Ending a marriage is a difficult choice, and the first in a long list of decisions a couple must make once they begin the process of legal separation.
Whenever possible many couples, particularly wealthy individuals, will opt to avoid court as a means to mitigate costly legal fees and maintain privacy and control over their affairs. In this case, they will enter into some form of out-of-court negotiation (collaborative negotiation, mediation, or traditional lawyer-assisted negotiation).
Regardless of the negotiation style chosen, the details of the deal a couple works out will be captured in a separation agreement.
There are several important items to be considered during negotiations and before signing a separation agreement, including factors that could have an effect on the family in the future. Most importantly, there are two elements to keep in mind about separation agreements.
Please Sign a Separation Agreement After You’ve Read It!
They are permanent
Like a business contract, a separation agreement is intended to be in place permanently. Things such as property transfers are final and, once the assets have been divided, there is no revisiting them. Additionally, the separation agreement will contain a number of releases which act to cement what has been negotiated.
These could be an agreement never to re-visit division of property in the future even if one party later becomes wealthier, or an agreement to not seek financial support after the death of the other spouse under other legal avenues in succession law. Essentially, these releases clarify that both parties agree to the elements captured in the separation agreement and exclude any other relief that may have been legally available.
Separation agreements also contain a number of ‘boilerplate’ paragraphs that, while they may seem irrelevant to non-lawyers, are included intentionally to help address problems that people have had in the past with poorly drafted agreements. As an example, one couple had signed an agreement they found online and adapted to their needs – or so they thought. The agreement was deficient in several aspects.
For one, it did not contain a clause that would help the parties in the event that one did not pay what they said they would. When the client came to me, she was owed a payment for the division of property because, when the marital home was sold, the lawyer on the sale distributed the net proceeds equally. However, the husband should have received less because he owed money to the wife.
Unfortunately, she did not know her rights, and the separation agreement did not contain any of the usual paragraphs that would have blocked the release of proceeds from the sale until all outstanding payments were made.
There are, however, some circumstances or issues that require adjustments in the future and the separation agreement will prescribe a method for re-negotiating these issues. A clause may be included in the agreement, which is designed to be reviewed at some point in the future. This can be for issues such as parenting schedules, support payments if and when incomes change and even disability or illness.
Another issue that frequently requires adjustments is the need to insure child and/or spousal support obligations for the future. Maintaining a certain amount of life insurance to secure a future obligation can be a very complex issue because of the complicated nature of life insurance policies.
Expiry dates, renewal options and even the nature of some policies (investment vehicles used to borrow funds) need to be carefully reviewed and considered. And in the case where life insurance is tied to employer group benefits, there are obvious needs to revisit this issue in the event that the employment situation changes. A well-drafted separation agreement will contain guidelines for how life insurance can be addressed in the event of changes to the policy.
Because of the serious and permanent nature of separation agreements, it is important that couples read and understand each line. Many people tend to be intimidated by the length and legal language of a separation agreement, so couples are encouraged to read the document several times and clarify any questions they may have to make sure it reflects their understanding of the deal that they negotiated, including the impact of the releases and the boilerplate paragraphs.
They are complicated
Separation agreements contain centuries-old law, case law and legal precedent that have influenced their style and the content.
Given the complexity of the document, it is generally recommended that couples:
- Do not rely on a paralegal or law clerk’s advice for the preparation of a separation agreement. Law clerks do not have the right to provide legal advice, nor have they been trained to prepare legally binding separation agreements. In some jurisdictions, such as Ontario, law clerks have received extended powers to represent clients – but only in front of certain tribunals and lower courts. This is confusing to the public, who may think that because a law clerk or paralegal’s hourly rates are lower, it is a good idea to use one for the negotiations and the drafting of separation agreements. However, there are several very good reasons why Canada’s law societies have not granted law clerks and paralegals the right to practice law and prepare separation agreements; namely, they have not studied the laws that influence the negotiations and formation of legally binding agreements.
- Do not trust online resources. You don’t know who drafted it and whether the draft meets the requirements of your specific jurisdiction. Each jurisdiction has its own laws and case law which guide what paragraphs need to be in separation agreements.
- Do not rely on your friend’s agreement. Each family has particular needs and each family’s separation agreement looks different.
While it may seem tempting to cut corners, the additional financial and emotional expense of trying to undo the damage created by poorly drafted separation agreements is significant. It’s worth the initial investment to have a family law lawyer draft it properly in the first place.
Nathalie Boutet, based in Toronto, is an experienced family law lawyer, accredited mediator and certified Family Enterprise Advisor™ skilled at providing unique strategies and out-of-court results to the complex legal, financial, and human matters related to separation or divorce for high-net-worth families and business owners. www.boutetfamilylaw.com