PRENUPTIAL AGREEMENTS

A Prenuptial Agreement (also referred to as an ante-nuptial agreement) is an agreement entered into by the parties in anticipation of marriage. It must be in writing, and each party must have independent legal advice prior to signing it. Its usual purpose is to address issues of property division in the event of a breakdown of the marriage. It can also address responsibilities for children of a former relationship, though such provisions are subject to being overturned by the courts if they find them to be contrary to the best interest of the children involved.

The standard form of Prenuptial agreement will state that those assets belonging to each party at the time of marriage will continue to be the property of the respective parties in the event of separation. A schedule is usually attached setting out the respective assets so as to avoid confusion. The parties may also stipulate that any increase in value of their respective assets will also accrue to the benefit of the respective parties who owned the asset at the time of marriage. It is important to bear in mind that the scheme of separation in the Agreement will only be enforceable if the assets have not been co-mingled during the marriage, and are no longer identifiable as separate assets. There is a natural tendency for married couples to pool their assets for the benefit of the family. Maintaining the strict separate regime described in a Prenuptial Agreement may conflict with this natural tendency, and foil the purpose of the Agreement.

Who needs a Prenuptial Agreement?

If you have substantial assets going into a marriage, you may want a Prenuptial Agreement. If your prospective spouse has children by a prior relationship, you may wish to try to address issues around your role as a prospective step parent in a Pre-nuptial agreement. If you plan on intermingling your assets after your marriage by using your money as a down payment on a matrimonial home, you may want an agreement. If you fall into any of these categories, or have questions, please call me at 403 269-8500 or email me at sean@oneillaw.ca and I would be pleased to discuss your situation.

Legal Issues

The Divorce Act stipulates the grounds for divorce in Canada, provides the basis on which spouses may seek spousal support and, where applicable, governs entitlement for child support, in addition to custody and access rights to children of the marriage.  The Divorce Act briefly addresses domestic agreements and only makes reference to spousal agreements in the context of child support orders, spousal support orders, and the variation of child support orders in sections 15.1(5), 15.2(4), and 17(6.2), respectively.   With respect to spousal support orders, the Divorce Act simply states that an agreement between spouses is a factor that ought to be considered when the court makes a determination regarding one spouse's application for spousal support.  With respect to child support orders, or variations to child support orders, the Divorce Act focuses on ensuring that, if the spouses who have entered into an agreement have children, the best interests of the children are protected in the provisions of the spouses' agreement. Spouses must consider the Federal Child Support Guidelines and adhere very closely, if not precisely, to the child support provisions therein.

According to the Divorce Act, the courts may recognize and uphold provisions of a prenuptial contract that address custody of and access to children of the marriage so long as the agreements support the best interests of the children.  For instance, the courts operate on the premise that children benefit from a loving relationship and contact with both parents and that custody/access regimes ought to reflect this premise, with the exception of very severe circumstances of abuse, etc. So long as spouses with children contract in a manner reflective of the importance of both parents' involvement with the children and neither parent has contracted out of his or her rights regarding the children, the federal statute enables the courts to recognize the provisions agreed upon in prenuptial contracts. 

The law operates on the presumption of equitable sharing of marital assets between spouses on marriage breakdown.  The parties are permitted, to a large degree, to contract out of this overarching presumption by creating and executing a valid prenuptial agreement with the aim of predetermining their division of matrimonial property, either in part or whole, in the event of marriage breakdown. Prenuptial agreements shall be in writing, and must also be signed by the parties and witnessed.  The parties must each have independent legal advice when finalizing prenuptial agreements in order to ensure their agreements are upheld if challenged.

In Hartshorne v. Hartshorne the Supreme Court of Canada stated that when parties enter into a prenuptial agreement the terms of that agreement will be upheld in all but the most unusual of cases. The decision of the majority also held that a business asset should be excluded from division of assets if that asset is used to pay support.

