In Ontario, a marriage contract can be made either before or during a marriage. If it is made prior to the marriage, it is termed a pre-nuptial agreement or “pre-nup.” In addition, prospective spouses can enter into a cohabitation agreement if living together without an immediate intention to marry.
Whether we are speaking of cohabitation agreements, pre-nuptial agreements or marriage contracts, the Family Law Act of Ontario provides that such agreements may be entered into by persons who are married, intend to marry, or are simply cohabitating. The parties may agree on their respective rights and obligations during marriage, cohabitation or on separation, including:
- Ownership in or division of property.
- Support obligations.
- The right to direct the education and moral training of their children, but not the right to custody of or access to their children.
- Any other matter in the settlement of their affairs.
Should I have a pre-nuptial agreement?
Legally speaking, you should have a pre-nup or one of the other forms of agreements.
When you and your beloved enter into a pre-nup, you are, essentially, agreeing on the terms of your separation or divorce. This is a difficult thing to contemplate either prior to or shortly after a wedding ceremony, particularly as most people would view such agreements as not being very romantic.
On the other hand, it is when the parties are still enamoured by one another that generosity and fairness will most likely be felt. It is, in fact, the best time to negotiate a fair agreement on how the relationship might end. Each party will know where they stand in the event that the relationship terminates.
While the comfort of predictability and the security of knowing where one stands is very important, pre-nups, cohabitation agreements, and marriage contracts must be drafted with care, as the parties are trying to negotiate an agreement based upon their assumptions about the future.
Does it matter whether the parties are married?
The Family Law Act contains two definitions for the word “spouse.”
The first is a general definition that applies to Part I and Part II of the Act (dealing with the division of matrimonial property and rights in the matrimonial home) which states that spouse means either of two persons who:
- Are married to each other; or
- have together entered into a marriage that is voidable or void, in good faith.In order to make a claim for a division of property or the right to remain in the matrimonial home, the spouse making the claim has to be actually “married” to the person against whom the claim is made.
Section 29 of the Family Law Act contains a second definition of “spouse.” This definition applies to Part III of the Family Law Act, which deals with support obligations. For the purposes of this section, “spouse” means a spouse as previously defined and, in addition, includes either of two persons who are not formally married to each other and have cohabited:
- Continuously for a period of not less than three years; or
- in a relationship of some permanence, if they are the natural or adoptive parents of a child.The definition under Section 29 of the Family Law Act is generally known as a “common law spouse.”
Many people mistakenly believe that a common law spouse has the same rights and obligations as a married spouse, but this is not the case.
Under the Family Law Act, a common law spouse has only the right to seek support from his or her partner. There is no right on the part of the common law spouse to seek an equalization payment of matrimonial property from the other spouse, nor does the common law spouse have any possessory rights in the matrimonial home. Moreover, common law spouses have no automatic inheritance rights under the Succession Law Reform Act of Ontario.
As can be seen, there is still a distinction in this province between traditionally “married” spouses and “common law” spouses, which can have a fundamental effect upon the rights and obligations of the parties.
The use of a pre-nuptial, cohabitation or marriage contract can help the parties to define those rights – including inheritance rights – even if the parties never marry.
Who needs a pre-nuptial agreement?
• Parties with estate plans or Wills. A marriage revokes a Will. A pre- nup will help to ensure an estate plan is in place the moment the marriage is celebrated.
• Parties entering a second marriage. Parties entering a second marriage may carry legal and financial obligations, such as child and spousal support payments from a previous marriage. Pre-nuptial agreements can ensure that your assets are distributed according to your legal obligations, and that your first and second family benefit fairly from the estate.
• Parties entering a cohabitation relationship. The laws of property division relating to married couples do not apply to an unmarried couple. Pre-nuptial agreements can provide certainty about the division of property in the event of separation.
• Parties who own significant assets or a business (whole or part) before marriage. Upon marriage, a spouse may become entitled to claim ownership of shares in their partner’s business. Pre-nuptial agreements can protect the business parties’ interests and avoid a spouse from becoming an unwanted business partner.
• Parties who own a home which will become the matrimonial home. In the event of separation, the Family Law Act does not give a credit to the party who brought the home into the relationship. Pre-nuptial agreements can create a deduction for the value of the home and allow for the sharing, for example, of any increase in value, or otherwise divide the equity in the house according to your preference.
• Parties who invest personal assets, RRSPs, or family gifts towards the purchase of the matrimonial home. In the event of separation, the Family Law Act does not give a credit to the party who uses personal assets or gifts towards the purchase of the matrimonial home. Pre-nuptial agreements can create a deduction for the value of the home and allow for the sharing, for example, of any increase in value, or otherwise divide the equity in the house according to your preference.
• Parties who earn a significantly higher or lower income than their partners or who forego a career due to the relationship. Pre-nuptial agreements can provide financial security to both parties: they can protect one’s assets, as well as provide economic protection to an independent spouse upon separation or death of a partner.
• Parties who are sole providers for elderly parents or other relatives in need. Pre-nuptial agreements can reflect your obligations to your loved ones and help protect their financial interests.
The matrimonial home
While the Family Law Act allows parties to deduct the value of the assets that they bring into the marriage from the couple’s divisible property, it does not allow a similar deduction to a party who brought the matrimonial home into the marriage.
Pre-nuptial agreements have become an important vehicle which allows parties to create a deduction for the value of the home and only allow for the sharing of any increase in value, or divide the equity in the house according to the parties’ preference.
Terms of a pre-nuptial agreement
The content of a pre-nuptial agreement can be as varied and individual as the parties. There is no complete list of matters which should be, or must be included. The parties are free to decide the terms they wish to include, save and except that agreements cannot pre- determine the custody of children.
A pre-nuptial or cohabitation agreement usually deals with the following:
1. Division of property.
2. Ownership of property.
3. Inheritance of property.
4. Spousal support obligations.
5. The right to direct the education and moral training of children.
Validity of pre-nup agreements
For a pre-nuptial agreement to be valid and enforceable, the following requirements must be met:
- Formal validity — the agreement must be in writing, signed, and witnessed.
- Full and complete disclosure of assets, debts or other liabilities.
- True independent legal representation and advice – even if there are no disputed issues, each party to a pre-nuptial agreement mustretain their own lawyer.
- Equal bargaining power — fraud, undue influence, duress, orunconscionable circumstances must be absent.
- Clarity of intent and accuracy of expression.
- Permissible matters and terms.Still not sure? Seek the advice of someone who can explain everything in plain language. Better safe than sorry. W
From the files of Ottawa Wedding Magazine.
NOTE TO READERS: The views of the author do not necessarily reflect those of Coyle Publishing. This article is provided as a general source of information only and should not be considered to be personal investment or legal advice, or a solicitation to buy services. Readers should consult with their financial or legal advis