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Are Marriage Contracts Enforceable?

Two of the more common financial issues to be sorted out when a married couple in Ontario gets divorced are entitlement to spousal support and the division of net family property. Spousal support is typically payable if there is a significant difference in the income between the former partners. Furthermore, the law provides that the value of any property that was acquired by a spouse during the marriage and still exists at separation must be divided equally between the spouses.

 

Married couples in Ontario can enter into marriage contracts (a.k.a domestic contracts or prenuptial agreements) that vary the rules for spousal support and the division of property in the event of a separation or divorce.

The default rule in Ontario is that marriage contracts are enforceable as they relate to spousal support and the division of property. However, section 56(4) of the Family Law Act allows a party to apply to set aside a marriage contract if the circumstances surrounding the negotiation and signing of the contract were unfair. Section 56(4) of the Family Law Act provides as follows:

 

56 (4) A court may, on application, set aside a domestic contract or a provision in it,

 

(a) if a party failed to disclose to the other significant assets, or significant debts or other liabilities, existing when the domestic contract was made;

 

(b) if a party did not understand the nature or consequences of the domestic contract; or

 

(c) otherwise in accordance with the law of contract.

 

Section 56(4)(c) codifies the common law position that ordinary contract principles apply to marriage contracts. Under the law of contract, contracts can be set aside if:

  • there was undue influence at the time of signing;
  • there was duress at the time of signing;
  • unconscionability;
  • there was a mistake as to an essential element of the contract;
  • there was fraud or material misrepresentation; or
  • there was a repudiation of a term in the contract.

Furthermore, with respect to spousal support, the Family Law Act also permits the Court to set aside a marriage contract that was fair at the time that it was entered into if the effect of the marriage contract as at the date of separation or divorce is unfair. Section 33(4) of the Family Law Act provides as follows:

 

Setting aside domestic contract

 

33(4) The court may set aside a provision for support or a waiver of the right to support in a domestic contract and may determine and order support in an application under subsection (1) although the contract contains an express provision excluding the application of this section,

 

(a) if the provision for support or the waiver of the right to support results in unconscionable circumstances;

 

(b) if the provision for support is in favour of or the waiver is by or on behalf of a dependant who qualifies for an allowance for support out of public money; or

 

(c) if there is default in the payment of support under the contract at the time the application is made.

 

The 2015 decision of the Ontario Superior Court of Justice in Shair v. Shair illustrates the application of these rules.

 

Shair v Shair involved a couple who married in 1996. The husband was Canadian. He met his future wife while travelling in Romania. He was 42 years old. She was 29. She was working as a cosmetician and pursuing a degree in social psychology. The couple got engaged and moved to Canada together. The husband operated a small mechanic’s shop and owned the property where the shop was located. Furthermore, he was twice divorced. The husband insisted that the couple enter into a marriage contract. Before the marriage, they entered into a marriage contract with the following terms that applied at the breakdown of the marriage:

  1. There shall be no equalization of net family property; and
  2. Each party released the other from spousal support.

In 2014 the husband applied for a divorce. The wife moved to set aside marriage contract.

 

On the one hand, the Court refused to set aside the marriage contract and permit the wife to pursue a claim for equalization of net family property. The marriage contract was valid at the time that it was entered into despite a number of red flags. First, the wife was a vulnerable party at the time the contract was signed, but the husband did not exploit her vulnerability. He arranged for her to get independent legal advice from a lawyer who advised her not to sign the contract. He also arranged for a Romanian interpreter to ensure that she understood the advice she was given. Second, the husband had failed to make adequate disclosure of his financial affairs. Having considered all the circumstances, however, the Court concluded that further financial disclosure would not have stopped the wife from signing the agreement. She would have signed the marriage contract even if she had adequate financial disclosure. Therefore, the marriage contract was valid at the time that it was entered into, and it was enforceable at the end of the marriage. The Court refused to permit the wife to pursue a claim for equalization of net family property.

 

On the other hand, the Court set aside the marriage contract to allow the wife to pursue a claim for spousal support. Section 33(4) of the Family Law Act required to the Court to look at the circumstances since the marriage contract was entered into. At the time that the parties entered into the marriage contract both assumed that the wife would re-establish herself in the workforce within a few years of the marriage. Instead, the parties had a traditional marriage where the wife was financially dependent upon the husband. Enforcing the terms of the marriage contract in those circumstances would be unconscionable. The Court set aside the release in the marriage contract as it related to spousal support and allowed to the wife to pursue a claim for support.

 

The Shair decision illustrates two broad generalizations concerning marriage contracts. As it relates to the division of property, a marriage contract in Ontario will usually be enforceable provided the circumstances at the time the contract was entered into were fair. However, as it relates to spousal support, a marriage contract will only be enforceable if the marriage contract was fair at the time it was entered into and the enforcement of the marriage contract after the breakdown of the marriage is not “unconscionable” or highly unfair.

 

The information contained in this article is provided for general information purposes only and does not constitute legal or other professional advice. Readers are advised to seek specific legal advice in relation to any decision or course of action contemplated.

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