Unraveling the Misconceptions Surrounding Domestic Contracts Without Legal Advice

Our previous blog post discussed property rights for married and unmarried couples in Ontario. The day after we published the post, we received a call from a potential client who wanted to divide properties with her spouse using a self-drafted separation agreement. Both parties were adamant about not involving a lawyer. They had willingly agreed to and signed this agreement. Next, the parties want to divide their two jointly owned properties. The crucial question was whether this agreement, lacking legal oversight, was legally binding and could facilitate the property division.

What is a domestic contract?

First, let me explain a domestic contract. A domestic contract is a crucial and legally binding agreement between two domestic partners, whether married or unmarried, regardless of gender. It outlines their rights and responsibilities during and after their relationship. This agreement is essential for both parties to have a fair and secure arrangement.

Five Types of Domestic Contracts

Under Part IV of the FLA, five types of domestic contracts are permitted in Ontario:

1. Cohabitation agreements.

2. Marriage contracts.

3. Separation agreements.

4. Paternity agreements, and

5. Family arbitration agreements.

Formal Validity

The FLA outlines the requirements for domestic contracts as follows:

• The agreement must be in writing, signed, and witnessed.

• Section 35 (1) of the FLA states that a person who is a party to a domestic contract may file the contract with the clerk of the Ontario Court of Justice or of the Family Court of the Superior Court of Justice together with the person's affidavit stating that the contract is in effect and has not been set aside or varied by a court or agreement.

• Section 35(2) explains the effect of filing:

  ­A provision for support or maintenance contained in a separation agreement filed in Court

  (a)  may be enforced.

  (b)  may be varied under section 37.

  (c)  except in the case of a provision for the support of a child, may be increased under section 38 and

  (d)  In the case of a provision for the support of a child, it may be recalculated under section 39.1 as if it were an order of the Court where it is filed.

The Most Common Reasons to Invalidate a Domestic Contract

1. Duress: If a party was forced to sign the domestic contract.

2. Unconscionability: If the contract contained unjust terms and conditions.

3. Lack of full financial disclosure.

4. Failure to understand the terms and consequences of the agreement

Failed to make a Full and Frank Financial Disclosure

Section 56(4) of the FLA states that a court may set aside a domestic contract or a provision in it based on the following:

• If a party failed to disclose to the other significant assets, significant debts or other liabilities existing when the domestic contract was made.

• All mutual Separation Agreements must be adequately and thoroughly prepared before applying for a divorce with the courts. This will avoid additional time and costs once the application has been filed.

Barriers To Remarriage

Section 56(5) of the FLA states that the Court may, on application, set aside all or part of a separation agreement or settlement if the Court is satisfied that the removal by one spouse of barriers that would prevent the other spouse's remarriage within that spouse's faith was a consideration in the making of the agreement or settlement. 

Two-Part Test for Setting Aside a Domestic Contract

• In Levan v Levan, the Ontario Court of Appeal (OCOA) set out a two-part test for setting aside a domestic contract:

• The Court must determine if the party seeking to void the agreement can show that one or more of the circumstances outlined in the provision have occurred.

• Next, the Court must consider whether it is appropriate to exercise discretion in favour of setting aside the agreement.

Section 33(4) of the FLA also provides the Court with the authority to set aside waivers of spousal support:

• The Court can invalidate a support provision or waiver in a domestic contract and enforce support, even if the contract excludes this provision.

• If the provision for support or the waiver of the right to support results in unconscionable circumstances.

• If the provision for support is in favour of or the waiver is by or on behalf of a dependant who qualifies for an allowance for support out of public money, or

• if there is a default in the payment of support under the contract when the application is made.

In Miglin v Miglin, the Supreme Court of Canada made an important decision. Although Mrs. Miglin did not claim to set aside the parties' Separation Agreement, she successfully claimed spousal support even though the Separation Agreement contained comprehensive releases.

I vividly remember a case from my time as an articling student, working under a seasoned family lawyer with 40 years of experience. The case involved an ex-wife seeking to invalidate a separation agreement due to her ex-husband's deceit about his retirement plans. He paid significantly less to his ex-wife and excluded her from his pension by secretly renewing his contract with his employer on the day his ex-wife signed the agreement. This led the ex-wife to start a lawsuit against her ex-husband for fraud and misrepresentation.

Conclusion

In recent years, there has been a concerning rise in cases where individuals have sought to exploit section 56(4) of the FLA to invalidate their cohabitation and marriage agreements. It's important to note that the burden of proof rests on the party contesting the domestic contract. While independent legal advice (ILA) is not obligatory, it is strongly advised that the integrity of the contract be upheld. In a recent case, Caparello v. Henkenhaf, Justice Gray underscored the critical nature of negotiating a domestic contract under proper circumstances and with access to legal and expert advice. It is imperative to avoid the pitfalls of creating a separation agreement without legal counsel, as this significantly heightens the risk of the Court rejecting it. Lastly, challenging a domestic contract in Court is a formidable task and can lead to a costly legal battle, consuming both time and financial resources.

We encourage you to contact our office without hesitation if you have any lingering questions or concerns. Our dedicated team is fully committed to assisting you in every possible way.