Upon the dissolution of a relationship, the default position is recourse to the court and the law applicable at the relevant time. In order to avoid falling victim to the risks inherent in a court determination, however, many couples elect to regulate their own affairs. The Family Law Act permits parties to dictate their own outcomes to a large extent through the use of domestic contracts. Private ordering is permitted in Part IV of the Family Law Act, through the use of three essential types of domestic contracts: marriage contracts; cohabitation agreements; and separation agreements.
In order to be formally valid and binding, all domestic contracts must be in writing, signed by the parties to the contract and witnessed.
Marriage Contracts/Cohabitation Agreements
In a marriage contract or cohabitation agreement, parties essentially agree on the terms of their future separation or divorce, should that eventuality come about. Parties entering into such contracts prefer the predictability of a settlement negotiated in advance to a future court process.
In Ontario, a marriage contract can be entered into either before or during a marriage by same sex or opposite sex parties. Similarly, same sex or opposite sex parties can enter into a cohabitation agreement if they are either living together or intend to live together.
The content of a marriage contract or cohabitation agreement can be crafted to fit each couple’s particular circumstances. There is no complete list of matters which must be included so the parties can choose to have as simple or as detailed an agreement as they like. The parties are free to decide the terms they wish to include save and except that such agreements cannot pre-determine the custody of children.
The parties to such contracts may agree on their respective rights and obligations during marriage, cohabitation, on annulment, dissolution of the marriage, separation and/or on death, including:
a) Ownership in or division of property;
b) Support obligations;
c) The right to direct the education and moral training of their children, but not the right to custody of or access to their children; and
d) Any other matter in the settlement of their affairs.
In addition to formal validity, the courts will consider the following when determining the whether a marriage contract or a cohabitation agreement is binding:
a) Full and complete disclosure of assets, debts or other liabilities;
b) True independent legal representation and advice – the parties must each have their own lawyer;
c) Equality of bargaining power – fraud, undue influence, duress, or unconscionable circumstances cannot exist;
d) The contract must only contain permissible terms; and
e) The contract must be clear and unambiguous.
There are three main situations in which a party will likely want to have a marriage contract or cohabitation agreement:
1. Where a party has been through a divorce or break-up previously:
Parties who have seen a past significant relationship end may want to protect themselves against the financial consequences of the new relationship breaking down. In addition, parties entering a second relationship may carry legal and financial obligations such as child and spousal support payments from a previous marriage which must be maintained and preserved.
2. Where the parties plan to cohabit but never marry:
The laws of property division under the Family Law Act relating to married couples do not apply to cohabiting spouses. As such, spouses who plan to cohabit and not marry might want to contract into a scheme for the division of property in the event of separation.
3. Where a party has significant assets that s/he is bringing into the marriage:
If one or the other party is bringing significant assets into the relationship and the other party is not, or even in the case where both parties have significant assets, it may be appropriate to protect them. In many cases, the assets have been accumulated by one party’s family and it is that family (particularly the party’s parents) who insist on a contract so that the “family” property will not fall into the ex’s hands upon relationship breakdown. As another example, a party may want to ensure that income from family assets does not form part of that party’s income for support purposes.
4. Where a party owns a home which will become the matrimonial home:
When calculating property division upon marriage breakdown, the Act does not give a credit to the party who brought the home into the relationship. A marriage contract can, for example, create a deduction for the value of the home so that only the increase or decrease in the value of the home is shared between the spouses, thereby treating the home like any other asset owned on the date of marriage.
Similarly, where a party invests personal assets or family gifts towards the purchase of the matrimonial home, s/he will not be given credit for that contribution upon separation unless it is provided for in a marriage contract.
5. Where a party has a Will:
Marriage revokes a Will unless that Will is expressly made in contemplation of the marriage. A marriage contract can help to ensure that an estate plan is in place upon marriage.
Separation Agreements are the most common domestic contracts negotiated between couples. In order for two parties to enter into a separation agreement they must have cohabited and must now be living separate and apart. Although physical separation is a strong indicator, parties will be deemed to be living separate and apart under the same roof if the court considers them to be living separate and independent lives.
Unlike a marriage contract or cohabitation agreement, a separation agreement can provide for custody and access to children in addition to all the rights and obligations that can be dealt with under those domestic contracts. A court may nonetheless disregard such provisions in a separation agreement in accordance with s.56 (1) of the Act where it is in the best interest of the child to do so, since the court always reserves jurisdiction where children are concerned. In addition, the court may disregard a child support provision in a domestic contract which is not in accordance with the Child Support Guidelines.