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The Uncertainty of Marriage Contracts 

In the family law group where I was practicing many years ago the firm established a policy that provided that the firm would not represent clients in marriage contract matters. The rationale was practical and risk averse:

  1. These were always a rush job and the potential for errors was high;
  2. The clients did not want to provide financial disclosure;
  3. The clients didn’t want to pay for the time spent to do proper due diligence and negotiations;
  4. Typically the client expected the firm to act for both sides;
  5. Spousal support releases are typically requested and are likely ineffective over the course of time;
  6. Should the parties separate one party will likely be unhappy with the contract terms and the lawyer will likely end up being a witness in the court proceedings brought to set aside the contract; and
  7. That lawyer will likely end up having to notify Law Pro of a potential claim.

Throughout my career I have continued this policy and it has allowed me to sleep well for the most part. However, many marriage contracts have been executed in Ontario over these many years and these contracts are surfacing in estate administration and dependent’s support claims under Part V of the Succession Law Reform Act. The validity of the contract must be considered and often times a court application to set aside the contract results.

Lehmann v. Lehmann Estate, 2018 ONSC 3981 (Can LII) is a recent Kitchener trial decision illustrating the challenges presented by a Marriage Contract. In this second marriage situation, the parties married on September 6, 1996 and signed a Marriage Contract on December 6, 1997. The parties had previously entered into a Cohabitation Agreement on July 19, 1993. The husband passed away on November 1, 2015.

The Marriage Contract addressed the manner of ownership of the matrimonial home, beneficiary designations in RRSP’s and life insurance policies and included a release of spousal support on separation or death. The property provisions of the contract were amended a number of times throughout the years as properties were bought and sold. However, the spousal support release was never changed and remained in effect on the death of the husband.

The wife commenced a Dependents’ Support Claim seeking spousal support from the estate based on the twenty two period of cohabitation and marriage. It was necessary for the wife to obtain an order setting aside the spousal support release contained in the Marriage Contract in order to secure spousal support.

Much of the evidence referred to in the trial decision consisted of the testimony of the lawyer who acted for the wife in the negotiation of the Marriage Contract and the subsequent amendments. The lawyer’s evidence indicated that active negotiations occurred including an agreement to accept the spousal support release in exchange for a designation of joint ownership of the matrimonial home as opposed to tenancy in common.

No financial disclosure was provided by the husband. In particular, no income tax returns or notices of assessment were provided. The wife’s lawyer testified that the wife advised him that her husband’s income was $100,000. The wife confirmed to the lawyer that her earnings were $38,000 as of the date of cohabitation and she continued to be employed by the same employer. The wife instructed the lawyer to proceed with the Marriage Contract provided that she acquire joint ownership of the matrimonial home.

Based on his factual findings the trial judge upheld the Marriage Contract:

The Supreme Court of Canada in Miglin v. Miglin, 2003 SCC 24 (CanLII)[2003] 1 S.C.R. 303 explained the approach to be taken when dealing with an application for spousal support in the face of a pre-existing agreement containing a spousal support release. At para. 64 the Court stated:

An initial application for spousal support inconsistent with a pre-existing agreement requires an investigation into all the circumstances surrounding that agreement, first, at the time of its formation, and second, at the time of the application.

[56]   The Court went on to hold that when considering the circumstances at the time of the agreement, the conditions of the parties in the period leading up to the execution of the agreement are to be examined. The circumstances that ought to be considered include oppression, pressure, or other vulnerabilities of one or both of the parties and the conditions under which the negotiations were held, such as their duration and whether there was professional assistance (para. 81). The Court also recognized that the degree of professional assistance received by the parties will often overcome any systemic imbalances between the parties (para. 82).

[57]  In Hartshorne v. Hartshorne, 2004 SCC 22 (CanLII)[2004] 1 S.C.R. 550, the Supreme Court held that the approach set out in Miglin in relation to setting aside the terms of a separation agreement was equally applicable to an application to set aside the terms of a marriage contract. The Court however added a qualification to the second stage analysis of the Miglin approach to which reference will be made subsequently.

[58]   In this case, the Marriage Contract was negotiated over an extended period of time. The final agreement was considerably different than the first draft agreement prepared by Hagarty. Anna was represented by knowledgeable and experienced counsel who successfully negotiated significant changes to the original agreement which were favourable to Anna. Those changes, as previously noted, were the transfer of title to the matrimonial home into joint tenancy, putting in place mortgage insurance and including a term that if Bill died without such insurance in place the amount owing on the mortgage would be a first charge against Bill’s estate and the designation of Anna as beneficiary of Bill’s life insurance policy and his RRSPs.

[59]   In my view, there is nothing in the circumstances pertaining to the negotiating and execution of the Marriage Contract which calls into question its validity or fairness. Anna agreed to the spousal support release in return for concessions favourable to her. She made it clear to her lawyer that she would only sign an agreement on her terms. She did not achieve all of her goals but she obtained, through negotiation, changes and additions to the initial drafts of the agreement which were important to her.

[62]  In Hartshorne, the Court qualified the second stage of the Miglin analysis in the context of a marriage contract by stating that an important consideration is whether the parties’ lives unfolded as they had anticipated at the time of entering into the marriage contract.

Analysis:  

The trial judge did not reference the provisions of the Family Law Act which address the grounds for setting aside a domestic contract (section 56(4)) or the Levan v. Levan decision of the Ontario Court of Appeal (2008 ONCA 388) which confirmed that the failure to provide accurate financial disclosure is a basis for setting aside the Marriage Contract. At paragraph 52 of its decision the Court of Appeal confirmed:

“Fundamental to a choice to opt out of the legislative scheme is a clear understanding of what one’s rights and obligations might be if there were no marriage contract. It is in this context that financial disclosure is critical.”

In addition, the fact that the wife took early retirement from her full-time employment in 2009 based on a joint decision of the spouses suggests financial inter-dependency and a basis for support. Also the subsequent amendments to the Marriage Contract reinstated the tenancy in common ownership to subsequently acquired matrimonial homes, thereby eliminating the justification for the spousal release in the original Marriage Contract.

As a practitioner I would have expected these factors coupled with the length of the relationship to weigh heavily in favour of an Order setting aside the spousal support release.

However, in a fact driven analysis, the Court relied significantly on the wife’s capital position on the date of the husband’s death and an overall finding of fairness in exercising the discretion to uphold the spousal support release contained in the Marriage Contract.

I am advised that the trial decision is under appeal.                                                                                                   

Takeaway

There is no certainty regarding the enforceability of Marriage Contracts on death. Existing contracts should be carefully reviewed and perhaps updated as part of ongoing Estate Planning. Alternative testamentary dispositions should be considered in order to minimize the risk of costly Dependents’ Support Claims.

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