However, the courts also adjudicate cases on the basis of the law of contract, as was done prior to the enactment of statutes governing prenuptial agreements and other domestic contracts.  Most commonly, when the judiciary applies the law of contract to prenuptial contracts the contracts are reviewed on grounds relating to misrepresentation and fraud, duress, undue influence, and unconscionability. 

Misrepresentation occurs in the realm of prenuptial contracts when one spouse, while in prenuptial contract negotiations with another spouse, does not provide full or accurate disclosure with respect to his or her assets and/or debts to the other spouse.  While providing false, incomplete or no disclosure at all are grounds to question the validity of a prenuptial contract, the courts have ruled that there is a significant difference between mistakenly providing insufficient disclosure and purposefully providing false information.  While case law indicates the Canadian courts may or may not make allowances for mistakes,the courts are less forgiving with respect to fraudulent misrepresentation.  The law of contracts supports the rescission of prenuptial contracts under these circumstances because it is recognized that it is improper to uphold contracts in which one spouse intentionally misrepresents his or her financials for the purpose of inducing the other party to enter into a contractual agreement he or she may not otherwise agree to had accurate disclosure been provided.  The remedy under the law of contract for misrepresentation is a claim for damages and/or the rescission of the contract. The Canadian courts have firmly decided that intentional misrepresentation in the process of creating and finalizing a prenuptial contract is sufficient grounds to rescind the contract in whole or part, especially when the misrepresentation involves financials.  For instance in Le Van v. Le Van the husband and wife entered into a prenuptial agreement and continued to live their lives on the false understanding, as put forth by the multi-millionaire husband, that the parties had very limited means.  Upon the breakdown of the marriage and the wife's learning that the husband had been dishonest with her about his financial status prior to and for the duration of their marriage, the wife challenged the couple's prenuptial contract.  The court found that the husband had materially misrepresented his financial circumstances.  Due to the husband's misrepresentation and also because the wife failed to understand the nature of the contract the parties had entered into, the court determined that the parties were unable to appropriately negotiate the terms of their prenuptial contract. 

Duress occurs when one party to a contract induces the other party to enter into the agreement by way of threat.  If the threat by one party is proved to have coerced the opposing party against his or her will to enter into the agreement, the law of contract states that the coerced party's consent ought to be vitiated.   Undue influence is a milder form of duress in that while threats need not be made, a sense of pressure or influence may be sufficient to create a circumstance in which an agreement between parties is improperly entered into. Most commonly, the courts use the term ‘unconscionable' when describing situations involving one party who is taken advantage of by the other while in the process of creating and finalizing a domestic contract.  Unconscionability encompasses situations involving one party who, opportunistically, enters into a contract with another and in doing so capitalizes on the other party's weaknesses, ignorance, lack of sophistication, or unequal bargaining power. Canadian courts often simultaneously address the concepts of duress, undue influence and unconscionability in the realm of prenuptial contracts.  In Freake v. Freake, Justice Cameron of the Newfoundland Court of Appeal summarized the two-part test that is to be applied when determining what constitutes unconscionable conduct as such: "1) there must be an inequality of position of the parties which might arise out of ignorance, distress or incapacity; and 2) the stronger of the two must have obtained a substantial benefit." Case law from across the country, with differing fact scenarios has confirmed what unconscionable conduct is on the part of one spouse.  The common themes in these cases tend to involve one or more of the following:  1) pressure on one spouse to sign the prenuptial contract,)2 signing the contract without independent legal advice or without knowledge of the law; 3) signing the contract without a true understanding of the nature and consequences of the contract; and 4) signing the contract while experiencing a significant source of stress and while in a vulnerable state.

Once the parties have executed the contract, typically the contract is analyzed further only if and when one party to the contract challenges the agreement.  At that juncture, the determination of the validity of the agreement is then left to the court's interpretation of statutes and the application of contract law.  The judiciary undoubtedly exercises a significant degree of discretion when engaged in this process which invariably gives rise to the evolution of the law surrounding prenuptial contracts.   Despite the uncertainty surrounding the future, the safest practice with respect to prenuptial contracts is one that applies as much knowledge of the law to the parties' fact scenario as possible.