Marriage contracts are a device by which parties can opt out of most or part of the Family Law Act. However, for a marriage contract to override the legislative scheme, the parties must have a clear understanding of their legal rights and obligations. LeVan v. LeVan is a decision from the Ontario Court of Appeal which upholds the finding of the trial judge that the marriage contract should be set aside because of misrepresentation and insufficient disclosure.
The parties lived together for one year before marrying in 1996, and separated in 2003. There were two children of the marriage who lived primarily with the wife after separation. The wife was a teacher with university education but did not work outside home after marriage and was the primary caregiver to the children. The husband and his family owned the majority of the shares in a company which was the largest manufacturer of exhaust manifolds in the world. At the time of marriage the husband worked for one of the family companies and had a salary of $52,000 per year. The husband also had an interest in family companies and in a family trust that together were worth about $30 million. The husband’s family insisted that before marriage the parties should enter into a marriage contract which excluded the husband’s business interests and severely restricted the wife’s claim to spousal support.
The marriage contract was prepared by the husband’s lawyer; The wife had a lawyer review the contract. However, much of the disclosure provided by the husband’s lawyer to the wife’s lawyer was misleading and lacked important information. For example, the husband failed to disclose that he held certain shares which were found to be of significant value. The wife’s lawyer advised the wife that the contract was unconscionable. However, the wife was told by her husband that there would be no marriage unless she signed the contract. Eventually, the relationship between the wife’s lawyer and the wife was undermined by the husband and she retained new counsel. The wife’s new lawyer relied on the misleading information provided by the husband. The wife’s new lawyer only met with the wife for one hour to review the contract. The marriage contract was signed by the parties on June 20, 1996, two days prior to the marriage.
The parties separated in 2003. In the divorce proceedings, the wife claimed that the marriage contract should be set aside on the grounds that the husband had failed to disclose significant assets and had made misrepresentations as to his worth at the time of marriage. She sought an equalization payment of $5 million plus the matrimonial home. The husband claimed that if the marriage contract was set aside, s. 5(6) of the Family Law Act should be applied since it would be unconscionable to award the wife one half of the net family property given the fall in value of the shares since the valuation date and the existence of a marriage contract.
s. 5(6) The court may award a spouse an amount that is more or less than half the difference between the net family properties if the court is of the opinion that equalizing the net family properties would be unconscionable, having regard to,
(g) a written agreement between the spouses that is not a domestic contract; or
(h) any other circumstance relating to the acquisition, disposition, preservation, maintenance or improvement of property.
The trial judge rejected the application of s. 5(6) to the case and set aside the marriage contract for failure to comply with s. 56(4) of the Family Law Act:
s. 56(4) A court may, on application, set aside a domestic contract or a provision in it,
(a) if a party failed to disclose to the other significant assets, or significant debts or other liabilities, existing when the domestic contract was made;
(b) if a party did not understand the nature or consequences of the domestic contract; or
(c) otherwise in accordance with the law of contract.
The trial judge’s principle finding of fact was that the husband had breached his statutory obligation to provide financial disclosure to the wife. The trial judge also found that the wife did not receive effective independent legal advice and that some advice provided was wrong. The wife was awarded an equalization payment of $5.3 million and was also given the opportunity to purchase the husband’s one-half interest in the matrimonial home for $300,000. The husband appealed but his appeal was dismissed.The Ontario Court of Appeal found that it was not appropriate to consider a decrease in the value of the husband’s assets subsequent to the valuation date. Furthermore, it fully supported the trial judge’s decision to set aside the marriage contract on the basis that the husband failed to comply with his disclosure obligation and that the marriage contract was misleading. The appeal judge noted that the trial judge had considered the “fairness” of the contract in deciding how to exercise her discretion. The Court of Appeal stated that fairness is an appropriate consideration in deciding whether or not to set aside a contract in the second stage of the s.56(4)(a) analysis. Therefore, once a judge has found one of the statutory preconditions to exist, for example the party failed to disclose significant assets, then the judge is entitled to consider the fairness of the contract. The concept of fairness adds yet another layer to the creation of marriage contracts.