Marriage contracts can certainly be sensible and valuable planning tools for protecting certain property down the road in the event of a separation or divorce.
A marriage contract allows a couple some flexibility in deciding the outcome regarding property division and support if (or when, in the case of death) the marriage ends. In Ontario, without one, spouses will be subject to the default "equal division of property" regime imposed by the Family Law Act on most family property.
Marriage contracts and their enforceability have recently come back into the spotlight with the high-profile decision of the Ontario Superior Court of Justice in McCain v. McCain. The decision is a reminder that these contracts will only be as good as the process used to put them in place.
Christine and Michael McCain (Maple Leaf Foods and the McCain family) were married for 30 years and had 5 children before separating in 2011. Madam Justice Greer, who decided the case, noted "the Contract was signed by the parties at the insistence of [Michael's] father, Wallace McCain after 15 years of marriage. Both parties [agreed] that if the Contract had not been signed, [Wallace McCain] would have disinherited [Michael]" as he was determined to protect family assets and business interests.
Under the contract, Christine waived her equalization claim under the Family Law Act and all spousal support on a marital breakdown, while retaining the right to keep the assets solely registered in her name and being provided a $7M lump sum payment. She did receive independent legal advice in advance of signing the contract. At the time of separation, Michael was worth approximately $500M. Christine had the matrimonial home, as well as two cottage properties in her name (all of which were subject to significant mortgages Michael had registered against them).
On an interim basis, the Court nullified the waiver of spousal support in the contract and stated that "subtle and psychological" duress was placed on Christine to sign the contract in order for Michael to be able to receive an inheritance from his father. Justice Greer noted that the real question to be asked was "how could [Christine] have possibly refused to sign under those circumstances?...How could [she] possibly take on the burden of not signing the Contract for her own personal gain, knowing [Michael's] father would cut [Michael] out of receiving his inheritance?" In Justice Greer's view, while the duress was not overt, it was certainly present: "Of course, [Michael] did not say 'you must sign this contract or I will divorce you,' but that was the underlying stake in it all".
Justice Greer also found that the bargain was not acceptable in a long-term marriage-and the contract was, on its face "unfair, improvident and unconscionable in the circumstances of the case" to Christine. Specifically, even if the agreement was fair when it was signed, Justice Greer determined that through time, it had become unconscionable.
Christine was awarded $175,000 per month (before tax) in interim spousal support--the highest spousal support award ever made in Canada. The case is being appealed to the Ontario Court of Appeal.
Despite its unique facts and high stakes, this case serves as a reminder that it is important to take the time and effort to carefully and fairly negotiate and craft marriage contracts to ensure their enforceability if and when needed.
In Ontario, a valid marriage contract must, at the very least, be in writing, properly signed by each spouse and properly witnessed. Oral contracts are not valid.
Well before the signing of the contract, care must be given to its negotiation and preparation in order for it to offer the planning flexibility, certainty and protection ultimately intended. As illustrated in McCain, an Ontario court can set aside certain provisions or an entire contract if any one or more of the following did not occur: (1) one spouse did not provide full and proper financial disclosure to the other regarding assets, income and debts (including their values); (2) one spouse did not understand the nature or consequences of the contract (e.g., each spouse should have proper independent legal advice prior to signing); or (3) the contract or the making of it somehow offends contract law rules (such as the presence of fraud, duress, undue influence or unconscionability).
The rules are there to ensure that each spouse has the information and ability to make a full and informed decision and to enter into a fair and acceptable bargain.
Please watch for our next blog on the topics of bonding and appointing personal representatives from other jurisdictions.
The comments offered in this article are meant to be general in nature, are limited to the law of Ontario, Canada, and are not intended to provide legal or tax advice on any individual situation. Before taking any action involving your individual situation, you should seek legal advice to ensure it is appropriate to your personal circumstances.