What You Need to Know About Prenuptial Agreements
Sometimes, two people will enter into a contract prior to marriage, setting out rules about their marriage, and what will happen in the event of marriage breakdown. In the US, these agreements are commonly referred to as prenuptial agreements. In Canada, they are more commonly referred to as domestic contracts or marriage contracts.
Additionally, two persons may, either prior to or during cohabitation, enter into a cohabitation agreement. If two persons who are cohabitating later get married, their cohabitation agreement will become a domestic contract.
Under section 52 of the Family Law Act, two people who are already married or who intend to marry may enter into an agreement in which they agree on their respective rights and obligations under the marriage or separation, annulment or death.
Marriage contracts may deal with many different marital issues, including: ownership in or division of property; support obligations; the right to direct the education and moral training of their children; or any other matter in the settlement of the spouses’ affairs. Marriage contracts may not, however, deal with the right to custody of or access to the spouse’s children. A marriage contract also may not limit a spouse’s possessory rights in the matrimonial home.
A prenuptial agreement is a type of marriage/domestic contract made prior to the marriage. In recent years, prenuptial agreements have become especially popular among spouses who have accumulated a substantial fortune or specific assets prior to entering into a marriage.
Many celebrity couples, including Michael Douglas and Catherine Zeta Jones, and Denise Richards and Charlie Sheen have prenuptial agreements in place. Often, such agreements will spell out the amount of support a spouse is to receive for each year of marriage as well as an additional clause in the event of adultery.
Some commentators have also questioned whether such agreements are a contributing factor towards divorce. Some argue that prenuptial agreements put an expiration date on marriage or incentivize divorce. Others argue that having consequences to divorce in place effectively reduces the likelihood of divorce and forces couples to work towards reconciliation.
A 2003 Harvard study suggested that two main reasons for the lack of prenuptial agreements is: 1) people think they are unnecessary because they have a false optimism that marriages will last; and 2) people believe that discussing prenuptial agreements signals uncertainty about marriage.
Nevertheless, such agreements appear to be gaining popularity.
Legal commentators and practitioners estimate that only about 5 to 10% of the population enter into prenuptial agreements. So, are the divorce rates higher among married couples with prenuptial agreements in place? Unfortunately, due to the private nature of these agreements, there is little statistical information regarding the divorce rate in marriages with prenuptial agreements.
Recently, many commentators have argued that such agreements are wise, given that the divorce rate is so high (50% in the USA and 38% in Canada).
It is important to note that, although prenuptial agreements commonly deal with spousal property, they can be useful in other scenarios as well. Heather Mahar, a research fellow at the John M. Olin Centre for Law, Economics, and Business at Harvard Law School explains that “prenuptial agreements can go beyond preserving assets before the marriage. For instance, such agreements may dictate custody arrangements, or allow the couple to agree to divorce only in the presence of traditional grounds of fault, such as cruelty or adultery (as opposed to the no-fault divorce in today’s legislation). She notes that the ability to make such agreements makes marriage more stable.
Section 56(4) of the Family Law Act provides that the court may set aside all or part of a domestic contract on the grounds of (1) non-disclosure of significant assets, debts or liabilities at the time of contracting; (2) failure of a party to understand its nature and consequences; or (3) otherwise in accordance with the law of contracts. This section imports the doctrine of unconscionability. This doctrine focuses on the circumstances under which the contract was formed.
Additionally, provisions of domestic contracts in regard to the care and support of children are subject to the best interest of the child and may be set aside if they are unreasonable with regard to the Child Support Guidelines (CSG).
Moreover, clauses in domestic contracts making continued support contingent on the recipient spouse’s chastity are unenforceable. Chastity clauses in agreements made prior to March 1, 1986 are interpreted, rather, as meaning that support to the recipient spouse will end upon the recipient spouse’s marriage or cohabitation with a new partner. The court may also set aside a separation agreement entered into in exchange for securing the removal of religious barriers to remarriage.
The court’s approach to setting aside a domestic contract was dealt with in LeVan v LeVan. The proper approach is to first determine whether the person seeking to set aside the agreement can bring themselves within one of the situations listed in s. 56(4) (noted above). If so, it must then be determined whether the court should exercise its discretion in favour of setting aside the contract. The claimant must persuade the court to exercise its discretion in his or her favour. The party seeking to set aside the agreement bears the burden of proof in establishing one of the situations under s. 56(4).
If you have entered into a prenuptial agreement or other domestic contract and need assistance in enforcing or setting aside that contract, please feel free to contact Feldstein Family Law Group at (905) 581-7222.