Relationships are meant to last, or so we think. The vast majority of people entering into serious relationships don’t want to consider the possibility of their relationship ending. This is especially true for younger individuals who have not accumulated assets and are just starting out. Individuals who have assets, or have been in previous relationships, or have children from previous relationships tend to be more likely to enter into domestic contracts.
The truth is that having a cohabitation agreement or marriage contract in place can actually provide clarity about what will happen “if” the relationship breaks down and can strengthen the relationship by encouraging open dialogue between the parties. The truth is that no two relationships look the same, and each couple needs to consider what is in their best interest as early as possible, especially before the parties start accumulating assets together (whether they are married or not). For these reasons, cohabitation and marriage contracts are important tools to consider.
To better understand why a cohabitation agreement or a marriage contract is a valuable tool, it is essential to understand what happens without one. For married spouses In Ontario, the Family Law Act is the governing legislation that serves as the default regime upon relationship breakdown. Married spouses share in property, but common law spouses do not (although common law spouses are entitled to support).
The Act provides a framework for dealing with family property when married spouses separate. Section 5(1) of the Family Law Act provides: When a divorce is granted, or marriage is declared a nullity, or when the spouses are separated, and there is no reasonable prospect that they will resume cohabitation, the spouse whose net family property is the lesser of the two net family properties is entitled to one-half the difference between them. R.S.O. 1990, c. F.3, s. 5 (1). To determine net family property, each party prepares their financial disclosure, which shows the value of their “net worth” at the date of separation. Deductions for property owned at the date of marriage and exclusions for gifts received through a will after the date of marriage are also available when calculating net family property. The types of assets that form your net family property may include:
- interest in the matrimonial home
- interest in all other property owned
- bank accounts
- investment accounts
- registered accounts
- business interests
- vehicles
- pensions
- credit card debts
- lines of Credit
- mortgages
Part IV of the Family Law Act provides for the following types of Agreements:
- Marriage Contracts – section 52(1): Two persons who are married to each other or intend to marry may enter into an agreement in which they agree on their respective rights and obligations under the marriage or separation or the annulment or dissolution of the marriage 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 decision-making responsibility or parenting time with
respect to their children; and
(d) any other matter in settlement of their affairs.
2. Cohabitation agreements – section 53(1): Two persons who are cohabiting
or intend to cohabit and who are not married to each other may enter into
an agreement in which they agree on their respective rights and obligations
during cohabitation, or on ceasing to cohabit 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 decision-making responsibility or parenting time with
respect to their children; and
(d) any other matter in settlement of their affairs.
3. Separation agreements – section 54(1): Two persons who are married to
each other may enter into an agreement in which they agree on their
respective rights and obligations, 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 decision-making responsibility or parenting time with
respect to their children; and
(d) any other matter in the settlement of their affairs.
Essentially, sections 52 and 53 of the Family Law Act allow parties to enter into an agreement at the early stages of their relationship, whereas section 54 applies at the end of the relationship. So, sections 52 and 53 guide how the parties will proceed “if” they separate in advance. It is important to understand that when a couple enters into a cohabitation agreement, the agreement can be drafted so that the agreement becomes a marriage contract if the parties marry at a later date.
In summary, cohabitation agreements and marriage contracts may include:
- protecting the value of an asset that one party brings into the relationship (this is especially true if the parties marry and the property is the matrimonial home)
- waiving entitlement to equalization and being separate as to property
- how the parties will handle finances and debts during the relationship
- how will expenses related to the joint property be paid?
- waiving the right to support upon the breakdown of the relationship
- who will inherit property in the event of death (this is particularly important if a couple purchases a property as tenants in common)
The types of provisions that a cohabitation agreement or marriage contract may not provide for include:
- provisions relating to possession of the matrimonial home. Each party has an equal right to possession, even where only one party is on the title to a property.
- custody and access provisions (but these can be included in a separation agreement)
The important thing to know if you are considering entering into a domestic contract is that the guiding rule is “disclosure.” In Family law, financial disclosure is key because you can’t contract out of what you don’t know you are entitled to. Additionally, each party having independent legal advice is essential so that each party knows what their respective rights are. This will go a long way to ensuring that you have a durable agreement that won’t be challenged in the future. The courts respect the autonomy to self-contract and don’t want to interfere unless necessary. Also, the purpose of these types of contracts is to save and preserve money, so going to court later is counter-intuitive. The court will generally not interfere with a domestic contract unless:
- one party failed to disclose an asset;
- one party was pressured into the agreement;
- the agreement is inherently unfair
This is why disclosure and independent legal advice are so important.
If you are considering entering into a domestic contract, contact us for an initial call to discuss how we can help. We provide reasonable rates on our domestic contracts and assist you with preparing the necessary financial disclosure. We also offer discounts on wills and powers of attorney, which are important considerations when preparing a domestic contract as well.