Reviewing Spousal Support in Separation Agreements: What is “Material Change”?

Reviewing Spousal Support in Separation Agreements: What is “Material Change”?

Most family claims are resolved by way of settlement agreement rather than trial. The amount and duration of spousal support are commonly set out in an agreement and can sometimes be incorporated in a Consent Order. The wording of those clauses requires careful attention, especially when it comes to whether spousal support can be reviewed, on what terms it will be reviewed, what can be considered “income” or “material change” on a review, and whether the spousal support is being paid under the Family Law Act or the Divorce Act.

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The BC Court of Appeal in Hall v. Hall, 2021 BCCA 115 recently provided some much needed clarification and guidance on the type of language in an agreement that will permit review. The Family Law Act and the Divorce Act have significant overlap in terms of spousal support provisions but there are distinct differences in the analysis under each act and counsel should give thought to how the differences may effect eventual review. Additionally, as the Hall decision indicates, recitals form an important part of an agreement that should be drafted with caution as to what their future effect may be on any review.

In Hall a husband and wife entered into a separation agreement which included that the husband would pay a set amount of spousal support that was “subject to material change”. The agreement otherwise provided it was final and binding resolution of all issues other than calculation of child support. An issue arose concerning the vesting of the husband’s stock options and whether exercising stock options could be considered a “material change” that would trigger a review of spousal support. The Trial Judge quadrupled spousal support but declined to order retroactive support. Both parties appealed.

The circumstances of the Hall case were unique in that previous decision had never directly addressed an initial application for an increase in spousal support founded on the basis the parties’ separation agreement allowed for a variation of the amount where there is a “material change in circumstances”.

The Court provided a thorough review of the three routes the court can take to determine the quantum of spousal support under the Divorce Act: s. 15.2 of the Divorce Act; s. 17 of the Act; and review provided for by a court order or agreement between the parties.

While both section 15.2 and 17 of the Act are both routes to address spousal support (either initial application under 15.2 and variation under 17), the Court in Hall reiterates that each section engages slightly different analyses.

Section 15.2 of the Divorce Act

Where parties have a final separation agreement, and a spouse brings an application for spousal support for an amount that differs from the agreement, the court undertakes a two step analysis. First they consider whether the agreement met the objectives of spousal support in section 15.2 of the Divorce Act. If the the terms of the agreement did meet the objectives under the act, they then consider whether the agreement still complies with the objectives.

The objectives the court is referring to are set out in the Divorce Act

Objectives of Spousal Support Order

(6) An order made under subsection (1) or an interim order under subsection (2) that provides for the support of a spouse should

(a) recognize any economic advantages or disadvantages to the spouses arising from the marriage or its breakdown;

(b) apportion between the spouses any financial consequences arising from the care of any child of the marriage over and above any obligation for the support of any child of the marriage;

(c) relieve any economic hardship of the spouses arising from the breakdown of the marriage; and

(d) in so far as practicable, promote the economic self-sufficiency of each spouse within a reasonable period of time.

Under section 15.2, an applicant must show that in light of the new circumstances, the terms of the agreement no longer reflect the parties’ intentions at the time of execution and the objectives of the Act: Sandy v. Sandy, 2018 BCCA 182

Section 17 of the Divorce Act

Section 17 permits a spouse to apply for a variation of spousal support under an existing order. Such an application under  s. 17 requires an applicant to prove a material change in circumstances. In this context, material change is one that, if known at the time, would have likely resulted in a different order. This depends on the actual circumstances of the parties at the time. The test for material change is based on what the parties actually contemplated at the time of the order, not what a party knew or reasonably foresaw: Dedes v. Dedes, 2015 BCCA 194

With respect to Hall the Court concluded the assessment of support under either s. 15 of 17 of the Act requires consideration of whether the change was contemplated when the agreement or order was made.

Review provided for by agreement

Where a settlement agreement provides for a review, the person applying for the review is not required to establish a “change of circumstances” (as they would under section 17 of the Divorce Act). However, they must establish that conditions that would trigger a review are present. In the Hall case, this meant the wife was required to prove that the triggering event, a “material change in circumstance” had occurred.

