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When spouses have entered into a cohabitation agreement and later get married, the Family Law Act states that the cohabitation agreement is deemed to be a marriage contract. If one or both of the spouses wish to change it, a new agreement must be prepared and signed.
 In the California case of Diosdado v. Diosdado, 118 Cal. Rptr. 2d 494 (Ct. App. 2002), a couple signed an agreement after the husband had an extramarital affair. The agreement banned each spouse from engaging in extramarital sexual conduct and specifically stated that one spouse's infidelity could cause the other spouse serious emotional, physical and financial injury. The agreement included a clause that stated that the spouse who committed adultery was required to pay to the other spouse $50,000 in liquidated damages irrespective of any other property settlement resulting from a divorce proceeding.
When the husband committed adultery, the wife asked the court to enforce this clause. Both the trial court and the California appellate court found for the husband and ruled that the clause violated state public policy. It held that the legislature had made a social policy based on a decision to change the grounds for divorce from a fault basis to a marriage breakdown basis. Consequently, the court said, fault is generally not a relevant consideration in the legal process of divorce. Further, recovery in divorce cases is basically limited to half the community property, appropriate support and legal fees—with no premiums for emotional pain. The court said that the agreement here violated this policy by imposing such a premium for the emotional angst the husband’s infidelity had caused his wife. Moreover, the agreement
contravened public policy by attempting to penalize one of the parties as a result of his conduct during the marriage. Only in California.
 After having experienced the financial consequences of a separation, most people are motivated to avoid this experience again. If you intend to remarry or reside with a new partner, you need to understand the potential financial consequences of the relationship ending.
Here are a few examples:
If you marry your new partner, you may be required to pay spousal support and share the increase of the value of your assets during your marriage when you separate.
If you support your new partner while you reside together, even though you are not married, you may be responsible for spousal support when you separate.
When a couple separates, there are many issues that may arise. Many of these issues can be resolved—even before you marry or cohabit—if both spouses agree to enter into a marriage contract or cohabitation agreement. These documents are written legal agreements, signed by both spouses in the event that the relationship ends. They permit partners who cohabit or intend to marry to agree, in advance, on issues such as property division and support.
More often, people are getting married later in life or for a second time. If you own property or assets that you wish to protect, or want to avoid paying spousal support after you separate, then you may wish to consider entering into a marriage contract or cohabitation agreement.
The Ontario Court of Appeal was asked to address this question in the 2003 case of Sydor v. Sydor. This couple separated in 1995 and signed a separation agreement on February 29, 1996. Some time later they reconciled, and then, in October 1998, they separated again for the last time. Under the 1996 agreement, the wife transferred her share in the family residence to her husband in exchange for $115,000. When they reconciled, the wife moved back into the family residence and resided together with her husband until their final separation. At trial, the wife argued that the agreement did not survive their reconciliation and asked that all property that the husband owned at the time of their final separation including the former family residence be equalized once again under the Family Law Act. The trial judge ruled that
the prior settlement of property under the agreement remained in force and, therefore, the wife could not have the family's assets divided again. The wife proceeded to the Court of Appeal.
The appellate court ruled that a separation agreement becomes void upon a couple reconciling. But the court went on to say that the agreement may contain a release clause that overrides this and specifically states that it is the intent of the parties that the agreement will remain in effect even if they reconcile and later separate.
The appellate court decided that, in this case, the agreement did indeed contain such a clause where the wife specifically released her rights to the former family residence. The appellate court found that the earlier transfer of the family residence to the husband to be final and binding.
A marriage contract (a.k.a. prenuptual agreement) is a written contract that permits a couple who intend to marry to agree, in advance, on issues such as property division and support in the event that the marriage ends. More often, people are getting married later in life or for a second time. If they own property that they wish to protect, or want to confirm that they will not be expected to support their spouse after they separate, then they may agree to terms that are incorporated into a marriage contract.
The question of whether such an contract would truly provide the protection desired had recently caused a stir in the Family law community after a British Columbia Judge decided to set aside the contract because it was unfair to the wife. This very topic was so contentious that it was appealed to the provincial court of appeal, and then to the highest court, the Supreme Court of Canada.
In the case of Hartshorne v. Hartshorne that was decided on March 26, 2004, the court ruled that Kathleen Hartshorne was bound by the terms of a one-sided marriage contract that she signed on her wedding day in 1989.
