Domestic Contracts

Understanding Domestic Contracts

Separation agreements, marriage contracts and cohabitation agreements are all forms of domestic contracts which are recognized in Ontario under the Family Law Act. These agreements can set out the terms of a relationship and/or the parties’ rights and obligations in the event of a relationship breakdown.

Domestic contracts can change, enhance or eliminate existing legal rights. Their terms must be carefully considered. Parties must understand how the law would apply to them absent a contract before they can decide whether or not a contract is necessary and, if it is, then what terms or provisions they want it to include. Such agreements should not be entered into without legal advice.

To be enforceable both spouses need to understand the contract and its implications. Independent legal advice for each spouse is essential. The Family Law Act further requires that all domestic contracts must be in writing and signed by the parties in front of a witness, who must also execute the contract. Since the contracts deal with financial issues, they must be supported by appropriate financial disclosure. Spouses must share all of the details of their income and financial circumstances, which is normally documented in a sworn financial statement.

Parties may address different issues in the different agreements.

1. In a marriage contract, parties who are married or are about to marry can agree on their respective rights and obligations during the marriage and on marriage breakdown, with respect to:
   1. how matters are addressed and organized during your relationship, such as payment of bills, how finances are managed, etc…
   2. ownership in or division of property;
   3. support obligations;
   4. the right to direct the education and moral training of their children, but not custody of or access to the children; and
   5. any other matter in the settlement of their affairs, other than limitations on either spouse’s right to occupy the matrimonial home.

2. In a cohabitation agreement, parties who are cohabiting or intend to cohabit and are not married can agree on their respective rights and obligations during cohabitation and on relationship breakdown, with respect to:
   1. how matters are addressed and organized during your relationship, such as payment of bills, how finances are managed, etc…
   2. ownership in or division of property;
   3. support obligations;
   4. the right to direct the education and moral training of their children, but not custody of or access to the children; and
   5. any other matter in the settlement of their affairs.

Note: if the parties to a cohabitation agreement marry beach other, the cohabitation agreement is deemed a marriage contract unless it states otherwise.

3. In a separation agreement, parties who cohabited and are living separate and apart can agree on their respective rights and obligations during the marriage and on marriage breakdown, with respect to:
   1. ownership in or division of property;
   2. support obligations;
   3. the right to direct the education and moral training of their children;
   4. custody of and access to the children; and
   5. any other matter in the settlement of their affairs.

Parties’ intimate relationships have both positive and negative economic consequences. Contracts are a way of mitigating negative impact when the relationship comes to an end, as all relationships do, whether by death or separation. In order to understand whether a contract is necessary, a party must first understand the law that would apply to their particular relationship absent a contract.

In Ontario, marriage is considered an economic partnership. Married spouses, therefore, share in the increases or decreases in the value of property accumulated during the marriage. Parties equalize their net worth, other than particular assets such as inheritances or gifts from third parties. Sound simple? If it were, contracts would not be necessary. But they are necessary, due to the complications inherent in the law governing property division. Parties enter into marriage contracts to protect themselves against the following “wrinkles”:

1. If inherited or gifted assets are owned at the beginning of the marriage, then any increase (or decrease) in their value will be shared.
2. If inherited or gifted funds are invested in a home which is a matrimonial home when the marriage ends, then the special status of these funds is lost and the value will be shared.
3. If gifted money or inherited funds are placed in joint names with the other spouse or used to pay off debts during the marriage, the value will be shared.

Cohabiting spouses are entirely excluded from the legislation. They do not have the right under the Family Law Act to share in the wealth accumulated during the relationship. Cohabiting spouses may, therefore, want to enter into a cohabitation agreement to provide for rights to share in each other’s assets at the end of the relationship, or to ensure against such rights by barring trusts claims.

Domestic contracts are complicated agreements which are difficult to draft. An experienced family lawyer will ensure that the wording of the contract reflects your intentions and achieves your goals. Better to have the work done by a professional at the outset, rather than retain a lawyer to try to clean up the mess left at the end of a relationship which results from an unclear or unenforceable contract, or no contract at all.