How are oral agreements considered for Division of Property purposes?

How are oral agreements considered for Division of Property purposes? 

This blog post will consider the role of oral agreements pertaining to division of property only.

Oral Agreements pertaining to parenting arrangements, child support, and spousal support may engage other considerations which are not addressed in this blog post.

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This question was considered in the case of Thomson v. Young, 2014 BCSC 799 (CanLii). In this case, the court confirmed the following: 

1) that section 93 of the Family Law Act applies to written agreements only;

2) that section 95 of the Family Law Act creates an exception to the general rule stated in section 81 of the Family Law Act that on separation each spouse has equal rights to family property and equal responsibility for family debt;

3) that section 95 permits the court to consider the terms of an oral agreement when considering whether it would be appropriate to order unequal division of family property or debt, along with considering the other enumerated factors set out in that section;

4) that the ordinary considerations pertaining to contractual formation are important to consider when determining whether an oral agreement has in fact been properly formed;

5) that if an oral agreement for unequal division is found not to be properly formed, then the burden remains on the person seeking for unequal division to persuade the court that unequal division is inappropriate;

6) that if an oral agreement for unequal division is found to be properly formed, then the burden shifts to the person seeking for equal division to persuade the court that an unequal division would be "significantly unfair" to one of the spouses; and moreover that the "test" would be the common-law test of the court will only set aside an agreement made between spouses respecting the division of property and debt, if the division agreed to would be "substantially different" from the division that the court would order; and

7) that it is important to consider the effects of the oral agreement (if found to be properly formed) as it relates to division of family property separately from as it relates to family debt.

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This judgment did not expressly consider the role of an oral agreement for equal division; and the role of an agreement for equal division as it pertains to considering whether an unequal division would be inappropriate.

In the case at bar, the court ultimately concluded that the terms of the oral agreement in that case did not result in significant unfairness in relation to the division of family debt. However, the court did find that the terms of the oral agreement resulted in significant unfairness in relation to the division of family debt, and in the result reapportioned the responsibility of the debt between the parties.

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The link to the full case can be found here: Thomson v. Young, 2014 BCSC 799 (CanLii).

I include some portions of the pertinent paragraphs from the judgment below: 

[8] After the parties commenced their relationship, the claimant set up a line of credit account with a credit limit of $130,000.00. The account was in the joint names of the claimant and the respondent. Any unpaid balance in the account that was owing to the bank was secured by a charge against the claimant’s property.

[9] When the parties separated, the respondent moved out of the family residence. She withdrew $100,000.00 from the line of credit account. Before she withdrew that money, the account had a positive balance of $5,929.16.

[10] The respondent withdrew $70,000.00 from the line of credit account on March 13,2013. She withdrew a further $30,000.00 on March 19, 2013.

[11] On March 22, 2013, the respondent repaid $25,000.00 to the line of credit account.She used the other $75,000.00 that she had withdrawn, to make a down payment on a home for herself (located at 1831 - 19th Avenue in CampbellRiver, B.C.).

[12] The claimant and the respondent sent a joint letter dated April 8, 2013 to Manulife Bank and Trust, the bank at which the line of credit account existed. Both of the parties signed the letter. The first two paragraphs of that letter read as follows:

"We both wish to have Donna Young removed from the joint Manulife One account. Her number is 153-401-712. William Thomson will keep his account 504-795-0000153-401-704.

We have no separation agreement. There will not be any equalization payment, child or spousal support payments. William Thomson will be solely responsible for any and all debts incurred with the Manulife One account. His name only is on the property title."

[38] In my opinion, the letter from the parties to the bank provides strong confirmation of the respondent’s evidence as to the existence and the terms of the oral agreement she alleges. I accept her evidence, and I find that the parties did make an oral agreement whereby it was agreed that the respondent would keep $75,000.00of the $100,000.00 she had withdrawn from the line of credit account, that they would each give up all claims for any further division of family property or family debt and that she would abandon any right she may have to claim spousal support against him. I am satisfied, on an objective basis, that there was a meeting of the minds of these parties on all of those essential terms of the agreement, and that they intended to be bound by those terms. It would appear that, in the weeks following, the claimant changed his mind.

[41] The claimant bears the burden of proving that he was coerced against his will into making the agreement with the respondent, by duress exerted upon him by her.That is, he must persuade the court that it is more probable than not that he was induced by duress to enter into the agreement. In the family law context, it is sufficient to show a power imbalance between the spouses which enable done spouse to exploit a vulnerability in the other spouse.

[42] In my opinion, the facts proved by the evidence are not capable of supporting the inference of duress sought by the claimant.

[45] The problem with the claimant’s position is that section 93 applies only to written agreements, and section 95 of the Act creates an exception to the general rule stated in section 81, which is that(subject to an agreement or order that provides otherwise), on separation each spouse has equal rights to family property and equal responsibility for family debt. In his notice of family claim and his notice of application, the claimant states plainly that he is seeking an equal division of family property and family debt. He has presented his case on the alternative basis that the respondent has, by the oral agreement, wrongly obtained an unequal division of family property and family debt, in her favour. As I see it, section95(1)of theFamily Law Act cannot be applied to the claim for equal division being advanced by the claimant. I think the only way that he can attack the unequal division that he says the respondent has obtained, is to establish that the terms of the agreement are significantly unfair to him, on the basis of common law.

