What is a Legal Marriage Contract?
Marriages and common law relationships, such as cohabitation and partners of the opposite or same sex living together in a marriage-like relationship, have long been a part of Canadian society with various regimes applied through the years to the issues which arose from those relationships. Recent legislative changes in these areas and a clearer understanding of the legal consequences of such relationships have created new realities and options for couples.
To be clear, legal marriage is still the preferred option for many couples. Of course, many people do opt for living in cohabitation relationships without getting married. Enter the Marriage Contract; this agreement is sometimes referred to as a prenuptial agreement or a domestic contract, as it applies to both heirloom marriages and cohabitation relationships.
A legal Marriage Contract is an understanding between the parties to a marriage , i.e. a woman and a man, about the contracting out of certain rights which are created by law, as well as other rights which can be contracted out by the parties. The purpose of the legal Marriage Contract is to provide the parties with certainty as to their respective rights and obligations, with respect to both property and support, as well as to plan for the future of the relationship.
Basic components of a legal Marriage Contract may involve the following: The property division provisions in a legal Marriage Contract are similar to the property division provisions in a Cohabitation Agreement meant to preclude the application of the Divorce Act. In drafting the contract provisions, the type of relationship, the ages of the parties, and their net worth must be considered.
Various Types of Legal Marriage Contracts
Contract law does not apply solely to the world beyond matrimony. Legally, marriage is essentially a contract between two individuals, and one that can manifest itself in two different forms. A legally binding marriage contract is typically created through the mechanism of a marriage certificate, but it may also be created using a written agreement prior to or after the marriage itself. These agreements are known as prenuptial and postnuptial agreements, respectively.
A prenuptial agreement is a document drafted and signed by both parties prior to their marriage. This document exists in order to protect each party’s financial interests, as well as to lay out the terms of issues that might impact the health of the marriage in the future. Issues covered may include alimony terms, child custody, debt and insurance obligations. Prenuptial agreements can also name the person responsible for managing various assets during the marriage. It is also understood by the signing of a prenuptial agreement that the parties are forgoing their right to spousal support should the need arise.
Once signed, a prenuptial agreement cannot later be set aside except under a few specific circumstances. If one spouse does not disclose all of his or her assets, if the prenuptial agreement is signed under duress or if the agreement comes off as particularly unfair, it can be ruled invalid or modified at the court’s discretion.
With a postnuptial agreement, the contract works essentially the same way as a prenuptial agreement, but is entered into after the marriage has commenced. The writing requires the signatures of both spouses. Postnuptial agreements cannot give one spouse more than the law would in the absence of the agreement, and they cannot affect the welfare of a third party. If a child is born after a postnuptial agreement is created, the couple must create a new agreement to include a section addressing the child’s welfare and needs.
Advantages of Executing a Marriage Contract
A vital benefit of having a marriage contract is that it can protect the financial interests of both parties in the event of a separation or divorce. Ontario law states that, regardless of how long spouses lived together, when a married couple separates or divorces they have no legal obligation to share significant assets that they acquired before the marriage. Without a marriage contract, however, the law will divide equally any increase in the value of assets acquired during the marriage. The court will often assume, for example, that during the time a couple is married, one spouse contributed as much as the other to house payments, car payments and so on. It doesn’t matter if one person knew little about buying and selling property, knew nothing about investing stock portfolios, or earned much less income than the other person.
Without a marriage contract, spouses are therefore at the mercy of the legal system, particularly if there is a significant disparity in their earning potential. Interested parties should make it known that there is a dispute over a marriage contract. The Family Law Act (FLA) provides a mechanism by which a spouse can apply to make a marriage contract unenforceable.
A marriage contract can also provide clarity over any other legal rights. It can protect the inheritance rights of vulnerable family members, possibly ensuring that estate assets are not transferred out of a bloodline. It can often clarify and mediate family issues that could be detrimental to a child or other family member, such as whether an ex-spouse will relocate overseas. For the elderly, a marriage contract may protect their medical concerns, regardless of how much money they have.
Drafting a Marriage Contract
The process of preparing a marriage contract can vary substantially but, generally, both parties will need to participate in discussions and the preparation of the terms. This will often involve a number of meetings with a legal professional who will serve as a facilitator for the process. It is important that the legal professional act impartially. In some cases, two independent legal professionals may be used, one for each party. The lawyer facilitating the preparation of the document will likely have many years of similar experience and will be well familiar with the process, ensuring that a marriage contract meets the legal requirements of a valid contract. Either way, the professional preparing the marriage contract should have experience dealing with the complexity surrounding this kind of agreement. Unfortunately, some individuals feel pressured to enter into marriage contracts without proper legal advice or without fully understanding what the contract means. The risk associated with entering into a marriage contract without understanding the provisions of the document could be substantial, including the loss of rights as they pertain to matters such as equitable distribution of assets, spousal support, child support, the right to occupy the family home and more. Therefore, it is essential that each party to a contract understand what rights they will be giving up and the implications of that decision. This understanding will provide for the clear communication of expectations at the outset of a relationship to avoid misunderstandings in the future. A marriage contracts should clearly and accurately describe the intentions of the parties. It must be drafted with utmost care in order to avoid ambiguity and to ensure fairness, clarity and transparency. This is a difficult balance to achieve and it is important to seek legal assistance to draft it properly. Once the initial draft of the marriage contract is prepared, you will need to determine whether you wish to make any changes. This negotiation will take place between both parties typically with their respective legal advisors present. Since the decision of whether or not to enter into a marriage contract is often an emotional one, being able to receive good legal advice prior to signing is critical.
