Domestic Contracts: Essential Knowledge for Ontario Couples

Denis Grigoras

Denis is a lawyer who draws on his background in complex legal disputes and transactions to problem-solve for his clients.

Ontario’s Family Law Act (“FLA”) contains provisions under Part IV that regulate domestic contracts, including cohabitation agreements, marriage contracts, and separation agreements. These agreements primarily focus on legally enforceable matters, such as property division, spousal support, and children’s education.

Domestic Contracts

Introduction

Ontario’s Family Law Act (“FLA”) contains provisions under Part IV that regulate domestic contracts, including cohabitation agreements, marriage contracts, and separation agreements. These agreements primarily focus on legally enforceable matters, such as property division, spousal support, and children’s education.

Cohabitation Agreements

Under Section 53 of the FLA, two individuals, regardless of gender or marital status, can enter into a cohabitation agreement that outlines their rights and responsibilities during cohabitation, separation, or death. The cohabitation agreement can cover issues related to property, support, children’s education, and other relevant matters. If the couple decides to marry, the cohabitation agreement automatically transforms into a marriage contract, unless the agreement states otherwise. However, provisions that limit a spouse’s rights to the matrimonial home become unenforceable upon marriage (section 52(2)).

Marriage Contracts

Marriage contracts are agreements made by couples who are married or planning to marry, which outline their rights and responsibilities during the marriage, separation, or dissolution of the marriage. These contracts address similar issues as cohabitation agreements but cannot include child custody or access. Marriage contracts require a high level of fidelity and good faith, imposing a higher duty of good faith than separation agreements.

Separation Agreements

Individuals who previously cohabited but are now living separately can enter into separation agreements to resolve their affairs. These agreements may address property division, spousal support, children’s education, child custody, access, and other related matters (section 54).

Paternity Agreements

Although not classified as domestic contracts, paternity agreements can be entered into by non-spouses for the payment of prenatal care, birth, child support, or funeral expenses. The court has jurisdiction over paternity and child support issues. Paternity agreements can be incorporated into an order by either the Ontario Court of Justice or the Family Court of the Superior Court of Justice upon application (section 59(1)). Minors can enter paternity agreements with court approval (section 59(4)).

The Matrimonial Home

A marriage contract cannot limit a spouse’s rights regarding the matrimonial home (section 52(2)), specifically the right to equal possession (section 19(1)) and the right to consent before disposition or encumbrance (section 21(1)). As a result, a couple cannot agree in advance that one spouse will move out upon separation or unilaterally sell or encumber the home. However, a marriage contract can address ownership of the matrimonial home, including which spouse owns it and whether its value is part of their “net family property.”

Foreign Agreements

Foreign agreements and domestic contracts made outside of Ontario are valid and enforceable in Ontario if they comply with Ontario’s internal law (section 58). Sections 33(4) and 56 of the FLA apply to contracts made outside of Ontario. To exclude a pre-existing contract from equalization under the FLA, it must address a “matter” similar to the Act’s equalization provisions. An agreement regarding property ownership alone is insufficient. To prevail over the FLA’s equalization provisions, a contract must address the parties’ relative economic positions upon marriage dissolution through asset distribution, either by excluding property from a spouse’s net family property under section 4(2)6 or by addressing equalization-type rights in a domestic contract to invoke section 2(10).

In a case involving a marriage contract signed in the Netherlands, the court ruled that the contract did not address equalization provisions, and therefore the matrimonial home was included in the husband’s net family property calculation. In another case involving a marriage contract signed in Quebec, the spouses adopted the separation of property regime from the Civil Code of Quebec. The contract could not be construed to provide for property division as contemplated by the Family Law Reform Act, and thus could not defeat the wife’s claim for a share in the matrimonial home.