[46] If the oral agreement was found not to be proved, or if it was set aside on the ground of duress, then in order to succeed, the respondent would have to rely on s. 95(1). In that situation, she would have to prove that equal division of family property and family debt would be significantly unfair to her. But the claimant’s opposition to the agreement has been unsuccessful, and so the burden of proving unfairness lies with the claimant.

[47] A principle has developed in the common law in connection with agreements made between (married) spouses on separation, to settle their disputes. If the court finds that the spouses entered into a binding agreement based on the fundamental rules of contract law, but one spouse challenges the agreement on the ground that it would be unfair to enforce the agreement against him or her, the court will review (and may set aside or vary) the agreement, if it is found to be unfair. SeeMcKee v. McKee 2014BCSC 1793 (CanLII).

[48] The Family Law Act, in sections 92 to 94, enacts rules similar to some of the common law rules related to agreements respecting the division of family property. I agree with Punnett J. thats. 92 recognizes the validity of oral as well as written agreements, respecting the division of family property and family debt. Spouses are free to make oral or written agreements that “divide family property or family debt, or both, . . . equally or unequally.”

[49] The policy of the law, as reflected in s. 93(4) and s. 93(5), appears to be similar to the common law rules that related to married couples. The court will only set aside an agreement made between spouses respecting the division of property and debt, if the division agreed to would be “substantially different”from the division that the court would order and “significantly unfair”to one of the spouses.

[50] It was common ground that the terms of the oral agreement effected an unequal division of family property and family debt, in favour of the respondent. With respect to the division of family property and family debt, the inequality of the division was illustrated by the difference between the increases of the net worth of the parties during their relationship. The increase in the respondent’s net worth was greater than that of the claimant. But there was a dispute between the parties as to the amount of the increase in the irrespective net worths (and therefore a dispute as to the amount of the difference).

[51] The competing versions of the parties as to what constitutes family property, and as to the value of each item of family property, are set out in their affidavits. The claimant says that the respondent should make an equalization payment to him of $55,000.00, “to equalize our family property” (in argument, claimant’s counsel suggested a range of $28,500.00 to $50,000.00). The respondent says that, if the court decides the agreement is unfair and orders equal division, then the maximum amount of the equalization payment should be$28,500.00. But of course, the respondent claims entitlement to spousal support, seeks a lump sum payment of $18,000.00, and says that amount should beset off against the equalization payment (which would leave about $10,500.00owing).

[54] Under the terms of the agreement made by the parties, both the family property and the family debt were divided unequally between them, in favour of the respondent.With respect to the division of the family property, I find that the following evidence given by the claimant (at para. 20 of his affidavit) should be given substantial weight:

"20.The Respondent and I have already divided our personal property. I am satisfied with this division for the most part. My main goal in these proceedings is to recover the money the Respondent took from the Manulife account . . ."

[55] I appreciate the efforts of counsel to identify the changes in the net worth of each party, at the end of their relationship. However, in the final analysis I think it is important to differentiate family property from family debt. With respect to the division of family property, I am not satisfied that the agreement was significantly unfair to the claimant.

[56] As to the family debt, I find that, of the $75,000.00 withdrawn by the respondent from the line of credit account, about $6,000.00 (the positive balance) was family property, and about $69,000.00 was a family debt. Under the agreement, the claimant accepted liability for the full amount of that debt, which meant that the family debt was obviously divided unequally, in favour of the respondent.

[57] The general principle of law that parties to an apparently valid agreement should be bound by its terms, is not absolute in the context of family law. When the respondent withdrew (and kept) $75,000.00 from the line of credit account, she created a family debt of $69,000.00 for which she and the claimant would have each been equally liable to the bank. The claimant agreed to repay the full amount. I find that this demonstrated his intent that the family debt should be divided unequally, in the respondent’s favour. Within a month, he commenced an action against her. He now claims that the agreement was unfair to him, but has given no explanation of why he agreed to repay the $69,000.00 taken by the respondent. On the other hand, the respondent has advanced no reason why she should keep the entire $69,000.00, other than the oral agreement she made with the claimant. She does not allege that the agreement was fair. She only asserts that the claimant has failed to establish that it was significantly unfair.

[58] In all of the circumstances, it is my opinion that the agreement with respect to the division of family debt was significantly unfair to the claimant. As a consequence, I would vary the agreement so that, instead of the respondent being relieved of the obligation to repay any part of the family debt of$69,000.00, she will only be relieved from the obligation to repay $49,000.00of it. That means that the amount of withdrawn money she has the right to keep will be reduced from $75,000.00 to $55,000.00. As a result, she will be required to pay $20,000.00 to the claimant, as her share of the family debt of$69,000.00.

[62] The claimant’s claim for division of family property and family debt is allowed only to the extent that the respondent is ordered to pay $20,000.00 to the claimant as being her share of the family debt of $69,000.00. That payment of$20,000.00 must be made within 60 days of this date.

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Link to section 95 the Family Law Act: http://www.bclaws.ca/civix/document/id/complete/statreg/11025_05#section95

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