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Marriage Contracts on Death

 

 What is the effect of a marriage contract on death?

Marriage contracts are domestic agreements authorized by Part IV of the Family Law Act (“FLA”).  Beginning in 1986 with the inception of the equalization of net family property (“NFP”) regime for division of property on separation and death, the FLA permitted parties in defined relationships to contract out of the statutory scheme by way of a marriage contract or cohabitation agreement:

Marriage contracts

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 on separation, on 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 custody of or access to their children; and

(d) any other matter in the settlement of their affairs.  R.S.O. 1990, c. F.3, s. 52 (1); 2005, c. 5, s. 27 (25).

Rights re matrimonial home excepted

(2) A provision in a marriage contract purporting to limit a spouse’s rights under Part II (Matrimonial Home) is unenforceable.  R.S.O. 1990, c. F.3, s. 52 (2).

Cohabitation agreements

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 custody of or access to their children; and

(d) any other matter in the settlement of their affairs.  R.S.O. 1990, c. F.3, s. 53 (1); 1999, c. 6, s. 25 (23); 2005, c. 5, s. 27 (26).

Effect of marriage on agreement

(2) If the parties to a cohabitation agreement marry each other, the agreement shall be deemed to be a marriage contract.  R.S.O. 1990, c. F.3, s. 53 (2).

To be enforceable the domestic contract must be made in writing, signed by the parties and witnessed [section 55(1)]

By statute, the scope of the issues that may be covered under the contract is broad. The use of “any other matter in the settlement of their affairs” in section 52(1) (d) is particularly far ranging. It is not unusual to see the same types of final releases that we see in separation agreements in marriage contracts. The release of all future rights to property and estate claims is common.  As such, the parties may be releasing claims under Part V of the Succession Law Reform Act (“SLRA”) for dependents support and the right to elect to take by way of equalization under Part I of the FLA.

A surviving spouse could be excluded under the deceased’s will and have no access to statutory remedies due to the provisions of the marriage contract.

The question then becomes whether the marriage contract can be set aside under section 56(4) of the Family Law Act:

Setting aside domestic contract

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.  R.S.O. 1990, c. F.3, s. 56 (4).

Extensive case law has been developed over the years interpreting section 56 (4). Undue influence, duress, unequal bargaining positions, unconscionability, the lack of independent legal advice (“ILA”), insufficient ILA and the inadequacy of the financial disclosure are the primary grounds for an application to set aside a marriage contract.

The release or limitation of future spousal support rights is problematic as between married spouses. Such releases are specifically governed by the test of the Supreme Court of Canada in Miglin v. Miglin [2003] 1 SCR 303. Given the authority of the court in original support applications under the Divorce Act as set out in Miglin, spousal support releases in marriage contracts will be closely scrutinized and are of doubtful validity unless impeccably negotiated, factually supported and in short term marriage scenarios. The longer the marriage the less likely the spousal support release will stand.

The inclusion of a final spousal support release in a marriage contract may cast doubt on the validity of the balance of the provisions in the agreement.

By analogy contracts which purport to release a spouse’s future dependents support rights should attract the same high level of scrutiny.

A surviving spouse faces significant statutory time restrictions when considering whether to take under the will or elect to equalize the NFP. The election must be made in the prescribed manner within six months from the date of death [section 6(10) FLA] and the FLA court application for equalization must be commenced within that same time frame [section 7(3)(c) FLA].

In the event that the surviving spouse elects to proceed with equalization the marriage contract will be put forward as a defense by the Estate Trustee or opposing parties.

Weighing whether the marriage contract will stand or fall as against the entitlements under the will is an impossible task within the six month statutory election period. Just as in a Will Challenge proceeding, the file of the lawyer who acted for the surviving spouse when the marriage contract was executed is required. Law Pro may become involved and it is likely that a court order directing the release of the file will be necessary.

