When a Separation Agreement is a Sham

Section 54 of the Family Law Act provides that separated parties may enter into a Separation Agreement in order to resolve the legal issues arising from the end of a relationship. Section 56(4) sets out the circumstances in which a court may set aside a Separation Agreement (or other domestic contracts), which includes setting aside Separation Agreements that breach the principles of contract law. In O.K. v. M.H., 2023 ONSC 303, the court considered and set aside the parties’ Separation Agreement on the basis that it was a ‘sham’.

The Separation Agreement was signed on April 1, 2015, but set the parties’ separation date as July 15, 2013. The Agreement specifically stated that the parties would be living separate and apart from each other beginning on July 15, 2013. Among other things, the Separation Agreement also stated that the husband would pay monthly child support beginning on April 1, 2015.

In October 2021, the husband applied to the court for a divorce and other relief, giving the date of separation as July 15, 2013. In response, the wife sought various orders, including an order that the Separation Agreement be set aside under s. 56(4) of the Family Law Act. At trial, the Honourable Justice McGee considered foremost whether the Separation Agreement was an agreement under s. 54 of the FLA at all.

The court concluded that the Separation Agreement was a sham agreement, as the parties “were not separated at the time that they signed the Agreement, did not intend to separate, nor did they intend to be governed by its terms.” After signing the Separation Agreement, the parties’ relationship and daily life continued as it had prior to signing the Agreement, until the husband moved out of the matrimonial home in December 2019.

In finding that the parties did not separate, despite the existence of the Separation Agreement, the court relied on evidence that included the following:

• The parties continued to reside in the matrimonial home until December 2019.
• Although the husband claimed to be living in the basement of the matrimonial home, photographs and videos showed him participating in daily family life on the upper floors of the home. Furthermore, there was no kitchen or washroom in the basement.
• The parties attended Mosque together, wore their wedding rings, and continued to be treated as a couple by family and friends.
• Their banking arrangements did not change until 2020.
• The husband did not pay child support as provided for in the Agreement.
• The parties did not exchange financial disclosure prior to signing the Agreement.

Finally, although the wife asserted that the Agreement should be set aside because she did not understand its nature or consequences, the court held that she did understand the nature and consequences of the Agreement, and used the Agreement for advantageous tax purposes. She also refused to disclose documents that would corroborate her claims. Of note, while the wife claimed that she did not receive independent legal advice before signing the Separation Agreement, the Court held that the absence of independent legal advice prior to execution of a domestic contract is never dispositive of an application to set aside such a contract pursuant to section 56(4).

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