Can Agreements That Are Not Domestic Contracts Impact Equalization?

Written on behalf of Shariff & Associates
Courts encourage the use of domestic contracts where parties can set out their obligations and have previously weighed whether strict compliance with Ontario legislation is necessary for a domestic contract to be enforceable. But what about agreements that parties in a relationship enter into that are not domestic contracts? Can courts still consider them, and how might they affect the equalization of net family property?
The Family Law Act Sets Out Requirements for Domestic Contracts
Section 55(1) of Ontario’s Family Law Act (FLA) provides that a domestic contract will be unenforceable unless it is made in writing, signed by the parties and witnessed. Courts have held that this requirement ensures the parties were “deliberate in reaching their agreement and understood the obligations being imposed”.
In Wang v. Li, the court had to consider an agreement that the parties reached that was not a domestic contract within the meaning of the FLA. The husband signed a Prenuptial Declaration before the marriage, which stated that the wife would have “sole ownership and full right to disposal of property and assets under her name before marriage and after marriage including joint property and assets”. It also emphasized that the wife would have the sole and absolute right to such property and assets. However, the wife did not sign the Declaration, nor was it witnessed. Consequently, it was not an enforceable contract under the FLA.
The judge noted that just because the Declaration was not an enforceable contract under the FLA, this did not mean that it was invalid or irrelevant. For the judge, it was “a written agreement between the spouses that is not a domestic contract,” which the wife relied on to her detriment and was relevant when assessing unconscionability under section 5(6) of the FLA. That section permits courts to award an unequal division of net family property if equalizing the net family properties would be unconscionable. In this analysis, the court can specifically consider any written agreement between the spouses that is not a domestic contract.
Unenforceable Contracts Are Still Relevant Under Ontario Family Law
The judge in Wang v. Li looked to the earlier case of Crawford v. Crawford. In this instance, the wife agreed to sign a mortgage for the matrimonial home only if the husband agreed that he would be solely responsible for the borrowed funds. The husband only signed the agreement, but the wife tried to rely on it during their divorce and argued that it was the basis for an unequal division of net family property. The wife conceded that the agreement did not constitute a domestic contract within the meaning of the FLA. However, as a written agreement, she sought to rely on it and claimed that it provided a basis for an unequal division of net family property.
At trial, the judge held that it was not a written agreement, but, at best, a memorandum of the husband’s intention at the relevant time. The Court of Appeal disagreed, finding that there was no doubt that the husband intended to agree and did agree with the wife. The husband may have had “a change of heart after separation” that could not “retroactively change the effect of the agreement”. Although the wife did not sign the agreement, that was of no significance since it was clear that the parties intended to be bound by the contract, and the wife carried out her part of the bargain. The Court of Appeal concluded that there was a basis for the trial judge to have decided to make an unequal division of property if he concluded that an equal division of property would have been “unconscionable”. However, despite the trial judge’s error concerning the written agreement, the judge would still not have awarded an unequal division, and the appeal court declined to interfere with that decision.
Court May Consider History of Relationship & Financial Dealings When Considering Unequal Division of Property
The decision in Crawford was also cited in Goodfellow v. Goodfellow. In this case, before the parties married, they entered into a marriage contract to protect the husband’s business assets. Throughout the marriage, their business and personal finances became intertwined. On one occasion, the parties refinanced the matrimonial home, and the proceeds were deposited into the business. The husband signed an indemnity agreement in which he agreed to indemnify the wife for liabilities connected with his company. Essentially, it obligated the husband to indemnify the wife for her providing funds to the company that were never returned to her.
While the parties’ marriage contract was a domestic contract, the indemnity was not. The judge found that was an agreement that was not a domestic contract. It was in writing and indicated an intention by one party to enter into a mortgage to have funds advanced for which the party would be personally liable to the bank. The judge determined the marriage contract benefitted the husband, while the indemnity was for the wife’s benefit. Here, the husband’s company retained nearly $90,000, which he could protect due to the marriage contract. Justice Belleghem found it would be unfair not to give effect to the indemnity and not take into consideration the whole history of their relationship and financial dealings. An unequal division of net family properties was justified.
Parties’ Agreement Can be Considered When Assessing Unconscionability
In Wang v. Li, the husband acknowledged the substance of the Declaration and did not dispute that he signed it. He purported to give up his rights to any interest in the wife’s assets, including joint assets after marriage. Yet, he now attempted to repudiate the Declaration. In her testimony, the wife confirmed that she would not have married the husband if he had not signed the Declaration. For the judge, this made sense, given the parties were positioned very differently economically, and the husband had no more than $6,000. On the other hand, the wife had a sound reason to wish to protect her assets upon entering the relationship.
The Court found the intent of the Declaration clear. It was a promise that the husband made to persuade the wife to marry him. The wife relied on it and subsequently moved to Canada and transferred assets to Canada, where she purchased the matrimonial home and supported the husband until their separation. Because of that promise, any equalization of their assets upon the end of their marriage that resulted in a payment from the wife to the husband would have been unconscionable.
Courts Can Give Effect to the Purpose of the Parties’ Agreements
Just because an agreement does not fall within the definition of a domestic contract set out in the Family Law Act does not mean that it is irrelevant. Courts may consider the terms when assessing unconscionability and deciding whether there are grounds to award an unequal division of net family property.
Shariff & Associates: Providing Top-Tier Advice on Marriage Contracts & Property Division in Stouffville
At Shariff & Associates, our knowledgeable family lawyers take the time to understand each client’s unique goals before drafting or reviewing a marriage contract. With extensive experience in contract negotiation and drafting, we protect our client’s rights and ensure they fully understand the implications of every term before signing. We also ensure any agreements entered into before, during, or after the marriage protect our client’s rights concerning the division of property and equalization process under the Family Law Act. To discuss your situation with our team, please contact us online or call 905-591-4545.