There are two types of domestic contracts in Ontario that can be prepared while you are in a relationship.
Marriage contracts, or what some people call pre-nuptial agreements, are for people that are married or intend to marry. There are also cohabitation agreements, which are contracts for people who reside together or intend to reside together. Both types of contracts are governed by Ontario’s Family Law Act.
These contracts are designed to establish rights and responsibilities between spouses and to outline how certain matters will be handled in the event of a separation, or death. Both documents allow couples to address issues such as property division and other financial matters and provide clarity and certainty regarding each partner’s rights and interests.
While creating a domestic contract may not be top of mind when planning a wedding or moving in with a partner, Kayla Gordon and Nicole Kucherenko, family lawyers at McKenzie Lake Lawyers in Guelph say, it should be. Both women are driven by a desire to help people during one of the most difficult periods of their lives. Kayla says, “I’m a very empathetic person and that’s where my skillset lies, working with families and individuals facing personal issues.” Nicole adds, “Separation and divorce are difficult, and I find it personally rewarding to be able to guide someone through a very challenging process.”
Domestic contracts are important
Ontario law dictates how various financial issues will be dealt with if a relationship or marriage ends, including division of property and spousal support. If couples want to negotiate their own terms outside of the law with respect to financial issues, they can do that. Kayla says, “The reason marriage contracts, and cohabitation agreements are so important is because they can prevent a long, drawn-out legal battle when a separation occurs.”
What cannot be included in a marriage contract are child decision-making responsibility and parenting time arrangements (formerly referred to as custody and access). Those decisions must be made in the best interest of the child at the time of separation, which cannot be predicted at the time a marriage contract or cohabitation agreement is being prepared.
Marriage property rights
For married spouses, property accrued during the marriage is generally divided equally on separation. Issues commonly arise around the “matrimonial home” that married spouses are living in when they separate.
Nicole says, “in general, if one person owns the home before they get married, and then they separate while both residing in that home, even though one party owns 100% of the home, the other party is entitled to 50% of the value of that home upon separation.” However, if the person who owns 100% of the home, protects their interest in a marriage contract, then the property value will not be automatically divided in half. The impact of a marriage contract dealing with this issue can be quite significant for the financial outcomes of a separation.
Common law property rights
In a common law separation, property is generally divided based on ownership rather than automatically divided between the spouses. With respect to determining each person’s interest in the family home upon separation, the starting point is to look at how title is held.
Kayla says, “If you begin living with someone and you own 100% of the home, you should still talk to a lawyer about protecting your interests. For instance, you are still at risk of the other party making a “trust claim,’ particularly if they’ve paid for substantial renovations or made payments towards the mortgage, property taxes, or home insurance. As the homeowner, you should talk to a lawyer about the risks you may face and whether there are ways to limit those risks. As the person who is not on title, you would want to speak to a lawyer about how to protect the value of any financial contributions you’ve made or may make to the home. A cohabitation agreement would protect those interests and avoid a fight about who gets what value out of the home in the event of a separation.”
Protecting initial contributions to the family home
A common reason that couples enter into domestic contracts is to protect their unequal contributions to the home that they share. Often, one person in the relationship is able to contribute a greater portion of the initial down payment and will want to be reimbursed for that amount in the event of a separation, even if the parties are married or hold title as joint tenants.
Nicole says, “It is becoming more common for parents to gift money to their children for the down payment on a home.” This is a perfect example of why someone may want a cohabitation agreement or marriage contract in place. Nicole adds, “If, for example, the parent is gifting $100,000 to their child and does not want those funds to be split with the child’s partner if they separate, this could be stipulated in either type of contract.”
How to prepare
During your first meeting with a family lawyer, they will tell you what the law is and what could happen if you don’t have a marriage contract or cohabitation agreement in place. They will talk to you about working around the law to make unique arrangements and what the contract might look like.
Importantly, both parties need to prepare a statement of income, assets, and debts to give a clear picture of where they stand financially at the time the contract is being prepared. Kayla points out, “The validity of the cohabitation agreement or marriage contract depends on exchanging honest financial disclosure. Without it, one spouse could challenge the validity of the contract on separation and say that they didn’t fully understand the consequences of what they were signing.”
Get your own lawyer
It’s always best for each party to have their own lawyer when entering a domestic contract, otherwise the agreement could be challenged later. It is best practice to include provisions that say both parties have received independent legal advice.
Both parties must enter into the contract voluntarily, without being pressured. Nicole says, “Parties should not begin negotiating a marriage contract right before their wedding and expect the contract to be signed swiftly. This can put unnecessary pressure on the parties and prompt questions about whether either party was under duress when they signed. Negotiating these contracts should take time and careful consideration.”
Even though partners entering an agreement may be amicable, each partner should have their own independent legal counsel to ensure that their rights and interests are protected. It’s worth paying a lawyer to draft an agreement and negotiate with the other partner’s counsel. Kayla says, “You’re going to spend a lot less time and money preparing a marriage contract or cohabitation agreement than you would be forced to spend in the event of a high-conflict separation with no agreement in place.”
Domestic contracts do not kill the romance
Kayla Gordon believes it’s “actually kind of romantic” to enter into a domestic contract. She explains, “You’re coming to terms at a time in your relationship when you love and respect each other. You’re more likely to establish a fair agreement at that point than when you’re separating and not necessarily on good terms.”
Not all cases will require a marriage contract or cohabitation agreement however, Kayla says, “If you’re planning to move in with somebody or get married, you should contact a lawyer to determine if a contract would be appropriate in your case.” Nicole adds, “We tell clients that hopefully they can put the document away and never have to use it, but that having it in place will give them peace of mind.” And as Kayla points out, “Some people can have amicable separations, but we would be far less busy as family lawyers if that was always the case.”
If you need legal advice about marriage contracts or cohabitation agreements, Kayla Gordon and Nicole Kucherenko from our Family Law Department would be happy to help.
Contact (519) 672-5666 or email: [email protected] [email protected].
