Supreme Court revises divorce settlement



Globe and Mail Update

February 19, 2009 at 11:19 AM EST

TORONTO — The Supreme Court of Canada has ordered a B.C. man to pay his estranged wife $649,680 on the grounds that he exploited her vulnerable mental state during separation negotiations by providing false and misleading financial information.

In a 7-0 ruling, the court said that a separation agreement signed by Nancy Rick, 53, and Berend Brandsema was “unconscionable,” since Mr. Brandsema did not disclose his full assets when the deal was signed.

“Parties should generally be free to decide for themselves what bargain they are prepared to make - and it is true that most separating spouses appear to determine their agreements without judicial participation,” Madam Justice Rosalie Abella wrote.

“This contractual autonomy, however, depends on the integrity of the bargaining process. Decisions about what constitutes an acceptable bargain can only authoritatively be made if both parties come to the negotiating table with the information needed to consider what concessions to accept or offer.

“Such a duty in matrimonial negotiations anchors the ability of separating spouses to genuinely decide for themselves what constitutes an acceptable bargain,” she said. “It also helps protect the possibility of finality in agreements.”

The couple separated in 2000, after a 27-year marriage. They had acquired land and were equal shareholders in a dairy farm that they established, Brandy Farms Ltd. They also acquired vehicles, RRSPs and real property, all of which were part of the family assets.

“During their lives together, the wife was primarily a homemaker, but also contributed to the operation of the farm,” Judge Abella noted.

After their separation, Ms. Rick retained a lawyer who commenced divorce proceedings. They intended to divide their assets equally. In February, 2001, the parties engaged a mediator, and Mr. Brandsema provided him with a schedule of Brandy Farms Ltd.'s assets and liabilities.

According to a memorandum of understanding prepared by the mediator, the husband was to keep Brandy Farms Ltd. and another dairy farm business. Ms. Rick would retain the house - purchased with $188,000 provided her through Brandy Farms - and she would receive the sum of $750,000 “in order to equalize the parties' net family property and assets.”

In 2001, the couple resumed negotiations with a second mediator. In a second financial statement, Mr. Brandsema valued Brandy Farms $300,000 higher than in the first agreement, however, nothing was done to change the equalization payment Ms. Rick was due to receive.

On March 6, 2003, Ms. Rick applied to set aside the separation agreement on the grounds of unconscionability and misrepresentation. She produced evidence that her husband had written a cheque to himself from the parties' joint account shortly before they separated for $79,954.36. He did not deposit it into a Brandy Farms Ltd. account until February 2002 - a month after the parties were divorced.

Mr. Brandsema also showed that her ex-husband had advanced $154,000 to the wife's brother, a close friend of his. It was deposited into term deposits in the brother's name in July and August, 2001, then redeemed by the husband and deposited into his own personal bank account in November 2001.

The B.C. Supreme Court judge who presided over the case found that at the time of the separation, the wife was a “deeply troubled person,” and that her “perception of reality [was] very significantly affected by an unhealthy condition of the mind.”

He said that Mr. Brandsema exploited her vulnerability by getting her to agree to a bargain based on financial information that he knew was misleading.

Judge Abella summed up today: “The trial judge concluded that the husband knowingly presented misleading financial information to his wife at the outset of negotiations by placing values on the assets of Brandy Farms Ltd. that were not based on independent valuations; by exaggerating the company's corporate debt figure; by claiming an inappropriate tax liability in connection with the company; by significantly under-representing the value of two additional properties in which the parties had a one-half interest; and by failing to divulge either the $154,000 temporarily transferred to the wife's brother or the cheque for almost $80,000 drawn on the parties' joint account and eventually deposited to Brandy Farms Ltd.'s account after the completion of the settlement transactions.”

However, the B.C. Court of Appeal reversed most of the trial judge's findings. It concluded that, while Ms. Brandsema may have been in a vulnerable state, this was compensated for legal assistance she retained. It said that Mr. Brandsema was not obliged to refrain from agreeing to an equalization payment that was in his own best interests.

“It is inherent in disputes generally, and matrimonial conflicts in particular, that parties have inconsistent versions of the underlying events,” Judge Abella said. “It is the trial judge's job as judicial historian to sift through the record, watch and listen to the parties, and determine which version of disputed events is the most reliable.”

“There is no doubt that separation agreements are negotiated between spouses on the fault line of one of the most emotionally charged junctures of their relationship — when it unravels.”

Judge Abella noted that in a landmark divorce judgment several year ago - Miglin v Miglin - the Supreme Court concluded that contractual matters arising from a marriage are different than those in any other sphere. She said that today's decision flows directly from that reasoning.

“…Because of the uniqueness of this negotiating environment, bargains entered into between spouses on marriage breakdown are not, and should not be seen to be, subject to the same rules as those applicable to commercial contracts negotiated between two parties of equal strength,” Judge Abella said.

“In this case, the trial judge found that the wife's vulnerabilities were not compensated for. On the contrary, he concluded that her emotional and mental condition left her unable to make use of the professional assistance available to her. Moreover, and significantly, he found that her mental instability was well known to her husband.

“The combination in this case, therefore, of misleading informational deficits and psychologically exploitative conduct, led the trial judge to conclude that the resulting, significant deviation from the wife's statutory entitlement rendered the agreement unconscionable and therefore unenforceable. This conclusion is amply supported by the evidence.”