By Douglas J. Manning, Partner, Certified Specialist in Family Law

Yes!  But why would you want to?

In a recent British Columbia court decision, one of the issues was whether the husband and the wife had entered into an oral marriage contract that excluded the sharing of the wife’s rental property from being shared in the parties division of property when they separated.

Both parties had come from previous marriage-like relationships. The wife owned 2 properties coming into this marriage.  The value of one of the properties increased by about $500,000 during the 3 year marriage.  The parties never occupied the property during the marriage and they never shared the rental income. The husband never paid any of the expenses associated with the property.

The wife’s evidence was that the parties had a verbal contract that the husband would not have any interest in the property, nor would the value of the property or any increase in the value be included in what the wife would have to account for in the sharing of the parties’ net worth.

The husband maintained that they had talked about putting his name on title to the property and therefore he would have been a joint owner and thus the intention was to share the asset and the increase in the value over the marriage should be included in the mix of the property to be shared.

The wife gave evidence that each party agreed to be responsible for their own expenses and pay their own debts and not look to the other for assistance.  The evidence showed that they more or less were responsible for their own individual expenses, never had a joint bank account and each was financially responsible for their own children from their prior relationships. However, the parties did share their living expenses together, including the costs of vacations, etc..

The issue was largely one of credibility. Who did the judge believe?  On balance the court preferred the wife’s evidence as it was more consistent with how the parties conducted themselves.  They had very little integration of their financial matters and this supported the wife’s contention that there was no mutual intention to share the value of her pre-marriage rental property or the increase in its value.

Of course all of this could have been avoided had the parties decided to have a written marriage contract that clearly set out their expectations, rights and obligations.  If you are going into a new relationship and have considerable assets or there is a significant difference in your incomes, it would be wise to consider the use of a cohabitation agreement or marriage contract.

By Douglas J. Manning, Partner, Certified Specialist in Family Law

A recent, highly publicized, spousal support decision sheds light on how the “other half” live (and how they end up paying their support).

Michael McCain, one of the children of Wallace McCain (a wealthy businessman in the food industry) and his wife of 30 years separated in 2011.  They had 5 children, only 2 of whom remained dependent at the time of separation.  Ms. McCain had not worked outside of the home for about 26 years.

About 16 years into the marriage, the husband’s father demanded that each of his children and their spouses sign marriage contracts that would protect the assets he would pass on during his lifetime or upon his death.  Essentially he wanted his estate to remain within his bloodline and not be available to any of his children’s spouses in the event that any of them separated.  The story was the husband’s father demanded these agreements on pain of the husband being ignored in his father’s Will.

In the agreement signed by Michael and Christine McCain in 1997, Christine agreed to release her entitlement to what is called  an Equalization Payment and in exchange she would receive a fixed amount of money which was to be a maximum of $7,000,000 (and a $300,000 payment one year after the agreement was signed) and she was to receive the matrimonial home.  The wife also waived what she might have been entitled to in spousal support.

The Court was asked to order the husband to pay the wife temporary spousal support even though the Marriage Contract released her entitlement to spousal support.

The Court undertook an analysis of the facts and the law on this issue.  The Court was of the view that the release of spousal support did not meet the criteria set out in the Divorce Act when considering an appropriate amount of spousal support – such as the means and circumstances of the parties, the length of the marriage, the roles assumed during the marriage, etc..  The Court was also aware that the wife’s property entitlement was far less than she would have otherwise been entitled to if she had not entered into the agreement.

If is worth noting that the wife had independent legal advice at the time that she was given the Marriage Contract to sign and she signed the Contract in light of the legal advice she received.  Even with legal advice, the Court was satisfied that the Ms. McCain was under sufficient duress to sign the Contract that it should be set aside.  The duress took the form of her father-in-law’s threat to “disinherit” his son if the Marriage Contract was not signed.  The Court stated that the “duress was subtle and psychological, in that she appeared to be the key to the husband remaining as one of his father’s heirs”.

The Court asked the question: “Was the bargain (Contract) acceptable?”  I am not sure this is the precise question that needs to be answered.  But the Court took into consideration that the marriage existed for another 15 years after it was signed; that there were no income projections done as to what the husband might be earning in the future and no projections as to lifestyle changes that took place as the years went by.

Once the Court was of the view that it would consider the agreement as only one factor in determining whether it would order support or not, then it became a decision on what was an appropriate amount of support to award.  The Court went on to state that each spouse should be able to live in a fashion that does not require the wife to sell the matrimonial home, to use up her capital, to support her expenses.

In the result, the Court ordered the Husband to pay temporary spousal support of $175,000 per month until the matters could be more fully examined and dealt with.