On motion under section 2(8) of the FLA, the Court has authority to extend the six month limitation period for making the election and commencing the proceeding if it is satisfied that:

(a) there are apparent grounds for relief;

(b) relief is unavailable because of delay that has been incurred in good faith; and

(c) no person will suffer substantial prejudice by reason of the delay.

The recently reported decision of Aquilina v. Aquilina, 2018 ONSC 3607 (CanLII) provides an excellent review of the considerations on a motion to extend the time for making an election.

Within the FLA proceeding the question of splitting the case or “bi-furcation” to determine whether or not the marriage contract should be set aside is a consideration.   The request to split is based on the argument that the litigation will be simplified if the Court first determines whether or not the marriage contract is valid and if so the extent of its application on death.

The 2009 decision of Justice Michael G. Quigley in Simioni v. Simioni, 2009 CanLII 934 (ON SC) is often cited for the statement of principles and considerations that the court must weigh on a bi-furcation motion:

 [15]               First, it should be accepted as non-controversial that both the Family Law Rules and the inherent jurisdiction of the Court provide ample authority and power to permit cases such as this to be split: Family Law Actsection 2(10)Rule 12(5).  The jurisprudence confirms that this is an authority and power that ought to be exercised if convenient, and if the exercise of the power would be in the interests of justice.  The interests of justice will be served if there are clear time and expense benefits to be gained from the bifurcation and determination of the threshold issue, provided no real or meaningful prejudice is caused to either party: Elcano Acceptance Ltd. et al v. Richmond, Richmond, Stambler & Mills, 1986 CanLII 2591 (ON CA), [1986] O.J. No. 578 (O.C.A.); General Refractory Companies of Canada v. Venturedyne Ltd., [2001] O.J. No. 746 (S.C.J.O.); Royal Bank of Canada v. Kilmer van Nostrand Co., [1994] O.J. No. 1476 (Ont. Ct. Jus.(Gen. Div.)).

[16]               Nevertheless, it is equally important to remember that the splitting of a trial effectively denies the fundamental principle that as far as possible, multiplicities of proceedings are to be avoided, and thus the power to split a case should be regarded as one that is narrowly circumscribed and to be exercised in only the clearest of cases – in cases that exhibit the exceptional merit that calls upon the Court to exercise its inherent power: Courts of Justice Actsection 138; Elcano, above; Carriero (Litigation Guardian of ) v. Flynn, [2004] O.J. No. 3117 (S.C.J.O.).  In light of this caution, the onus necessarily lies upon the party seeking to bifurcate to satisfy the Court on a balance of probabilities that if granted, severance will result in the “just, expeditious and least expensive determination of the proceeding on its merits”.: Merck & Co. v. Brantford Chemicals Inc., 2004 FC 1400 (CanLII), [2004] F.C.J. No. 1704 (F.C.C.) at para 4.

[17]               There are a number of questions the Court should consider in deciding whether the severance of the trial in this instance is just and expeditious. These include whether the issues for the first trial are relatively straightforward and the extent to which the issues proposed for the first trial are interwoven with those that will arise in the second. They include whether a decision from the first trial will likely put an end to the action, significantly narrow remaining issues, or significantly increase the likelihood of settlement. They include the extent to which resources have already been devoted to all issues, the possibility of delay, the advantages or prejudice the parties are likely to experience and whether the severance is sought on consent or over the objections of one or more parties: see General Refractories Co. of Canada, above at para. 16.  However, as Himel J. noted there, emphasizing the observations of Wilkins J. in Royal Bank v. Kilmer, above, the focus of these questions on expediency does not displace fairness and justice as the dominant considerations.     

The decisions of Justice Gordon in Dillon v. Dillon 2013 ONSC 7679 and Justice Penny in Grossman v. Grossman 2014 ONSC 2090 are helpful marriage contract bi-furcation cases which follow Simioni.

There is no doubt that the existence of a marriage contract in an estate administration adds to the complexity of the situation.  Counsel with significant family law experience should be independently consulted by counsel for all parties involved.

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