The Hartshornes were both previously married and divorced. They begun to cohabit in 1985 and had their first child in 1987. After they married in 1989, their second child was born. They were both lawyers (the wife articled for the husband’s law firm.) The husband brought assets worth $1.6 million into the marriage, including a home, two recreational properties, RRSPs, savings and his law practice, while the wife entered the relationship with no assets and heavily in debt. On the day of the wedding, the husband insisted that the wife sign a marriage contract that allowed both spouses to protect their pre-marriage assets except for their matrimonial home. In this regard, the wife was to be entitled to a three per cent interest in the matrimonial home for each year of marriage up to a maximum of 49 per cent. Both spouses consulted with
separate lawyers and obtained independent legal advice. The wife’s lawyer advised her that the contract was grossly unfair. She nevertheless agreed to sign the contract with a few amendments, including a clause confirming her right to spousal support.
According to the contract, the wife was entitled to property worth $280,000 on separation, while the husband was entitled to property worth $1.2 million.
After they separated in January 1998, the wife commenced divorce proceedings against her husband for custody of the children, child support, spousal support and a division of property. The wife argued that the marriage contract should not be upheld because it was unfair and because she gave up her own law career to take care of their two children.
The husband relied upon the contract to avoid the usual legal procedure for equalizing family property upon separation. The husband further argued that, in keeping with the spirit of the contract, they managed their finances separately, there was no commingling of funds, there were no joint accounts of significant value and the assets that the husband brought into the marriage remained in his name. The husband argued that his wife knew what she was signing and agreed to be bound by its terms. Hence, a "deal is a deal."
If the wife had been successful in setting aside the contract and receiving an equalization of the family property, she would have received $654,000, as opposed to $280,000.
In the end, the court ruled that when a couple’s circumstances at the time of separation was within their contemplation at the time that they signed the marriage contract, they both should be bound by the terms of the contract. In this case, the Hartshornes’ financial and domestic arrangements unfolded exactly as they had expected. Regarding the wife’s argument that she gave up her own law practice to take care of the children, the court concluded that it was a decision that she made prior to the marriage and it was not realistic to assume that she did not understand the consequences of this choice.
In declaring that "a deal is a deal," the Supreme Court of Canada emphasized that the contract was indeed fair because the wife’s rights to spousal support were preserved by the contract and her husband, a successful lawyer, was in a position to pay the wife a generous amount of child and spousal support.
According
to the Supreme Court of Canada,
Separation Agreements are contracts that
are negotiated by two people during “the
most emotionally charged junctures of
their relationship - when it unravels”
and “are not, and should not be seen to
be, subject to the same rules as those
applicable to commercial contracts
negotiated between two parties of equal
strength.”
In Rick v. Brandsema (2009) S.C.J.
No. 10, the court was asked to
consider the duties owed by separating
spouses during the process of
negotiating and signing a Separation
Agreement for the division of their
matrimonial assets. In that case, the
couple was married for 29 years, had 5
children and the wife was a fulltime
homemaker who was “a deeply troubled
person.”
In this case, even though both spouses
were represented by counsel, and a
mediator was involved in the negotiation
of the terms of the Separation
Agreement, the husband underpaid the
wife by approximately $650,000. Shortly
after the Separation Agreement was
signed, the wife sued the husband for
damages and, after a 17 day trial, the
trial judge found that the Separation
Agreement could not be regarded as a
final and binding contract for two
reasons. Firstly, the husband failed to
“make full and honest disclosure of all
relevant financial information” and,
secondly, the wife was a vulnerable
person because of her mental health and
her vulnerabilities were not protected
by the presence of professionals such as
her lawyer, financial advisor or expert.
This decision was first reversed at the
Court of Appeal and then the Supreme
Court of Canada restored the trial
judge’s ruling.
The guidance offered by the top court
when negotiating a Separation Agreement
is to take extra steps to ensure both
the procedural (i.e. how it is
negotiated) and substantive (i.e. what
the terms of settlement are) integrity. |
Yes. After a couple separates, there are many questions that need to be answered. Which parent will the children live with? How much child support will be paid? How will the family property be divided? Usually, these issues can be resolved when the spouses agree to terms that are incorporated into a separation agreement. This document is a product of each spouse's desire to settle their affairs reasonably, amicably and inexpensively. A separation agreement is one of the best alternatives to going to court because it is faster, cheaper and more complete than a court order but has the same enforceability as a court order.