Role of Domestic Contracts

Under the FLA

Domestic contracts can override the FLA’s provisions, and courts should enforce such agreements. Courts may incorporate domestic contract provisions into an FLA order, but only with both parties’ consent and no substantial dispute. Domestic contracts can be filed with the Ontario Court of Justice or Family Court of the Superior Court of Justice, and their support provisions are treated like court orders. The Superior Court of Justice retains parens patriae jurisdiction, irrespective of any domestic contract.

Under the Divorce Act

Child Support: Courts must follow the Child Support Guidelines (the “Guidelines”), but they can award a different amount if a written agreement benefits the child or if the Guidelines would result in an inequitable amount. Courts must explicitly state deviations from the Guidelines. In Willick v. Willick, the Supreme Court of Canada established that courts can override child support terms in a separation agreement. Restrictions on overriding spousal support terms do not apply to child support. Parents have a mutual obligation to support their children based on need and ability to pay, and a parent cannot bargain away a child’s right to support.

Spousal Support: Courts must consider agreements related to spousal support when ordering such support. Separation agreements should be respected if they are freely negotiated, with independent legal counsel, and not unconscionable. The more an agreement promotes equitable distribution, the more likely it will influence an application’s outcome. The Supreme Court of Canada limited the Pelech principles in Moge v. Moge and rejected applying the principles to “non-consensual” situations and provincial statutes.

In Miglin v. Miglin, the Supreme Court of Canada established a two-stage analysis for spousal support applications inconsistent with a pre-existing agreement. First, the court examines the agreement’s negotiation and execution circumstances. Fairly negotiated agreements should express the parties’ substantive intent. Then, the court examines the agreement’s content and determines if it substantially meets Divorce Act objectives and factors. Only significant changes in circumstances from what could have been reasonably foreseen at negotiation should warrant judicial interference with a fairly negotiated settlement agreement. The Court acknowledged that professional assistance does not eliminate vulnerabilities, and contractual autonomy depends on financial disclosure and negotiation integrity. An agreement without full and honest financial disclosure cannot be a true bargain deserving judicial deference.

Religious Agreements

In Bruker v. Marcovitz, the Supreme Court of Canada ruled that religious aspects in a dispute do not make it non-justiciable, and moral obligations can be legally binding. One such obligation in Islamic law is the mahr, a monetary or property gift from the husband to the wife. It signifies the marriage contract’s importance, prepares the husband for marital responsibilities, and provides protection for the wife if the marriage breaks down. Canadian courts have been divided on mahr enforcement.

In Kaddoura v. Hammoud, the Ontario Court declined to determine parties’ rights and obligations under the mahr to avoid entering the “religious thicket.” However, in Khamis v. Noormohamed, following Bruker v. Marcovitz, the Court used the Family Law Act to determine if the agreement was valid and binding. The agreement was found binding under the Family Law Act as it met all necessary criteria, and the Court refused to set it aside. Additionally, the mahr was considered excluded property under the Family Law Act as per the domestic contract.

Setting Aside Domestic Contracts

Law of Contracts: Domestic contracts must meet the same criteria as other contracts, such as consensus ad idem, an offer, acceptance, and consideration. Agreements may be binding if they contain essential terms, even if parties intend to record them in a more formal document later. The Court of Appeal explained that a “contract to make a contract” can be enforceable unless parties intend to defer legal obligations until a formal contract is executed. Memorandums of Agreement may be binding contracts if they contain all essential terms, even if a more formal document is anticipated. Contracts with drafting errors may be void ab initio if there is no consensus ad idem.

In cases where a declaration to set aside a contract is sought, no limitation period applies if no consequential relief is sought. However, claims for equalization are subject to a six-year limitation period.

Formal Requirements: Section 55 of the FLA states that a domestic contract must be in writing, signed by both parties, and witnessed to be enforceable. However, a court may enforce an authorized settlement agreement negotiated by counsel in pending litigation, even if it does not comply with section 55. The Court held that the strict requirements of section 55(1) may be relaxed if the contract was executed by the parties, the terms are reasonable, and no oppression or unfairness occurred during negotiation and execution.

