Comprehensive Overview Of Prenuptial Agreements In Ontario
What Is A Prenuptial Agreement?
In Ontario, a prenuptial agreement (also commonly known as a prenup agreement) is a legal contract entered into by two people who are planning to get married or enter into a civil partnership. This agreement outlines the rights and obligations of each party in the event of a divorce, separation, or death. Couples enter into a prenuptial agreement to supersede many of the default marital laws that would otherwise apply in the event of divorce, such as laws that govern the division of property, retirement benefits, savings, and the right to seek spousal support. A prenuptial agreement may also contain waivers of a surviving spouse’s right to claim a share of the estate of the deceased spouse.
A prenuptial agreement can address various issues, such as division of property, spousal support, matters related to children (though decisions about the child’s custody and support are subject to the court’s discretion and must be in the best interests of the child at the time of separation). The purpose of a prenuptial agreement is to provide clarity and certainty about financial matters in the event of a breakdown in the relationship, which can potentially prevent disputes and lengthy legal battles in the future.
How Is A Prenuptial Agreement Different From A Marriage Contract?
The terms “prenuptial agreement” and “marriage contract” are often used interchangeably and essentially refer to the same legal document. Both terms refer to a legally binding agreement between a couple that outlines how their assets, debts and other financial obligations will be divided in the event of a divorce or separation.
A marriage contract is a broader area that encompasses agreements made not only before the marriage but also after the marriage. A prenuptial agreement is a sub-facet of a marriage contract. For example, if a couple decided to create a similar agreement after they were married, it would be referred to as a marriage contract rather than a prenuptial agreement.
That is to say, both the documents address the same issues. The only difference between a prenuptial agreement and a marriage contract is the date on which the agreement is executed. A prenuptial agreement is executed before the date of marriage and a marriage contract is executed after the date of marriage.
What Are The Legal Requirements For A Prenuptial Agreement?
Prenuptial agreements are enforceable in Ontario as long as they are valid. To be valid and enforceable, a prenuptial agreement must meet certain legal requirements:
The Prenuptial Agreement must be in writing
A prenuptial agreement must be in writing to be legally valid. Verbal agreements are not enforceable.
The court in Kamermans v. Gabor held that an alleged verbal agreement between the parties that the husband would get his down payment back on the home that they owned as joint tenants was unenforceable unless made in writing, signed by the parties and witnessed.
Similarly, in Waldick v. Waldick the court considered a document had no formal validity where the wife failed to sign a document, signed by the husband and witnessed by his lawyer.
The Prenuptial Agreement must be properly executed
The agreement must be signed and dated by both parties in the presence of a witness. It is advisable to have the agreement notarized or signed in the presence of a notary public to enhance its authenticity.
Section 55(1) of the Family Law Act states that a domestic contract and an agreement to amend or rescind a domestic contract are unenforceable unless made in writing, signed by the parties and witnessed.
In Gallacher v. Friesen, the Court discussed that the purpose of section 55(1) was to ensure a measure of formality in the execution of a domestic contract, to provide proof that it was, in fact, signed by the parties and to ensure that it is free from undue influence, coercion or duress. It has been suggested that the purpose of this provision is to avoid “kitchen table” agreements.
However, the court in that case held that the wife’s signature on the purported document had not been witnessed and as a result did not render the agreement unenforceable where:
- Both parties had signed the domestic contract;
- The husband’s signature was witnessed;
- Both parties certified they had received Independent Legal Advice before signing the agreement;
- There was full financial disclosure before the execution of the agreement;
- Both parties are sophisticated and educated; and
There was no duress, lack of capacity, vulnerability, or any other circumstance that would vitiate the agreement.
There must be an exchange of full and frank financial disclosure
Both parties to the agreement must provide full and honest disclosure of their financial situation. This means disclosing all assets, debts, income, and liabilities. If one party hides assets or provides false information, the agreement could be set aside by the court.