The takeaway point for me from this is – don’t be too greedy in what you ask for in your Marriage Contract.  If it is found to be too one-sided and does not come close to what the law might provide to your spouse without a Contract then there is an increased possibility that the Contract might be judged to be invalid at least to the extent that the unfairness is manifest and significant.

Lori L. Aylwin – Associate, Family Law.

When a separation occurs and there is a Family Business, the separation can have a significant impact on the health and ultimate future of that business.  Often a non-owner spouse may have misconceptions about the value of a business, particularly where the business does not have significant hard assets such as a law practice, a consulting business, or a private medical practice.  Finding the value can be a difficult, controversial, and expensive issue.  On separation focus often shifts from day to day management of the business to determining value of the business, forensic analysis regarding the validity of expenses that the family has historically run through the business, and determining what actual income can be derived from the business.  This shift in focus can have a negative impact on business operations, and can cause additional economic stress on separation.  In order to avoid common problems that arise on separation, and to protect a business, the following are some precautions that may be taken:

  1. Marriage Contracts:  are the single most effective tool to reduce or avoid the negative impact of a divorce on the business.  Having an agreement signed by the business owner and his or her non-owner spouse is the best protection against future problems should the couple separate.  The Marriage Contract should contain a waiver by the non-owner spouse of the owner spouse’s interest in the business, whether it is owned prior to marriage, or whether it is anticipated that one spouse will take over the family business in the future.  You want to ensure that the waiver also includes a specific waiver of any increase in value of the business in the future.  When negotiating the Marriage Contract the business owner must provide full financial disclosure to the non-owner spouse regarding the business’ present value and its future value if known and each party must also have independent legal advice.  Full financial disclosure and independent legal advice for both parties assists in protecting the agreement from attack if there is a separation. 
  2. Succession Planning:  If you are looking at transferring a family business to a child or another family member, or if you are likely to receive a share in a family business during marriage, agreements should be in place between spouses before a transfer occurs.  It is wise to consider making a transfer of the ownership interest contingent on the signing of an acknowledge by the non-owner spouse stating that that the transfer of the ownership interest is a gift or inheritance which shall be excluded from the family’s net family property in the event of a separation.  Further, you will want a waiver by the non-owner spouse of any future claim for an increase in value on that interest over the course of the marriage.  The non-owner spouse must have independent legal advice when the acknowledgement and waiver are signed. 
  3. Business Valuations:  If you do not have a Marriage Contract or a Waiver obtained on transfer of a business interest during marriage, be prepared to have your business valued on separation.  Engage someone early in the process to determine the business’ value.  If possible, agree on a jointly retained valuator to avoid conflicting expert reports on the value of business.  The expert retained should be a certified business valuator and should have experience in dealing with the valuation of businesses for the purpose of division of matrimonial property.  In order to assist in the valuation, you will be required to provide the valuator with detailed information regarding the company including financial records.  If you have a bookkeeper for the company, they would likely be the best person to assist the valuator and  provide necessary information and records. 
  4. Management and Communication: Separation can be highly stressful; focusing on your business may be difficult.  Angry spouses can come into the business and cause significant disruption.  Upon separation, give your staff as much information as possible (and that you are comfortable sharing) regarding your separation.  It is best to take proactive steps rather than reactive steps in order to keep your business running.  Advise staff if there is significant conflict between yourself and your spouse and make a plan regarding how to deal with the non-owner spouse coming onto your premises.  If possible, abdicate some of your responsibilities to other owners or a manger while you weather the storm.  

A recent, short article in a national newspaper caught my attention.  Apparently, lawmakers in Mexico City are considering enacting legislation that would allow for  “trial” marriages as short as 2 years in duration.  (I know some of you may be thinking “all marriages are like going through a trial”).  This proposed law would allow couples to choose the length of time of their marriage commitment to each other with the minimum being 2 years.

If the couple are not happy with the way things have worked out after the designated length of time, the marriage simply ends.  The parties would not have to go through a divorce process.  Sounds pretty good.  But it will never happen in Ontario (or Canada).

So for those of us who are thinking about getting married in this neck of the woods, the old “til death do us part” will probably still apply.

This brings home the importance of considering the use of a Marriage Contract or Cohabitation Agreement in order protect the assets that you are bringing into a relationship in the event of a separation.  A Marriage Contract of Cohabitation Agreement can also clarify the parties’ responsibilities for spousal support, assumption of liabilities and other financial matters in the event that the relationship is not “happily ever after”.

The pending nuptials of Prince William and Kate Middleton have attracted an inordinate amount of public attention.  We all seem to be captivated by royalty (whether it be political, sports, entertainment, or the real thing!).

There are some ‘gossipy’ rumors circulating that Prince William and Kate have agreed to enter into a marriage contract that presumably would establish what payments or property transfers would be made if the couple ever separated or divorced.  I am no expert on “royalty law” but I am given to understand that there may be some question about the legality or enforceability of a marriage contract entered into by a member of a royal family.  Fortunately for you (and me) this is not the type of question that I am asked every day in my family law practice.  There aren’t very many royals in my ’neck of the woods’.