What if the agreement is supposed to be final but also contemplates a review if there is a material change of circumstances?

The Hall case is unique in that the agreement was clearly intended to be final but also contemplated that spousal support might be altered if circumstances changed. In this case, the Husband exercised stock options of significant value. The Wife argued this was a “material change” that warranted increasing spousal support. The Husband disagreed.

The question before the court was how to approach the “material change” clause of the agreement. The Court concluded the appropriate analysis is section 15.2 of the Divorce Act:

[40]The question is how to approach the phrase, developed in s. 17 jurisprudence, found in para. 4 of the agreement – “[s]ubject to a material change in circumstances”.

[41]         It is clear, in my view, that as the appeal concerns an application under s. 15.2 of the Divorce Act, the principles and objectives of that section are engaged. In this I consider Justice Jenkins was correct in Van Steinburg to look to the objectives of the Divorce Act in interpreting the separation agreement before him. Although I would not describe the phrase “material change in circumstances” as a “threshold” quite as he did, I consider he was correct in looking beyond the phrase in the agreement to s. 15.2. The court, on an application under s. 15.2, must consider the agreement as a whole, under the general approach to agreements settling family law disputes discussed in Miglin. That approach requires a more comprehensive consideration of the agreement, well beyond a mere comparison of income levels at the time of the agreement and the time of the application. Such an approach requires respect for the parties’ agreement as a whole and the choices the parties made when settling all of the terms of the agreement.

The Court’s analysis touched on a recital in the agreement. Often recitals in the agreement are treated as a mere formality. However, in this case, the recital that addressed the husband’s income noted that he “may receive certain stock options”. The parties agreed in their child support clauses that stock options may affect child support but did not do the same in the spousal support clauses. The Court in Hall concluded that the exercise of the stock options could not be a material change in circumstances because the parties had expressly contemplated this event when they determined how much spousal support was to be paid, and they did not agree it would be a basis for reviewing spousal support. In concluding this, the court referenced the language and organization of the agreement:

[52]         Paragraph 20 is entitled “Child Support” but Ms. Hall correctly reminds us that by para. 33 of the agreement, the heading is of no legal significance. We are told that Justice Johnston concluded that para. 20(g), stripped of the “Child Support” heading, was broadly applicable to spousal support because para. 20(g) referred to “support” without a modifier. Faced with an order of another judge made for reasons that are not available, the judge held that the disclosure obligation in para. 20(g) applied to the application before him for spousal support. In my view this conclusion was incorrect and the interpretation was unreasonable. Several features of the agreement lead me to this conclusion.

·    Absent the heading “Child Support”, para. 20(g) remains embedded in para. 20 in which each of the other subparagraphs refers either to child support or the Federal Child Support Guidelines (defined in Recital G as the “Guidelines”).
·       Paragraph 5, which by its content can apply only to spousal support, also uses the unmodified word “support”, suggesting that the unmodified word “support” in para. 20(g) is, likewise, to be read in the context of the surrounding provisions, all of which deal with child support.
·       The agreement is organized by setting out first all financial matters concerning only the parties, before recording in para. 20 their entire agreement respecting their child, suggesting that paras. 4 and 20(g) speak independently.
·       The sole references in para. 20 to tables of support are to the Federal Child Support Guidelines and the “Guidelines”, but “Guidelines” are defined as the Federal Child Support Guidelines, that is, there is no reference in para. 20 to the SSAG.
·       Recital G refers to both types of support through reference to the Federal Child Support Guidelines and the SSAG, that is, the parties referred to both bases of support where the agreement was to that effect.
·       The parties had the assistance of legal advice and a mediator’s expertise, suggesting para. 20(g) is located where the parties intended it to be, amidst the provisions relating to child support.
·       An annual disclosure requirement beyond child support obligations intrudes on the privacy and independence of both parties, contrary to the import of paras. 2 and 3 of the agreement.

The Court of Appeal set aside the spousal support award. The Hall case reiterates the importance of thoroughly reviewing agreements and carefully ensuring that the entirety of the agreement (recitals and all) addresses any anticipated future changes.

If you have a separation agreement and are not sure whether you can apply to vary the terms, our Vancouver Family Lawyers are available to help.

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