Section 56(4)(a) of the Family Law Act states as follows: A court may, on application, set aside a domestic contract or a provision in it if a party failed to disclose to the other significant assets, or significant debts or other liabilities, existing when the domestic contract was made.
In LeVan v. LeVan, the petitioning wife sought to set aside a marriage contract under section 56(4) of the Family Law Act. The husband had deliberately failed to disclose his income and the value of his assets to his wife before entering into the marriage contract. He had also misrepresented the effect of the contract to his wife and undermined her trust in her first lawyer, insisting she fire him when the wife was advised that the contract was unconscionable. The wife’s second lawyer, chosen by the husband’s lawyer, did not request or obtain financial disclosure which would have enabled the lawyer to provide the wife with independent legal advice.
The contract was set aside under s. 56(4)(a) based on the husband’s non-disclosure of significant assets. Notwithstanding the requirement for disclosure, not every breach will result in setting aside the contract. In LeVan the court exercised its discretion as the wife did not understand the nature and consequences of the contract when she signed it and did not receive independent legal advice. Even though the wife testified that she would have signed the contract in any event, the husband had misrepresented the nature of the contract to her, insisting that it did no more than prevent the company shares from going outside the family. In reality, it severely compromised the wife’s right to spousal support and excluded any increase in the value of the shares from being shared.
Independent legal advice is strongly recommended
It is strongly recommended that both parties obtain independent legal advice before signing a prenuptial agreement. Each party should have their own lawyer to explain the terms and implications of the agreement. If one party does not have independent legal advice, it could later be argued that the agreement was signed under duress or without a full understanding of its consequences.
The Ontario Court of Appeal in Butty v. Butty noted that “...it is important to keep in mind that courts should respect private arrangements that spouses make for the division of their property on the breakdown of their relationship, particularly where the agreement in question was negotiated with independent legal advice.”
In Gauthier v. Gauthier, the parties had executed an agreement that provided for a complete waiver by both parties to an equalization of family assets, support or a share of the other’s estate. The agreement also provided that it would continue in force should the parties marry. The parties did, in fact, marry; however, the marriage lasted only two years. The husband applied for a divorce and exclusive possession of the matrimonial home. The wife argued that the agreement should be set aside; she did not understand the effect of the contract, since her solicitor did not properly review the provisions in the agreement. With respect to the provision of independent legal advice, the court held that there was “no formal or substantive requirement for [independent legal advice] for a domestic contract to be binding. What is required is that each party understand[s] the nature or consequences of the contract.”
Voluntary and informed consent
Both parties must enter into the prenuptial agreement voluntarily and with a clear understanding of its implications. There should be no coercion, duress, or undue influence from either party.
Duress involves coercion of the will of one party or directing pressure to one party so they have no realistic alternative but to submit to the party.
To establish undue influence or inequality in bargaining power, “the plaintiff must prove the ability of one person to dominate the will of another, whether through manipulation, coercion, or outright but subtle abuse of power”.
In the case of Balsmeier v. Balsmeier, the wife sought to set aside the marriage contract on various grounds including the lack of or misleading financial disclosure, misrepresentation and duress. The wife’s position was that she was under duress as she had invited 200 guests to the wedding and they were flying in from “all over the world”. The wife also deposed that in her culture in particular there would be intense shame and embarrassment should the wedding have to be canceled. While the wife might have felt pressured and trapped by the circumstances of the impending marriage, this did not mean that the husband exerted any sort of undue pressure on the wife and subjected her to duress. The wife had realistic alternatives; one of those alternatives—which the wife acknowledged was available to her—was not to sign the contract. The husband had already advised that he would not marry her unless the contract was signed. He too had invited a significant number of guests to the wedding. The court did not find that the wife executed the marriage contract under duress or illegitimate pressure.
