Can a Marriage Contract really protect your assets and income?
By: Steven Benmor, B.Sc., LL.B., Family Lawyer
Jurisdiction: Ontario (Canada)
A Marriage Contract (a.k.a. Prenuptual Agreement) is a written contract that permits a couple who intend to marry to agree, in advance, on issues such as property division and support, in the event that the marriage ends. More often, people are getting married later in life or for a second time. If they own property that they wish to protect, or want to confirm that they will not be expected to support their spouse after they separate, then they may agree to terms that are incorporated into a Marriage Contract.
The question of whether such an contract would truly provide the protection desired had recently caused a stir in the Family law community after a British Columbia Judge decided to set aside the contract because it was unfair to the wife. This very topic was so contentious that it was appealed to the provincial court of appeal, and then to the highest court, the Supreme Court of Canada.
In the case of Hartshorne v. Hartshorne that was decided on March 26, 2004, the court ruled that Kathleen Hartshorne was bound by the terms of a one-sided marriage contract that she signed on her wedding day in 1989.
The Hartshornes were both previously married and divorced. They begun to cohabit in 1985 and had their first child in 1987. After they married in 1989, their second child was born. They both were lawyers (the wife articled for the husband’s law firm). The husband brought assets worth $1.6 million into the marriage including a home, two recreational properties, R.R.S.P.’s, savings and his law practice, while the wife entered the relationship with no assets and heavily in debt. On the day of the wedding, the husband insisted that the wife sign a marriage contract that allowed both spouses to protect their pre-marriage assets except for their matrimonial home. In this regard, the wife was to be entitled to a 3 percent interest in the matrimonial home for each year of marriage up to a maximum of 49%. Both spouses consulted with separate lawyers and obtained independent legal advice. The wife’s lawyer advised her that the contract was grossly unfair. She nevertheless agreed to sign the contract with a few amendments, including a clause confirming her right to spousal support.
According to the contract, the wife was entitled to property worth $280,000 on separation, while the husband was entitled to property worth $1.2 million.
After they separated in January 1998, the wife commenced divorce proceedings against her husband for custody of the children, child support, spousal support and a division of property. The wife argued that the marriage contract should not be upheld because it was unfair and because she gave up her own law career to take care of their two children.
The husband relied upon the contract to avoid the usual legal procedure for equalizing family property upon separation. The husband further argued that, in keeping with the spirit of the contract, they managed their finances separately, there was no commingling of funds, there were no joint accounts of significant value and the assets that the husband brought into the marriage remained in his name. The husband argued that his wife knew what she was signing and agreed to be bound by its terms. Hence, a ‘deal is a deal’.
If the wife was successful in setting aside the contract and receiving an equalization of the family property, she would have received $654,000, as opposed to $280,000.
In the end, the court ruled that when a couple’s circumstances at the time of separation was within their contemplation at the time that they signed the marriage contract, they both should be bound by the terms of the contract. In this case, the Hartshornes’ financial and domestic arrangements unfolded exactly as they had expected. Regarding the wife’s argument that she gave up her own law practice to take care of the children, the court concluded that it was a decision that she made prior to the marriage and it was not realistic to assume that she did not understand the consequences of this choice.
In declaring that ‘a deal is a deal’, the Supreme Court of Canada emphasized that the contract was indeed fair because the wife’s rights to spousal support were preserved by the contract and her husband, a successful lawyer, was in a position to pay the wife a generous amount of child and spousal support.
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About the author: Steven Benmor practices Family Law in Toronto, Ontario, Canada. Visit Steven Benmor’s online Family Law Resource Center for concise answers to many more frequently asked Family law questions, feature articles on Family law topics, dozens of links to other Family law websites, and more at www.benmor.com. The information on this page is for discussion purposes only. It is by no means legal advice or even a statement of the law on this subject. Please do not rely on the accuracy or completeness of this information. Any question or concern elicited by the information on this page should be taken to a lawyer who will consider the facts of each case and the legal remedies available. |
