Lump Sum Separation Settlement — Is it a Good Thing?

Published on 29 August 2022, 07:22:56 AM

Don’t sign that separation agreement without independent legal advice! A GTA spouse who did lost out on spousal support when she ignored her lawyer’s instructions.

When to Get Independent Legal Advice 

“Candace’s” (not her real name) plight is a textbook dilemma for lawyers. Her sister-in-law “Louise” asked for free legal advice at a family party. She agreed and a week later, they met at her home. So began a legal chain of events that ended unhappily.

Suffering a Mid-Life Relationship Breakdown

Louise, previously divorced and a medical receptionist for 18 years, was 47 when her common-law spouse decided to separate. A long-haul trucker for 20 years with no pension and health problems, “Karl”, then 50, was torn between supporting his spouse and elderly parents. It didn’t help that Louise’s former mother-in-law had fallen on hard times and lived with the couple, along with his wife’s son from her first marriage. 

Are In-Laws Crowding Your Marriage?

If ever there was festering sore in their relationship, it was their overcrowded matrimonial home. Louise complained her husband was never home. Karl griped he had no privacy in the home he bought with a $5,000 downpayment and $15,000 from his RRSP. The family home was registered in both their names and  each had the “right of survivorship” to inherit it if the other died first. Although Louise had made no contributions to buying the home, they signed jointly for the mortgage and property transfer documents.

When Marital Problems Are On the Horizon

It wasn’t the first time marital problems darkened their horizon. Louise, her mother-in-law and adult son moved out briefly in 2007, sharing a rental apartment before returning home. Karl left in 2013 when an ultimatum to Louise to oust her former mother-in-law and adult son fell on deaf ears. As he told the court, he couldn’t support his own parents financially, let alone his wife’s family. 

Does Income Contribute to Your Legal Woes?

The financial burden was real. Both Karl and Louise had divorced before but neither managed to get spousal support. Karl paid child support to his ex-wife and in a good year, made up to $85,000 driving truck. In a bad year, he collected between $14,400 and $21,600 on disability. Louise earned $16,800 a year working part-time.

Agreeing to a Separation Agreement in Ontario

The couple had little in the way of assets, but agreed they would sell the matrimonial home and split the proceeds. Dividing the furniture and house contents worked for both of them. Louise would keep the car Karl bought for her. Other than that, they agreed to go their own ways and forfeit spousal support. Louise listed the home for sale and Karl moved into the basement.

Asking a Relative for Legal Advice

With the high cost of separation weighing heavily on her, Louise turned to her sister-in-law for legal assistance. Candace was happy to oblige. A practising Ontario lawyer for 23 years, she had some family law experience and could draft a separation agreement.

When Independent Legal Opinion is Desirable

The Law Society of Ontario recommends lawyers advise clients to get independent legal advice if they are in a conflict of interest. Candace knew she was and passed that advice on to Louise and Karl. As they met to review a separation agreement, it was apparent neither planned to talk to their own lawyers to get a second opinion. What’s a relative to do?

Is Separation Agreement Legally Binding?

By the time the separation agreement fell apart, all the trio could agree on was that Louise had asked for a $50,000 lump sum and no spousal support. She alleged in Ontario family court she had been bullied into signing and was reassured by Candace that the separation agreement was not legally binding. Louise complained she hadn’t fully reviewed the legal document and Karl hadn’t honestly disclosed his assets. 

Using Income Tax Returns to Find Assets

Karl disputed her version of events. He said Candace went through the agreement line by line, amending and finalizing it on the spot. Karl testified the couple had filed a joint income tax return and Louise totally knew what his assets were. The meeting was friendly according to him and once signed, the separation agreement was never discussed again.

Lawyer’s Advice Could Be Conflict of Interest

Doing her relative a favour had turned painful for Candace. She had known Louise since they were young girls. Louise appeared to understand she would have to support herself once the $50,000 lump sum payment was gone. Candace confirmed she suggested the couple get separate legal opinions. 

Making Credible Case for Duress

The judge accepted that Candace had recommended independent legal advice. She found the lawyer had merely helped the couple out of kindness. Louise had sought out her sister-in-law to draft the agreement. If she felt bullied into signing it, she said nothing at the time. As the judge stated, duress must be extreme. Louise’s testimony was simply not credible, the judge ruled.

Separation Agreements Legally Binding

The court upheld the separation agreement. Karl got back his $5,000 downpayment for their matrimonial home, but not the $15,000 from his RRSP. They shared the profits from the sale of their home, over $50,100 each. Because the couple had filed joint income tax returns since 2004 and Louise knew the value of the home and Karl’s RRSPs, she lost her argument that he failed to disclose his finances. Louise had received the $50,000 she asked for and told Candace she expected to support herself. That was good enough for the judge. The court agreed Louise’s separation agreement was final and binding. 

Get Independent Legal Advice Before You Sign

Take your lawyer’s advice and get an independent legal opinion before you sign a domestic or prenuptial contract. Video call online with an Axess Law Ontario lawyer day or evening, at a time convenient for you. Dial toll-free to 1-877-522-9377 or in Greater Toronto at 647-479-0118 or use our online booking form for an appointment. In person meetings are available at our Ottawa, Toronto, Scarborough, Vaughan, Etobicoke, Mississauga Winston Churchill or Mississauga Heartland law offices.

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