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Marriage contracts, also known as prenuptial agreements if made prior to a marriage, can be valuable planning tools to protect clients if they get separated or divorced.

A marriage contract allows a couple to decide, in advance, the outcome for property division and support obligations when the marriage ends, including if it ends on death.

Marriage contracts are particularly relevant in certain situations, including when one spouse has an interest in a family business where keeping the business in the family is key, or in blended family situations, where spouses have been previously married or are cohabiting and have children from prior relationships.

In Ontario, without a contract, spouses will be subject to the equalization of property regime imposed by the Family Law Act (FLA) for most family property, as well as applicable spousal support rules.

From time to time, news reports highlight high-profile situations where the court has invalidated marriage contracts, including ones that have released spousal support. In some of those cases, the court has instead awarded significant support.

For instance, in the 2012 McCain v McCain decision, Justice Greer set aside the spousal support provisions in a marriage contract on an application for interim spousal support because she held they were so unfair to the wife as to be unconscionable, and created an improvident result in the context of the husband’s current wealth. Justice Greer also held that the contract was signed under duress after the marriage.

So, are marriage contracts really worth the time, effort and expense to prepare them? Three recent Ontario lower court decisions where a marriage contract was challenged demonstrate that if the proper steps are taken, the court will uphold a contract as valid and enforceable. They are Shair v Shair (2015), Toscano v Toscano (2015) and Balsmeier v Balsmeier (2016); see “Basic case facts”.

Basic case facts

Shair v Shair

The husband sponsored the wife as his fiancée, and she arrived in Canada in July 1996.

The parties signed a marriage contract in September 1996. They married in November 1996.

The marriage contract stated, in part:

  • each party waived all property rights under the Family Law Act and there was to be no equalization of net family property upon separation;
  • each party released the other from spousal support.

The husband filed an application for divorce in June 2014 after 18 years of marriage. They had no children.

The wife challenged the marriage contract’s validity on the bases that she didn’t understand what she was signing, that she was under duress and unduly influenced, and that her husband-to-be did not disclose his significant assets.

The court found the contract valid on the bases that the wife received appropriate independent legal advice (including in her primary language) regarding the nature and consequences of the contract, that there was no evidence of duress or undue influence, and that the husband’s lack of disclosure did not significantly impact the final agreement between the spouses.

 

What makes a contract valid

As confirmed by the Supreme Court of Canada in Hartshorne v Hartshorne (2004), courts will endeavour to respect private agreements between spouses regarding property division and spousal support—especially where each spouse has received independent legal advice.

In Ontario under the FLA, a marriage contract must be in writing, properly signed by each spouse and properly witnessed to be valid. Oral contracts are not valid. Section 56(4) of the FLA permits a court to set aside a marriage contract (or a provision in it) where, at the time of entering into the contract, there was:

  1. insufficient financial disclosure of significant assets or liabilities;
  2. a lack of understanding as to the nature and/or consequences of the marriage contract; or
  3. the presence of any grounds for setting aside a contract under contract law.

Subsection (c) includes the presence of fraud, duress, undue influence or unconscionability.

Each of the cases mentioned above—Shair, Toscano and Balsmeier—illustrates the application of these rules and the very detailed analysis a judge will undertake in determining the validity of a marriage contract or its provisions.

The court will use the two-step process set out in the leading Ontario Court of Appeal case LeVan v LeVan (2008) to determine whether any part of a marriage contract is invalid. First, the court will determine if one spouse has demonstrated the presence of one or more of the grounds set out in the FLA. If one or more grounds have been violated, the court then decides whether it is appropriate to exercise its discretion and set aside the provision—or the entire contract.

Basic case facts

Toscano v Toscano

The couple’s relationship began in April 1991. They were engaged in February 1992.

In July 1993, the husband retained a lawyer to assist with a marriage contract. The wife retained her own lawyer in August 1993.

The marriage contract was signed September 14, 1993 and the couple was married 11 days later.

The marriage contract stated, in part, that each party waived all property rights under the Family Law Act and there was to be no equalization of net family property on separation or divorce. The contract did not deal with support.

The couple separated in July 2011 after 18 years of marriage. They had two children during their marriage.

The wife challenged the marriage contract’s validity on a variety of grounds including her lack of understanding about the nature and consequences of the contract, duress, undue influence, insufficient financial disclosure and inadequate legal advice.

The husband argued that the wife had worked in the family business and knew about his finances and business affairs, that there was no coercion on his part, that they had openly discussed the contract before signing it and that she had received independent advice from her chosen lawyer.

In the court’s view, the evidence did not prove any of the wife’s reasons for challenging the contract and declared it valid, noting that it had been freely negotiated between two educated and knowledgeable adults.

When deciding whether to exercise its discretion under the second half of the LeVan test, in Toscano the court noted that “the fact that the division of property is not the same as [i.e., not as good as] that under the equalization scheme of the FLA, is not a sufficient ground to set aside the agreement.”

In the three cases, each marriage contract was ultimately declared valid. However, the court’s analyses remind advisors to encourage clients to carefully and fairly negotiate and craft marriage contracts that will be enforceable if and when needed.

McCain and Shair also demonstrate that certain spousal support provisions (including complete waivers of support) can become unconscionable over time.

Section 33(4) of the FLA provides a means for setting aside support provisions in an otherwise valid contract if they result in unconscionable circumstances at the time of the marriage breakdown.

In longer-term marriages, like the McCain and Shair marriages, it may be wise for clients to periodically revisit these provisions to ensure they remain fair in the context of the relationship. The rules are there to ensure that each spouse has the information and ability to make a fully informed decision—and one that is not so unfair as to be unconscionable. And in the case of spousal support, they also ensure that any such bargain is not so unfair as to be unconscionable at the time of the marriage breakdown.

Basic case facts

Balsmeier v Balsmeier

The husband and wife first met in November 2008 through a dating website while he was living in Ontario and she was living in Michigan.

They maintained an on-again, off-again long-distance dating relationship.

The couple was engaged on July 23, 2010 after the wife told the husband she had been offered a job for which she may have needed to move to New York City or California. A week or two later, a wedding date of September 11, 2010 was set.

The husband met with his lawyer on August 10, 2010 to discuss a marriage contract. The wife first met with her lawyer to review the contract on August 27, 2010.

After some negotiation, the husband and wife each signed the contract in early September, and were married as planned.

The contract provided, in part:

  • The husband would pay the wife $6,000 per month in spousal support for 36 months;
  • There would be no equalization of net family property under the FLA, except after their fifth anniversary, the husband would transfer 10% of the equity in his Ontario home to the wife.

The couple had a tumultuous marriage and separated on November 2, 2013.

The wife argued the marriage contract should be set aside based on all of the grounds set out in s. 56(4) of the Family Law Act, and that the spousal support provisions should be amended.

TThe court noted the wife’s evidence at trial was often contradictory or simply not credible. It found the contract valid given that the wife had not met the burden of proving any of the factors in the FLA and the amount of spousal support was fair in the light of the circumstances.

Originally published in Advisor's Edge Report

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