Wednesday’s Video Clip: Marriage Contract
What is a marriage contract?
· A legal agreement between two married persons, or two persons who intend to be married.
· A marriage contract affords some degree of flexibility in deciding property division and support if (or when, in the case of death) the marriage ends.
· In Ontario, spouses who do not have a marriage contract will be subject to the default regime of “equal division of property” imposed by the Family Law Act on most family property.
How are they binding and enforceable?
· In Ontario, a marriage contract will be legally binding if the following conditions are met:
o It is in writing;
o Each party made full and frank disclosure about their financial situation to the other;
o It is entered into voluntary, meaning no duress or undue influence;
o Each party had legal capacity and understood the contract;
o Each party received independent legal advice;
o The bargain is not unconscionable; and
o It is properly signed in the presence of witnesses.
· Marriage contracts are legally enforceable when the proper steps are taken to ensure each party made a full, fair and informed decision when agreeing to the terms of the marriage contract. When a Court satisfies itself of all of this, it is highly unlikely a party challenging the marriage contract will be able to set it aside.
What can be included in a marriage contract? Does it have to be fair?
· While spouses can make any type of financial arrangement in a marriage contract, there are a couple major items which cannot form party of a valid marriage contract.
o One, parties to a marriage contract cannot pre-determine custody or access to the children.
o And, two, a marriage contract cannot put any limits on the rights of either party to occupy the matrimonial home.
o These legal prescriptions are enshrined in section 52(2) and section 52(1)(c) of the Family Law Act, respectively.
· A marriage contract is in essence a contract, therefore, general principles of the law of contract apply; Including the doctrine of unconscionability –
o The doctrine of unconscionability is the idea that the bargain in a contract ought not to be unfairly one-sided to the point of shocking the Court’s conscience.
· With this in mind, it seems a marriage contract should not unduly favor one party’s interests over the other.
· Case law seems to suggest that marriage contracts need to be “fair and provident” both at the time the agreement was made and in the future. Therefore, the best suited answer to question if fairness is required might be, it depends—on the bargain and on the process used to negotiate.
Can a marriage contract be overturned?
· When a party to a marriage contract is not satisfied with the terms of the agreement, he or she may seek to “set aside” the contract.
o Section 56(4) of the Family Law Act prescribes the circumstances in which a Court may grant such relief, setting aside the entire agreement, or certain provisions.
· According to s.56(4), a Court may set aside a domestic contract (for e.g., a marriage contract) or provision therein:
o if a party failed to disclose to the other significant assets, or significant debts or other liabilities, existing when the domestic contract was made;
o if a party did not understand the nature or consequences of the domestic contract; or
o otherwise in accordance with the law of contract.
· The most common reason why a party seeks to set aside a marriage contract is if the other party did not disclose a significant asset, debt, or liability when the contract was prepared.
· Another common reason for setting aside a marriage contract is if one party did not understand the consequences of the marriage contract, or that the party was forced to sign under duress or undue influence.
Why enter into a marriage contract?
· A marriage contract is a prudent and valuable planning tool for protecting certain property in the event of separation or divorce. It allows couples the opportunity…
o To divide property brought into the marriage and property earned throughout the marriage in a manner which differs from that of the statutory regime of equal division;
o To protect one party’s substantial wealth or asset from division with the other party on separation or divorce, or to avoid the complicated exercise of accounting for the increase in the value of existing property, excluding it from equalization; or
o To establish, reduce or otherwise limit the duration of spousal support, provided the agreement does not do away with payment of any spousal support in the first place.