Domestic Contracts and Why They Are Becoming More Popular

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Family law in Ontario is regulated by the Family Law Act and the Divorce Act. These Acts set out the laws relating to child and spousal support as well as equalization and division of property.  Unless parties have made an agreement or domestic contract they are bound by the provisions of the legislations. This often leads to results that parties have not bargained for when they entered into a marriage or common law relationship. For instance, a party who owns a home prior to marriage which subsequently becomes the matrimonial home may be very unhappy to discover that if the marriage is terminated the property has to be shared with his or her spouse.  Some persons may also not wish to divide their pension benefits with a spouse if they decide to divorce.

In recognition of the fact that parties may wish to make alternative arrangements for support, property division and other issues outside of the provision of family law legislation, sections 52 to 54 of the Family Law Act specify that parties may enter into an agreement to outline their respective rights and obligations in the event of divorce or separation.  While sections 52 and 53 refer to the making of contracts for persons entering into or already in a marriage or common law relationship, section 54 of the Act refers to a separation agreement which is made by parties who are ending their relationship and which to outline their own rights and obligations upon separation.

By entering into such domestic contracts parties are able to regulate their domestic affairs outside of the legislative framework. It is important to note, however, that despite the recognition of the freedom to contract and the ability to determine one’s own rights within a relationship or at the end of a relationship, there are instances when such contracts will be set aside by the courts. One instance in which this happens is where parties fail to make financial disclosure so that the other party is aware of all their assets, liabilities and income. Section 56(4) of the Family Law Act makes it clear that the Court will set aside a domestic contract either entirely or in part, where either party fails to make such financial disclosure. The court may also set aside a domestic contract where it is found that one or both parties did not understand the consequences or significance of entering into the contract. To safeguard against this, it is important for parties to obtain independent legal advice and to ensure that a lawyer provides a certificate of independent legal advice.

It is also important to note that in interpreting domestic contracts courts consider the best interest of the child. Where, for instance provisions in the contract relating to child support, custody or education are unreasonable and not in the best interest of the child the court may set aside these provisions.

Finally, section 19 of the Family Law Act provides that both spouses are entitled to possession of a matrimonial home. Any provision in a marriage contract that takes away this right to possession will not be enforceable.


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