Do-It-Yourself Domestic Contracts: It’s Just Not Worth It
In recent years, more and more people have begun living together without marrying. In Ontario, property entitlements automatically arise when two people marry. Without a domestic contract (cohabitation agreement or marriage contract), this necessitates the valuation and division of assets on separation or the death of a spouse. Common law spouses cannot avoid property claims simply because they chose not to marry.
In Ontario, without a domestic contract, a common law spouse can still make a claim based on constructive trust (i.e. for an interest in the other’s property based on contribution) or in many cases for a division of the other’s pension. For example, the Ontario’s Pension Benefits Act, R.S.O. 1990, c. P.8 , entitles a spouse to apply for a division of the other’s pension. “Spouse” is defined as persons who are:
(a) are married to each other, or,
(b) are not married to each other and are living together in a conjugal relationship,
(i) continuously for a period of not less than three years, or,
(ii) in a relationship of some permanence, if they are the parents of a child
Whether you are married or unmarried, it is important to have a domestic contract (cohabitation agreement or marriage contract) in place to protect your assets in the event of separation or death.
Domestic contracts bring certainty and predictability to responsibility for and the division of assets and debts on separation or death.
We live in an age where many resources can be found online, including legal ones. Though it may seem attractive to prepare these agreements without lawyers involved, or based on forms or templates in a store or online, it is important to consider what you are sacrificing in the process. The answer is simple: the validity of the agreement itself. Months or years down the road, if all or part of that agreement is challenged it can be rewritten by a court.
The Family Law Act, R.S.O. 1990, c. F.3 gives the court the jurisdiction to set aside a domestic contract:
(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.
Justice Aitken in the case of Montreuil v. Montreuil, 1999 CarswellOnt 3853, explored the various common law grounds for setting aside a domestic contract pursuant to s. 56(4)(c), including:
(a) not receiving adequate, complete and competent independent legal advice before signing the agreement;
(b) one party exerting undue influence on the other;
(c) the Agreement was an unconscionable transaction resulting from one party, being the stronger party, taking unfair advantage of the other, being the weaker party;
(d) there was a material representation by one party;
(e) the agreement was procured by duress; and,
(f) one party owed a fiduciary duty to the other which that party breached in the manner in which that party conducted himself or herself during the negotiations leading up to the signing of the Agreement.
A finding that the agreement (or a portion thereof) is void and, in effect, reopens those issues which were intended to have been previously determined. It leaves the parties “starting from square one” in terms of re-negotiating the issues. The circumstances of the parties may be very different than at the time of the original agreement, leaving the parties in a very different power dynamic. There may be a lot at stake – that the parties could not have foreseen at the time of the original agreement.
Though no agreement is immune, there are two aspects that make a domestic contract more difficult to challenge (i.e. to set aside/re-write) the contract down the road:
1. Independent legal advice
Involving lawyers both in the drafting of the agreement and in providing legal advice makes it more challenging for the party who had advice to allege they did not understand the nature or consequence of the contract.
2. Financial disclosure
Full and frank financial disclosure makes it more challenging for a party to allege a failure to disclose significant debts or assets at the time the contract was signed.
DIY agreements are more vulnerable to being set aside by the court for the reasons above. Further, their clauses may be set aside on the basis they are vague and/or ambiguous. Further, DIY agreements may not accurately reflect an individual’s wishes. Without legal advice, a party may be offering/sacrificing more than they intended. A lawyer can assist to ensure the contract is complete in terms of the intended scope, and to ensure the required provisions are included. This can avoid litigation on issues not dealt with (whether by honest omission or not) in a DIY agreement.
The burden of proof is on the party asking for the contract to be set aside to convince the court that the court’s discretion should be exercised in that party’s favour (Levan v. Levan, 2008 ONCA 388). Notwithstanding, the litigation involved can be lengthy and financially ruinous.
Lack of independent legal advice in itself does not necessarily result in an agreement being set aside. It is a factor for the court to consider along with all the other circumstances (Dougherty v. Dougherty, 2008 ONCA 302). In the case of Demaine v. Racine, 2013 ONSC 2940, Justice Trousdale found that the Applicant understood the nature and consequences of the Agreement even though he did not have legal advice, and that he chose not to obtain independent legal advice. She refused to set aside the cohabitation agreement.
The end of a relationship can take a significant emotional and a financial toll, without the added stress of lengthy litigation over the validity of a domestic contract. We recommend you speak to a lawyer, either at the initial stages of negotiating or at least in signing any domestic contract to understand your rights and for input on what should and should not be included.
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| Meghan O’Halloran | Kate Craner, Articling Student |