Litigating the Domestic Contract

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BY VALERIE DYE 

Domestic contracts, like other contracts are often challenged before the court. This happens largely, when, years after signing the contract one party realizes that he or she has given up a right to which he or she would have been entitled had it not been for the contract. This is very common in cases where one party has acquired substantial wealth and a divorce would result in the other party not sharing in that wealth as a result of the marriage contract. For instance, parties may have waived entitlement to spousal support or they may have agreed that properties acquired by each of them will remain separate and not be subject to equalization in the event of a breakdown in marriage.    Despite this realization, a marriage contract, like any other contract is a binding document which is enforceable unless there are certain grounds for setting the contract aside. What are those grounds?

According to section 56(4) of the Family Law Act of Ontario the court my set aside a domestic contract if (1) either party has failed to disclose to the other party significant assets or significant debts or liabilities which existed at the time the contract was signed, (2) if one party did not understand the nature or consequence of a contract, or (3) for any other reason for which any contract may be set aside. Under the third point some of the reasons why contracts in general may be set aside include situations where one party can prove that they signed the contract under duress, or where the terms of the contract are unconscionable.

In the 2008 Ontario Court of Appeal case of Levan v Levan the married couple had signed a marriage contract because the husband wanted to protect his business in the event of divorce. The husband did not disclose his assets to his wife before signing the contract and the wife did not obtain independent legal advice. On this basis, the wife’s action to have the contract set aside was successful.

It is important to note that even where there is a violation of section 56 (4) of the Family Law Act the court has a discretion as to whether to set aside the contract. The 2015 case of Shair vs Shair is an example of this. In that case the marriage contract indicated that the husband was a mechanic but failed to disclose the value of his business assets and the value of his home. Although the court found that he did not provide adequate disclosure the contract was upheld as the court determined that the parties had agreed to waive financial disclosure. The case of Shair vs Shair is also an example for the fact that even though the court may find that the contract is valid, some terms of the contract may still be set aside. In that case the couple had agreed to waive spousal support. The court set aside that term of the contract on the grounds that it was unconscionable to prevent the wife from obtaining spousal support.

There is nothing to prevent disgruntled parties from challenging the validity of a domestic contract. Nonetheless, to ensure that the contract can withstand litigation it is important to ensure that the requirements of section 56 (4) are fully complied with.

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