Will your prenuptial agreement stand up to a court challenge? The BC Court of Appeal recently revisited this issue in the case of Dhaliwal v. Dhaliwal, 2021 BCCA 72.
In the case, the wife appealed the trial judge’s decision regarding a pre-nuptial agreement (“Agreement”) between herself and her former spouse. The wife argued the trial judge incorrectly found the Agreement to be enforceable and to be fair. Following careful consideration by the Court of Appeal, the appeal was partially allowed, and the wife recovered an additional $75,000.
The Court considered the circumstances at the time the agreement was entered into, to determine whether the agreement should be set aside as unreasonable. If the agreement is found to be enforceable, the second stage considers the fairness of the agreement at the time of the marriage breakdown.
The first stage of the above analysis has two parts: (1) the circumstances under which the agreement was negotiated and executed; and (2) whether the agreement is consistent with the objectives of the governing legislation (i.e., the Family Law Act). If an agreement is set aside as unreasonable, the default provisions of the Family Law Act apply to the division of property between spouses, which is equal division.
Presuming that an agreement is not set aside and is found to be enforceable, the second stage of the analysis looks at how the agreement affects spouses after marriage breakdown. When assessing the overall fairness of the agreement, spousal and child support are considered; however, property should be divided before determining the amount of support one spouse is required to pay the other spouse.
At the first stage of the Court of Appeal’s analysis in Dhaliwal v. Dhaliwal, the Court determined the Agreement was not unreasonable, and, thus, was enforceable. In particular, the general themes of the Agreement between the parties were simple to understand: that if the marriage broke down, each would keep their own assets brought into the marriage and any increase in value of the same, but the husband would pay the wife a fixed lump sum of $450,000 to enable her to purchase her own home. The Court further found the Agreement not to be contrary to legislative objectives.
At the second stage, the Court found the Agreement was ultimately fair with one exception, and that the trial judge errored in other aspects in her decision which affected the outcome. With respect to the exception, the Court found the increase in real estate prices of more than 100% without sharing in the growth in value of the family home during the period of marriage was unfair. The Court further determined the trial judge erred by including spousal support as provided for in the Agreement when it actually was not, by failing to consider the increase in real estate prices, and by failing to consider the husband’s partial non-disclosure. In the result, the Court enforced the Agreement and increased the amount payable by the husband to the wife from $450,000 to $525,000.
In the result, prenuptial agreements are given strong precedence by the courts. However, the massive increase in the real estate market over the past many years could form the basis for the Court to vary the agreement somewhat as seen in the Dhaliwal case.