That said, there is an increasing use of cohabitation agreements and marriage contracts between persons contemplating a long term relationship or marriage.  More frequently, people are waiting longer to get married and they are coming into the new relationship or marriage with a more significant asset base and thus they want to protect what they have in the event of a separation.  Also, people entering into (what they hope will be) long term relationships or marriages have witnessed their own parents separations and want to avoid the hardship and fighting that they observed in their own parents’ separation.

When I discuss the wisdom of a marriage contract or cohabitation agreement with a client, I describe it much like an “insurance policy” – it is something you should have; but hope to never use .  It is only relevant in the event of a separation and it is designed to govern what is to happen with respect to the division of property (or a payment in respect of property) and spousal support (alimony in some jurisdictions).

A Cohabitation Agreement (in the case of common-law spouses) or a Marriage Contract (in the case of married spouses) assist separating spouses in determining such things as:

  • The ownership of various properties upon separation (not just land, but also such items as bank accounts, investments, jewelry, vehicles, time-share vacation properties.  The exception to this is that rights with respect to occupation of the “matrimonial home” cannot be bargained away in a Marriage Contract.
  • Which spouse will be responsible for the various debts that exist at the time of separation
  • How jointly owned property will be handled – if one or both spouses wish to buy the other spouse’s interest in a jointly owned house, cottage, etc.
  • If spousal support will be paid (or not) and if so, for how long and in what amount
  • The rights to determine the educational and religious training of the children

One of the issues that cannot be addressed in a Cohabitation Agreement or Marriage Contract is the custody of children of the relationship in the event of a separation.  Custody of children is always based on the “best interests of the children”. It is difficult to predict a child’s best interests at some time in the future (separation) at the time of negotiation of the Cohabitation Agreement or Marriage Contract.

In Ontario the statutory requirements for a valid Marriage Contract or Cohabitation Agreement are set out in the Family Law Act and are:

  • There must be full (meaningful) disclosure between the parties regarding their financial circumstances at the time of entering into the agreement;
  • Each party must have the opportunity to receive independent legal advice about the agreement
  • The agreement/contract must be in writing and the parties’ signatures must be witnessed

I am confident that Prince William and Kate Middleton will have no shortage of high quality advice (legal and otherwise).  For those of us non-royals, I  would consider investing some time and money on carefully considering what you would like to see in place in the event of a separation.

Most couples who resolve the legal issues arising from their separation figure that once the ink is dry on their settlement that they can then get on with their lives relatively free of entanglements with their ex-spouse (especially when there are no children involved). In most situations this will be the case, however, it is crucial that the wording of your settlement be ‘crystal clear’ and free from ambiguity to maximize the likelihood that future problems be avoided.

Case-in-point – You are probably familiar with the movie actor Michael Douglas (son of Kirk Douglas) and you have probably seen more than one of his movies.  Well, Mr. Douglas was the star of a movie made in 1987 – “Wall Street”.  His famous line in that movie was “Greed is good”.   I wouldn’t know about that, but his role in that movie has come back to haunt him now, almost 23 years later.

In that movie Mr. Douglas played character  Gordon Gekko, and he won an Oscar for his performance.

Mr. Douglas and his former wife were divorced in 2000.  Their divorce settlement entitles Diandra Douglas to some of the money Mr. Douglas receives from “spin-offs” from the Wall Street movie.  Ms. Douglas has already received $6.3 million from Mr. Douglas’ other projects.

Now, with Mr. Douglas’ new movie, “Wall Street: Money Never Sleeps” raking it in at the box office, Ms. Douglas has come forward demanding a “piece of the action”.  Mr. Douglas maintains the position that as there were no plans for a sequel at the time of the divorce settlement that the new movie does not constitute a “spin-off” and thus Ms. Douglas is entitled to no further money.

While this case has not yet been decided, rest assured that much court time (and legal fees) will be spent arguing for the most favourable interpretation to the respective parties’ position.  Ms. Douglas will argue that the settlement requires a liberal interpretation of the terms of the resolution while Mr. Douglas will take the position that a narrow definition should be given to the resolution.  I have not see the wording of the actual 2000 resolution, but it would have helped if the terms at issue (spin-off) had been defined right in the wording of resolution.  This may have avoided some or all of the court battles which will inevitably unfold over the coming months.

Word to the Wise – read the terms of your resolution (Separation Agreement, Marriage Contract, Minutes of Settlement) very carefully before you sign and in moments of doubt ask yourself whether the term, clause or sentence that you are examining is capable of more than one interpretation.  If it is, ask your lawyer to give you their thoughts and suggestions to clarify the questionable phrase or sentence.