Cupid and Contracts
It may not be a romantic exercise, but creating a marriage or cohabitation agreement can help you identify potential bones of contention -- as well as protecting you financially if your love affair turns sour.
Deciding to marry someone or live together is a big decision -- especially if your last relationship ended in divorce. Before making your decision, you should think about the consequences if there were to be a separation or death, and talk about your concerns with your partner. A domestic contract can specify rights and responsibilities during your marriage, identify time-bombs that could lead to a break-up, and help to protect your assets in the event of a divorce. It can include relatively straightforward matters -- such as ownership and/or division of property -- to more complicated matters -- such as participation in estates and trusts.
Marriage contracts and cohabitation agreements are very serious matters. The process of drawing up an agreement can cause bitterness and distress between a couple, but the contract can also save pain, money, and legal time in the long run. Because of the stress and pressure, approximately 10% of couples end up not going through with their marriage after trying to draw up a domestic contract. One could argue that these relationships were likely doomed anyway: if a couple can't come to an agreement while there are smiles on their faces and love in their hearts, how do you think they'll do when they hit a rough spot in their marriage?
Deborah Mecklinger -- a Toronto lawyer, therapist, and mediator -- says that creating an agreement can bring about the dynamic of negotiating the end of the marriage at the beginning of the marriage. "It's possible the couple can strengthen and grow from it, but often it proves to be a very emotionally-straining, stressful, and anxiety-provoking experience," she says. "It often underscores the power imbalance at the very beginning of the marriage."
What are Cohabitation or Marriage Contracts?
A cohabitation agreement is a contract between two people living together or intending to live together that protects them financially and gives them a sense of security if a separation occurs. If the couple decides to get married, then the cohabitation agreement automatically becomes the marriage contract -- unless the couple has stipulated it differently.
A contract can protect either party's previous assets, properties or other investments if they find the regime of the Family Law Act doesn't suit their needs. "The idea is to provide for whatever rights and obligations that may arise on the breakdown of a marriage or death," says Malcolm Kronby, a Toronto lawyer and the author of Canadian Family Law (Stoddart Publishing)."It has the function of protecting the property that one or both of you bring into the marriage." A marriage contract is basically the same as a cohabitation agreement except for the kind of union between two people. Marriage contracts are most common between people going into a second marriage or marrying later on in life. You can put anything into the contract, including: ownership or division of property; support obligations; the right to direct the education and moral training of the children; and financial concerns in the event of separation, annulment, or death. You cannot specify the guardianship or custody of children in a marriage contract. Your Will can stipulate who you'd like to be the guardian of your children, but there's no legal guarantee that your wishes will be followed; the courts will decide the guardianship of your children based on the children's best interests.
You can't provide for the possession of a matrimonial home in a marriage contract, but you can provide for ownership or agree on separate ownership. "Matrimonial homes are one of the main purposes of marriage contracts today because of the way the Ontario law works," says Anne Freed, a Toronto family lawyer. "If a matrimonial home is brought in by one party and the parties ultimately split up, in principle, each is entitled to 50% of the equity of that home," calculated as of valuation date. According to the Family Law Act (Part II, Section 19), both spouses have a right to possession of the matrimonial home. "An exception to that could be if the marriage is under five years duration; then there could be an unequal division made."
If one person brings a house into a marriage and wants to preserve sole ownership of that house, he or she should specify this in a marriage contract. "A contract can protect the matrimonial home for the person who bought it," states Freed.
Some couples put matters of behaviour into the contract such as responsibilities in the home, childcare duties, or even how many rounds of golf a spouse can play each week. It's extremely unlikely that a court would try to enforce these issues, however. The only real purpose to putting these day-to-day issues into the contract is for the couple to express their wishes and expectations to each other.
Who needs one?
The high divorce rate has been one factor contributing to the increase in the number of couples deciding to get cohabitation agreements and marriage contracts. Another factor is that this generation tends to marry later in life -- and with more assets -- than their parents did; a couple in their thirties probably has more to protect than a couple fresh out of highschool.