Legal Specifications for a Marriage Contract
Legal requirements vary from state to state, but, in general, there are a few rules regarding legal marriage contracts. To be enforceable in a court of law, these contracts must be in writing, signed by both parties, and "freely" entered into by both parties. "Freely" means that no coercion was involved in getting the agreement signed.
Essentially, both parties must enter into the marriage contract under their own conditions. For example, party A should not have said to party B, "You will sign this or I will not marry you!" This statement could be viewed as coercion because it places undue, unfair pressure on party B to sign the contract when it maybe is not what he/she actually wants.
In addition to the above requirements, courts will not enforce marriage contracts which they consider to be "unconscionable." A contract which is unconscionable could be defined as one which is extremely out of balance and unfair. Many times , this could occur if the party left Sunday School to see the preacher with the other party at the courthouse to get married!
In many states, spouses may enter into prenuptial agreements, which are otherwise known as "premarital" contracts. Such contracts are negotiated before marriage or upon entering into a domestic partnership. In most circumstances, the agreements entered into must be unconscionable for them to be unenforceable in court. A court can consider premarital contracts to be unconscionable if the party against whom enforcement is sought is not provided a fair, reasonable, and sufficient disclosure of the property or financial obligations of the other party, the party against whom enforcement is sought did not waive disclosure of assets, and he/she did not or could not acquire the information without disclosure.
Common Myths About Marriage Contracts
Many people make some common misconceptions about marriage contracts. Most assume that marriage contracts are only for the rich. Others think that they’re only for second or third marriages, or for partners who plan to separate before they even tie the knot in the first place.
Many people also assume that marriage contracts are all about dividing up their money in the event of death or divorce. The reality, however, is that they can be useful for establishing legal rights regarding many matters, not just financial affairs.
These contracts, which are also known as marriage agreements, prenups (in the case of pre-marriage contracts) and domestic contracts, address important matters like property ownership, spousal support and family responsibilities. They can also include clauses pertaining to family pets and personal belongings.
The best way to determine the Whether a marriage contract makes sense for you and your spouse-to-be is to speak with an experienced family lawyer.
Amending or Terminating a Marriage Contract
An existing marriage contract can be modified after it is signed by a judge based on an application to the court. The applicant must demonstrate that there is a good reason for the requested modification. Generally, a judge will consider whether there has been a significant change in circumstances that make the terms of the existing contract unreasonable. For instance, if the parties included a clause in a marriage contract stating that they had no children at the time of getting married, the judge may agree to cancel that clause if the couple recently has a child. The judge also may consider the general interests of justice in determining whether to modify the agreement.
A legal marriage contract also can be cancelled based off of an application to the court. The court will consider the reasons for requesting the cancellation of the agreement, a change in circumstances, and balancing the interests of justice with those of the parties.
If the parties wish to make changes to their marital property agreement, they must do so in writing, and the document should meet the requirements of a contract. It can be made a part of the original court order, or if complete in and of itself, can be submitted as a separate document.
Examples: Marriage Contracts in Practice
The legal and personal circumstances surrounding marriage contracts run the gamut from the mundane to the catastrophic. From the family farm that is easily divided between two heirs to the multi-billionaire hedge fund manager whose new wife will not sign a prenup, each situation is different but similarly complex. Here are a few case studies that illustrate how marriage contracts have been used, and contested, in the real world:
Missouri – Inheritance upends marriage contract
A recent Missouri case highlights what can go wrong when an inheritance is discovered after a couple agreed to divide their marriage assets. In Patterson v. Patterson, Ms. Patterson sued her husband for half of the proceeds from the sale of a home that he had inherited before they were married. The couple had agreed to divide their property during their marriage but had left no mention of pre-marital property in the contract. Ms. Patterson argued in court that since the couple agreed to divide their property, that included pre-marital property as well. The court disagreed and Ms. Patterson was awarded nothing.
Maine – 20-year contract test for inherited assets
In February 2010 the Maine Supreme Court had to decide whether a joint account set up before marriage was really marital property based on the principle: commingling (mixing) property after marriage makes it marital (joint) property, which is divided in a divorce . The husband and wife had opened a joint account before their marriage, then after their marriage deposited interest and dividend income from an irrevocable trust that they received as a result of the husband’s mother’s death. The wife argued that the money should be marital property but the Maine court found that those weren’t marital funds because "hours could be spent tracing the accounts over a 20-year period … [and] tracing, in this case, is necessary to distinguish between gifts from the trust and marital property." This meant that at the time of their marriage, the joint account was already marital property as were any dividends, which the wife would be entitled to at divorce.
Wisconsin – Don’t forget about the kids
A recent Wisconsin case illustrates how a marriage contract can protect children from previous marriages. In Frisch v. Henrichs, the state Supreme Court decided that a third wife was not entitled to worker’s compensation benefits after her husband died from an accident at work, because he had signed the agreement. The contract provided that in the event of his death, 80 percent of his pension would go to his two children. Since this was an agreed-upon portion of the worker’s compensation benefits, the third wife had no right to claim an ex-spouse’s share of benefits.