Domestic contracts include marriage contracts, separation agreements, and cohabitation agreements. These contracts set out the rights and obligations of the parties during the relationship and/or upon separation, and can significantly alter your financial rights and obligations as well as determine your rights relating to parenting your children.
Optimally, a domestic contract will be a final and binding agreement. However, if a domestic contract is not drafted properly or is signed under the wrong circumstances, you may be held to an agreement that does not reflect your real intentions, or the contract you thought was binding and final may be set aside by a court.
For example, in M. (A.A.) v. K. (R.P.)1 the wife tried to set aside the provisions in a separation agreement that dealt with property and spousal support. The agreement was drafted and signed by the parties’ without any assistance from lawyers. The husband used a template and "filled in the blanks".
Although the parties never discussed spousal support, there was a clause in the agreement stating that neither party would pay spousal support. With regard to property, the parties did not make full disclosure of their respective assets and liabilities. The husband bought the matrimonial home from the wife and they divided furniture. Both parties had veterinary practices and RRSP’s but they never disclosed the value of these assets. It was later revealed that the husband’s assets were worth significantly more than the wife’s and she was entitled to double of what she actually received in the agreement.
The wife claimed that the agreement should be overturned because: (1) she was vulnerable, emotionally overwhelmed and upset when the separation agreement was signed; (2) lack of disclosure of the value of the husband’s assets; and (3) she did not have legal advice nor understand what she was signing.
Based on multiple factors, the court refused to set aside the parts of the agreement dealing with property. Among other things, the court pointed out that:
- the wife knew she had an interest in the husband's veterinary practice but did not ask to have it valued
- the wife could have sought advice from a lawyer, but deliberately chose not to
- the parties did not understand many terms in the agreement, but they understood the overall bargain they had made
- although the wife was emotionally upset, it was not so serious as to impair her ability to participate rationally and effectively in the negotiations.
With respect to spousal support, the agreement was set aside due to a lack of disclosure each party’s income. The husband made more than he anticipated, and the wife earned significantly less. The parties did not properly contemplate the issue and the clause was simply copied from a template. The court held that the spousal support clause was contrary to the objectives of the Divorce Act and was set aside.
In the end neither party got what they wanted out of the agreement. If you are considering entering into a domestic contract below are some important considerations in order to avoid ending up in the same situation.
Don’t be hasty
If you enter into a contract without due time to consider, you may be held to an agreement that you later realize does not meet your needs. In the case above, the wife felt pressure to sign the separation agreement in order to relieve some financial problems. She later found that the agreement was unsatisfactory, but was held to the property division terms.
On the other hand, if you pressure your spouse into signing an agreement without allowing him or her the time to consider it or properly consult a lawyer, the agreement may be set aside. In Rick v. Brandsema2, the court set aside a separation agreement because the wife was mentally unstable during the negotiation. The husband exploited the wife’s mental instability by accepting an offer based on financial information he knew was misleading. Where one party exploits circumstances of oppression, pressure or vulnerabilities, a domestic contract may be set aside.
Full Financial Disclosure
It is important to make full and fair financial disclosure before signing an agreement. Otherwise, you cannot make an informed decision about whether or not to agree. If you do not request disclosure, you may be left without recourse if you discover new information that would have changed your decision. In the case above, M. (A.A.) v. K. (R.P.), the court’s decision was partially based on the fact that the wife failed to diligently pursue disclosure. When she later discovered that she was entitled to more than double what she received, it was too late.
Alternatively, if you do not make full and fair disclosure before signing the agreement, your agreement may be set aside. For example, in LeVan v. LeVan3, the husband was a very wealthy man. Two days before the parties were to be married he pressured the wife into signing a marriage contract. The husband did not properly disclose his assets or income. Further, the wife did not receive effective independent legal advice because of the non-disclosure. The marriage contract was set aside and the husband was ordered to pay the wife a $5.3 million equalization payment.
Prepared by a Lawyer and Independent Legal Advice
Although an agreement will not automatically be set aside because of a lack of legal advice, you should not draft your own domestic contract, or use template forms.
In the case above, M. (A.A.) v. K. (R.P.), both parties admitted that they did not really understand much of the language in their separation agreement. However, they went ahead and signed the agreement anyway. Instead of avoiding legal costs by using a template, they both ended up with lawyers and in court.
Particularly with respect to spousal support, an agreement can be set aside if does not comply with the objectives of the Divorce Act or Family Law Act. Having a lawyer prepare the agreement may not guarantee that the agreement will never be disputed, but it is certainly more likely to hold up to scrutiny.
When entering into a domestic contract, each party should have their own independent legal advice. When the contract is being drafted, each party may have their own lawyer negotiating the terms of the agreement. Alternatively, if one party retains a lawyer to draft the agreement, the other party should obtain their own legal advice before signing the agreement.
Obtaining legal advice reduces the chances of the agreement being set aside, but more importantly, it ensures that you know what you are agreeing to when you sign it.
12010 ONSC 930, 81 R.F.L. (6th) 370 (Ont. S.C.J.)
22009 SCC 10,  1 S.C.R. 295 (S.C.C.)
32008 ONCA 388, 239 O.A.C. 1 (Ont. C.A.)