"I'd recommend a marriage contract when the regime under the Family Law Act doesn't satisfy their needs," says Malcolm Kronby. "That's more likely to arise when one or both parties have significant assets. If neither party has any significant assets, for example if a young couple is just starting out, it's not necessary. Since they don't know where they're going or what they're going to wind up with, it strikes me as imprudent for both of them to create a distribution scheme when they don't have the slightest idea what to distribute."
If you feel you don't need to have a marriage contract at this point in your life, you can always get one later on. (The percentage of couples who get one after marriage is very small.)
A contract can be changed or added to at any point as long as it's dated, witnessed, and signed again. You can also stipulate in the contract how long you want it to last. For instance, you could specify that if your spouse leaves you within five years of your wedding, then he or she would have to pay you $20,000; within ten years, $30,000; and so on. You can basically put anything you like into the contract -- but whether it'll stand up in court is another matter entirely.
Is it legally-binding?
The cohabitation or marriage contract would most likely to be thrown out of court if it was signed under duress; if one party failed to disclose all financial assets, debts, and liabilities at the time of the contract; or if one of the parties did not fully understand the terms of the agreement when her or she signed it.
A marriage contract probably won't hold up in court if it was signed under pressure. One of the most obvious signs of pressure is a contract signed shortly before the wedding. This could indicate that one party may not have had adequate time to read and understand the ramifications of the contract, or perhaps that one of the partners threatened to call off the wedding unless the other signed the agreement. The contract should be prepared -- and signed -- months before the wedding.
Each of you should have your own legal representation and accountant (if necessary). You can create a domestic contract without professional help as long as it's signed, dated, and witnessed. However, contract law is very complicated, and your contract won't be legally binding if the court feels that one of you didn't understand the nature or concequences of the contract. If each of you retains a lawyer, he or she can tell you where your wishes step outside the bounds of the law, as well as protecting your interests in the matter. "If you want a marriage contract to hold up in court, make sure that each of you has your own lawyer to prepare and review the contract and to give you each independent legal advice," says Freed. "Also, each of you should provide full financial disclosure of your financial situation, income, expenses, assets, and debts at the signing of the marriage contract."
Money is always a source of contention -- in marriage, business, and life. When creating a marriage contract, you may be asked to reveal all of your financial records, debts, liabilities, and assets to your spouse and his or her lawyer. You may be shocked to find out that your fianc -- who drives a Porsche, lives in an expensive condo, and looks like a walking advertisement for "Lifestyles of the Rich and Famous" -- is actually up to his ears in debt. It's hard to keep a positive attitude towards your partner when your car and furniture is being carted away to pay off his or her bad debts.
Although die-hard romantics will cringe at this statement, a marriage is like a business partnership in many respects. You wouldn't take on a business partner without knowing what he or she brings to the table: debts, liabilities, and assets. If you want a long and happy partnership, you shouldn't take on a partner without full disclosure -- and this holds true whether you're considering taking on a marriage or business partner.
The first steps
If you've decided to draw up a contract, the first thing you should do is to sit down with your partner and discuss it together. Make a list of the things each of you would like included in the agreement, and try to reach some general and specific consensus. But don't lock yourself into a position before each of you discusses the matter with your lawyer, who will advise you of the possible consequences of each item on your list. Compromise on the little points, but don't sign your future away. If your spouse-to-be demands that you sign away all rights to matrimonial property now -- while you're in love and motivated to give each other whatever he or she wants -- imagine what your partner will be like in the event of divorce!
There is never a legal guarantee that the contract will give you everything you asked for in case of a separation. The contract is considered to be more solid in matters of property distribution than it is to be in spousal support. There are ways to attack the contract in matters of support: for instance, if one or both of the parties is on public assistance, the request for spousal support is usually denied. The courts do take written contracts very seriously, however, so don't assume you can sign a contract today and then weasel out of it later.
Marriage contracts aren't for everyone, but creating one might be right for you. Think carefully about it, and talk to your spouse before making any decisions. Keeping the lines of communication open will help you through the contract process, and could strengthen or even save your relationship. Honesty and trust leads the way to a happy road ahead.