It’s summer, which means it’s wedding season. Every weekend I see countless couples posing for pictures around Ottawa’s hot spots as they celebrate their “I do’s”. While the romantic in me can’t help but smile at their obvious happiness, the lawyer in me can’t help but wonder whether they have preserved their assets and protected their rights.
Whether you’re moving in with a new partner or tying the knot, many people think it’s unromantic to discuss what will happen in the event of a relationship breakdown. Yet if you don’t decide how your assets will be divided or how spousal support will be determined, the governing legislation will decide for you.
In Ontario, the Family Law Act allows people to enter into different kinds of “domestic contracts” establishing their own rules for dealing with financial matters in the event of a relationship breakdown: “cohabitation agreements” apply if you’re living with your partner and “marriage contracts” apply if you’re getting married.
Here are the top 5 things to consider when drafting a domestic contract:
1. Define your terms
Sure, the term “family residence” might seem obvious now, but is it limited to your current home, or does it include any home you purchase in future? And how will you be able to tell whether there has been a “breakdown in the relationship” sufficient to trigger the application of the contract? Clear definitions, even for seemingly self-explanatory terms, will help avoid confusion and potential conflict down the road.
2. How to deal with an equalization claim or division of assets
When a relationship breaks down, the spouses each determine their respective net family property value. In its simplest form this is the value of the property the spouse currently has minus the value of the property the spouse brought into the relationship. The party with the lower net family property value is generally entitled to half the difference between their net family property and the value of the other spouse’s net family property. With a domestic agreement, the parties can alter this to exclude certain property from the calculation of net family property. For example, trust property, cottages or other real estate can be excluded from the calculation of net family property to reduce the equalization payment that may be made.
Additionally, where married spouses live together in a home, that home becomes the “matrimonial home” under the Family Law Act. Regardless of who owned the home when the parties entered the relationship, or how much the parties have each contributed to the home, its value will be split evenly between the parties in determining their net family property. You can include, however, a term in a domestic contract that excludes part of the value of the home. For example, you can state that the party who owned the home prior to the relationship retains the value of the home at the time the relationship began and the parties will only split the increase in the property over the course of the relationship. If you choose to do this, it’s important to get timely and accurate professional appraisals.
3. Address spousal support
In Ontario, the amount of spousal support payable is generally determined pursuant to the Spousal Support Guidelines. In making its determination, the court will consider many factors such as the financial means and need of the parties, the length of the marriage, the roles each spouse assumed during the marriage, and the effect the marriage breakdown had on the each party’s current financial position. Where there are children who require care, this will also be an important factor.
With domestic contracts, the parties can set their own parameters for dealing with support. You can contract out of spousal support, set conditions that must be met to trigger a support payment (e.g. there must be children, one spouse must have been out of the workforce for a certain amount of time, or the relationship must last at least a certain number of years), and include or exclude certain sources of income when determining the amount payable. For the most part, it’s up to the parties to determine how and when spousal support will be payable in the case of a relationship breakdown.
4. How to deal with the family residence and its contents
Determining how the funds from the family residence will be allocated is one thing, but actually getting funds from the home is another. A domestic contract can outline exactly how the parties will deal with the home after separation, whether it’s by listing it for sale following a professional appraisal and agreeing on the sale price, or by having one party buy the other out. Additionally, domestic contracts can address the division of the contents of the family residence. While, under Ontario law, the contents of the home would mostly be divided evenly, the parties to a domestic contract can stipulate how property will be divided – for example, all property may go to the party who owns the property either by virtue of paying for it or receiving it as a gift.
5. Ensure the agreement will survive any challenges
After putting much thought, work and money into a domestic contract, it can be incredibly frustrating for the document to be deemed void when you seek to rely on it because you failed to make provision for certain eventualities. To guard against this, domestic contracts should include the following terms:
If you’re starting with a cohabitation agreement, but intend to get married at some point, include a provision that states the cohabitation agreement will transition into a marriage contract if the parties decide to marry;
Explicitly recognize in the contract that the parties have agreed to the terms knowing that financial circumstances, health, employment or cost of living may change and that no change will result in a variation of the contract;
Recognize that where the contract addresses an issue, it prevails over the Family Law Act, Divorce Act, Succession Law Reform Act, any other subsequent legislation, the common law, or other agreements with respect to that issue;
Ensure that both parties have received independent legal advice with respect to their rights, that they have read the entire Agreement and understand its contents and attest to these facts in the contract;
- Ensure that proper financial disclosure is provided, or in the alternative under appropriate circumstances, clearly waived.
There are certainly other aspects to take into consideration in drafting domestic contracts: indemnifying each spouse for debts incurred by the other, determining how to treat assets in the case of one spouse’s death, and dividing pensions are just some of the outstanding issues. Talk to a family law lawyer prior to moving in with your partner or getting married to get a better idea of the issues that could affect you in the event of a relationship breakdown. And if you’re getting married, consider this: as my colleague Alice so aptly put it, domestic contracts should cost more than your wedding dress!