net family property, alleging the result of equalization would be unconscionable while asking the court to vary the amount of the award. This is expressly provided for in section 5(6) of the Family Law Act, which provides courts with discretion to vary the equalization payment having regard to “a spouse’s intentional or reckless depletion of his or her net family property”. The threshold for unconscionability in section 5(6) is high, with courts finding that the result must be more than hardship or unfairness. It is the financial result of a standard equalization that must be unconscionable, with that sense of outrage linked to the handling of the parties’ debts, liabilities, or property.
The Mugrabi case provides an interesting lens to consider how Ontario courts might approach some of the issues raised by the challenge. Dividing property and complex assets like the Mugrabi art collection can be challenging, but courts also evaluate agreements for potential unfairness if a party’s vulnerability may be exploited.
The divorce lawyers at Boulby Weinberg LLP in Toronto focus exclusively on family law matters for clients in Ontario and internationally and advise clients on complex family property and equalization strategies tailored to your unique situation. To discuss your matter further or arrange a consultation please complete our online questionnaire or contact the firm at 647-494-0113 ext. 102.