The Prenuptial Agreement must be Fair and Reasonable
The terms of the agreement must be fair and reasonable. If the terms are excessively one-sided or unfair to one party, a court may declare the agreement to be unconscionable and therefore unenforceable.
The Prenuptial Agreement applies only to married spouses
The parties must be legally married or planning to get married. Prenuptial agreements do not apply to common-law relationships. Different legal principles govern common-law relationships in Ontario.
How Much Does A Prenuptial Agreement Cost?
The cost of a prenuptial agreement can vary widely depending on several factors, such as the complexity of an agreement, the lawyer’s fees, and the negotiations involved. Lawyers typically charge on an hourly basis, and the cost will depend on the amount of time they spend working on your agreement. On average, you can expect to pay between $2,000 to $5,000 for a prenuptial agreement.
When Should You Sign A Prenuptial Agreement?
The sooner, the better. Generally, a prenuptial agreement should be done at least five to six months before your marriage. This is to ensure that there was enough time for both parties to voluntarily enter into the agreement and understand its implications as opposed to being rushed or pressured into its execution prior to marriage.
In Hartshone v. Hartshone, the agreement in question was concluded under pressure with the wedding fast approaching. The wife sought changes to the agreement before execution but was unable to persuade the husband to agree, except for minor changes, such as the insertion of a clause to the effect that her signature was not voluntary and was at his insistence. These circumstances illustrated the husband’s position of power within the relationship, as well as the wife’s correlative dependence. The agreement was determined to be unfair.
How Long Does It Take To Prepare A Prenuptial Agreement?
The amount of time that your lawyer takes to prepare the agreement depends on how quickly you can identify exactly what you are trying to accomplish, what assets and liabilities you have, what marital assets you would like to protect, and what you want the agreement to address. It is important to allow enough time to prepare the agreement. This ensures that both parties have received full disclosure and are in no way rushed or pressured into entering the agreement. It should be completely voluntary to be enforceable.
Wills And Prenuptial Agreements: Which Takes Priority?
Whether a Will or a prenuptial agreement takes priority depends on the specific circumstances and the laws of the jurisdiction involved. In general, if the terms of a prenuptial agreement conflict with those of a Will, a probate court may choose to uphold the prenuptial agreement especially if it is fairly negotiated between the parties. A prenuptial agreement is more likely to take priority over a will if it contains a few specific clauses. For instance, a prenuptial agreement should state which law should be applied to interpret it, especially if it is made in a different country or province than the one in which the spouse died. Otherwise, the law in the country or province where the spouse died will take effect, even if that is not the law the couple had in mind when they made the Will.
Make sure to check the prenuptial agreement carefully to see if it contains a sunset clause, or a statement setting an expiration date for the prenuptial agreement. If that date has passed, the prenuptial agreement is no longer binding and the Will may govern the distribution of the estate. The court may also prioritize a Will if it can be proven that the prenuptial agreement was created under duress or is unfair.
Prenuptial agreements can be a complex and sensitive topic, and having the right legal counsel is crucial. Our experienced team has a deep understanding of the law surrounding prenuptial agreements. Whether you are considering a prenuptial agreement, need help in drafting or reviewing one, or have any questions about the legal aspects of these agreements, we are here to assist you every step of the way.
At Nazarian Law, we are committed to helping you make informed decisions that protect your interests and financial well-being. Start by booking a complimentary phone call with our team to discuss your prenuptial agreement concerns.
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Disclaimer
The content provided in this article or blog is for informational purposes only. It is not intended to constitute legal advice or to replace the advice of a qualified legal professional. While we strive to provide accurate and current information, the law is complex and constantly changing, and each person’s circumstances are unique. Therefore, you should not rely on this information as a substitute for professional legal advice. This information does not create an attorney-client relationship between you and our law firm. We strongly recommend that you consult with a qualified attorney in your jurisdiction to understand your legal rights and obligations. Always seek legal advice before making any decisions that may impact your legal rights or obligations.
