Domestic Agreements: What Everyone Should Know
In my past newsletter, I discussed how one can lose half of the value of the matrimonial home, in the event of a separation. The only tool which allows Ontario residents to avoid the matrimonial home rule is a Domestic Agreement, or what is commonly known as a “Prenupt”. In this brief Newsletter, I will refer to all such agreements as “Domestic Agreements”.
Domestic Agreements help you protect five (5) main asset classes: 1) Real Estate; 2) Pensions; 3) Income; 4) Savings; &, 5) Business Interests. In my practice, the bulk of my clients are concerned with protecting their homes, their pensions and their incomes.
In the event of a separation, all real estate holdings, pensions or business interests, accumulated during the marriage, will be equally divided. The home in which the married couple resides on the date of separation, will be equally divided, even if it was purchased before the marriage.
The laws regarding entitlement to division of property are evolving towards a broader definition of marriage. For instance, in British Columbia, effective March 18th 2013, non-married couples are entitled to equally share in assets accumulated during the cohabitation, after two (2) years of cohabitation. Also, in B.C. debt amassed during the relationship is also equally shared (sections 3(1) and 81 of the Family Law Act, SBC 2011, Chapter 85). Whether Ontario adopts similar laws, remains to be seen.
Your income may also be subject to division. If there is a significant gap between each party’s income, the higher income earner may be liable to pay the lower income earner a portion of his or her income, in the form of “Spousal Support”. Spousal support is payable regardless of marital status. Thus, parties who reside together in a relationship of some permanence, or parties who have had a child together, may be liable to pay, or receive, spousal support.
In my experience, most people believe that what is purchased jointly, should be shared, and what is purchased in an individual’s name, should remain his, or her, property. Many people share similar views when it comes to income, i.e. what one earns, one keeps. However, when a relationship ends, and someone’s feelings have been hurt, initial views can change.
In order to ensure that your joint wishes are respected in the event of a separation, I strongly recommend the drafting of an “iron clad” Domestic Agreement. In my opinion, a Domestic Agreement is as important as a Will, particularly for those who enter the relationship with assets and income.
With the prevalence of “do it yourself” internet sites, I see more and more people walking into my office asking me to “fix a mess” caused by issues with their template “web agreement”. If you are contemplating drafting your own Domestic Agreement (“Cohabitation Agreement, Marriage Agreement, or even Separation Agreement”), my advice to you is: “Don’t do it”. Listen to the annoying little voice in the back of your mind that is urging you to retain the services of an experienced family law lawyer.
For those of you who will not heed my advice, here are some common oversights I see in my daily practice:
Parenting Clauses / the Children:
Any custody or access provision in a Cohabitation Agreement or Marriage Agreement is non-enforceable. Custody and Access can only be dealt with in Separation Agreements.
All custody or access provisions in Separation Agreements are subject to review by the courts, if they are not in “the best interest of the child”. If a custody or access provision is perceived not to be in a child’s best interest, the court may set it aside. Simply stating that the agreement is in the child’s best interest, is not sufficient.
For the parenting clauses to withstand the scrutiny of the court, the court must be persuaded that the parents actually put their minds to what is in the best interest of the child, rather than just equally share time with the child, “à la Salomon”.
Particular care and thought must be given when negotiating custody or access to a child who is under the age of three (3). Equal time may seem fair to most of us. However, Ontario courts are of the view that equal time is not necessarily in the best interest of young children.
Lastly, “joint custody”, meaning equal decision making power, is very unlikely to be upheld by a court if the parties have not historically demonstrated an ability to work cooperatively with one another.
An experienced family law lawyer will be able to advise you on whether your proposed custody or access schedule would be upheld by a court.
The Form of the Contract:
All domestic agreements must be signed by both parties in the presence of a witness, failing which the agreement is non-enforceable.
The reasoning behind this fundamental principle is that courts must be able to confirm that the “kitchen table agreement” wasn’t signed under threats of physical harm, or other forms of undue influence. An agreement signed while someone has you pinned against the wall, is not signed voluntarily and is therefore non-enforceable. The witness requirement seeks to ensure that the agreement was signed voluntarily.
Independent Legal Advice:
Independent legal advice is not a requirement to a valid domestic agreement in the Province of Ontario. It is, however, a requirement in some jurisdictions.
Many Ontario lawyers will insist that the other party obtain independent legal advice prior to signing an agreement. Without independent legal advice, the other party can challenge the agreement claiming: “I did not understand the nature of what I was signing”. With independent legal advice, it is virtually impossible to successfully set aside an agreement claiming that one did not understand what was being signed.
A Domestic Agreement can be deemed non-enforceable if the parties fail to provide full financial disclosure. This means that both parties must exchange information confirming their income, the value of their assets (what you own) and liabilities (what you owe).
Standard financial disclosure includes income tax returns and notices of assessments for the last three (3) taxation years. Statements in support of the value of assets, and liabilities, should also be exchanged.
Lastly, pension valuations confirming the value of the respective pensions at the time of the negotiation of the agreement, or on the date of separation, and sworn financial statements, should also be exchanged.
An agreement which is deemed to be patently unfair can be set aside by the courts.
Whether an agreement, or a clause, within an agreement is unfair, depends on the facts. A clear example of unfairness is a clause where a single unemployed parent waives spousal support, or equalization of net family property, when the payor earns $150,000 per year. Such a waiver could be deemed non-enforceable, due to patent unfairness, unless very detailed steps are taken.
Drafting a Marriage Agreement, Cohabitation Agreement, or Separation Agreement, is like walking a tightrope. One false step can result in disaster. Get a lawyer to walk the tightrope for you. Retain an experienced family law lawyer, who will ensure your objectives are safely attained.
My next Newsletter will discuss estate planning considerations for people in blended families.I encourage you to share this article with your family, friends and work colleagues. Please feel free to e-mail or call me with any questions you may have. You may also comment on this article by accessing it through my Blog at www.monpremier.ca.