Section 33(4) and 56(4) of the FLA: Section 33(4) allows courts to set aside support provisions or support waivers in domestic contracts and make orders despite those provisions. Courts can exercise this authority if the resulting circumstances are unconscionable, the dependent qualifies for public money support, or the support obligation is in default. Parents cannot waive a child’s right to support. Section 56(4) gives courts the authority to set aside all or part of a domestic contract if a party fails to disclose significant assets, debts, or liabilities, does not understand the agreement’s nature or consequences, or if the contract doesn’t align with common law principles.

Lack of Financial Disclosure—Section 56(4)(a): If substantial assets or liabilities are not disclosed, a court may set aside a domestic agreement under section 56(4)(a). Disclosure must include quantification or valuation of assets and liabilities. The Family Law Act does not prevent a litigant from entering a binding settlement with financial disclosure, but the party seeking to set aside the agreement must prove that the disclosure was inaccurate, misleading, or false.

Failure to Understand Agreement—Section 56(4)(b): Even with independent legal advice and full disclosure, a party may argue they didn’t understand the agreement’s legal consequences under section 56(4)(b). Independent legal advice should involve more than just reviewing a domestic contract and asking the client if they agree.

Common Law Grounds—Section 56(4)(c): Section 56(4)(c) of the FLA allows courts to apply common law grounds for setting aside contracts in the family law context. In family law, unconscionability requires weakness in bargaining position and unfair advantage by the other party. Duress is defined as compulsion through fear or personal suffering, and a contract obtained through duress is voidable. Undue influence is concerned with the influence on the weaker party’s state of mind, while unconscionability emphasizes the objective unfairness of an agreement. Material misrepresentation can lead to setting aside an agreement. In Rick v. Brandsema, the Supreme Court of Canada reinstated the trial judge’s decision that an agreement was unconscionable, emphasizing that contractual autonomy relies on the negotiating process’s integrity and full financial disclosure.

In conclusion, domestic contracts play a vital role in Ontario family law. They provide a framework for couples to define their rights and obligations during cohabitation, marriage, and separation. It is essential for couples entering into such agreements to understand the legal implications, provide full financial disclosure, and seek independent legal advice to ensure the contract’s enforceability.

In Ontario, domestic contracts can override provisions in the FLA, and courts are generally inclined to enforce such agreements. However, under certain circumstances, courts may set aside domestic contracts if they do not align with common law principles or if there is a lack of financial disclosure or understanding of the agreement.

Foreign agreements and domestic contracts made outside of Ontario can be valid and enforceable in the province if they comply with Ontario’s internal law. Parties should be aware that pre-existing contracts from other jurisdictions may be subject to scrutiny under the FLA, and it is crucial to address matters similar to the Act’s equalization provisions to exclude them from equalization.

Domestic contracts may also include religious agreements, such as the mahr in Islamic law. Canadian courts have been divided on the enforcement of such agreements, but following the Supreme Court of Canada’s ruling in Bruker v. Marcovitz, some courts have enforced religious agreements under the FLA when they meet the necessary criteria.

Setting aside domestic contracts follows the same principles as other contracts, with the additional consideration of sections 33(4) and 56(4) of the FLA. Courts may set aside a domestic contract if it fails to meet formal requirements, if a party fails to disclose significant assets or liabilities, or if the agreement does not align with common law principles. It is crucial for couples to ensure their domestic contracts are properly drafted and meet all legal requirements to avoid future disputes.

In summary, domestic contracts are an essential aspect of family law in Ontario, providing a foundation for couples to manage their affairs during cohabitation, marriage, and separation. By understanding the legal implications, providing full financial disclosure, and seeking independent legal advice, couples can create enforceable agreements that protect their rights and interests. As family law continues to evolve, it is vital for legal professionals and couples to stay informed about the latest developments in domestic contracts and their enforcement.

Are you considering a cohabitation, marriage, or separation agreement in Ontario? Ensure your rights and interests are protected.

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