This blog has been written by Darren Lund, Partner at Fasken LLP.

In several of my previous blogs, I have written about marriage contracts, and why they are an important element of estate planning. From a substantive perspective, there are many reasons why these agreements are relevant and may be needed to support a comprehensive estate plan.[1]

If a family business owner has implemented an estate freeze that includes a family trust, then any beneficiaries of the family trust who are not married at the time the trust is settled have a property interest in the trust that is subject to equalization if the beneficiary later marries without a contract. If a property that is a matrimonial home is inherited during marriage – for example, the family cottage that mom and dad pass on to their children – the value of the matrimonial home is not excluded property in the same way that any other inheritance received during marriage would be excluded property. In the context of a second marriage with children from a prior relationship, the right of a surviving married spouse to elect in favour of an equalization of matrimonial property may frustrate an estate plan that is intended to benefit both the deceased’s spouse and the deceased’s children.

The above examples are some of the most common, but by no means the only, scenarios in which marriage contracts impact estate plans. However, it is equally important to consider the process when it comes to marriage contracts.

The importance of full and frank financial disclosure, and independent legal advice for each party, is clear – or at least it should be. Yet, there are other elements of a good process that must be considered.

Marriage contracts, like any other contracts, use a lot of technical legal language. While lawyers are used to this language and understand its meaning and context, non-lawyers are not. The parties to a marriage contract are not arm’s length individuals negotiating a commercial arrangement. They quite often live in the same household, cook each other meals, or pick up wine on the way home from work for a quiet night at home. It can be jarring for a couple to read a document dealing with their relationship that is expressed in such technical legal terms. In addition, there may be a power imbalance, whether real or perceived, if one of the parties to the marriage contract either has, or is expected to have, a greater financial net worth than the other party. A good process will be cognizant of this, and take steps to mitigate the issue.

What does this mean practically?

A good starting point for a marriage contract is a telephone call or meeting (real or virtual) between counsel to discuss process, before, or at least at the same time as, a high-level discussion of goals (rather than positions) for the contract.

As noted above, full and frank financial disclosure is a core element of the enforceability of a marriage contract. This should be prioritized in any process. If there is any complexity to the disclosure by a party, such as a corporate structure or trusts, it is a good idea for counsel to have a call or meeting solely for the purpose of reviewing the disclosure, responding to any questions, identifying follow-up questions, and then addressing them.

Following or contemporaneously with addressing the financial disclosure, a good process for addressing the substantive elements of the contract would begin with a term sheet that is written in plain language that is accessible to both parties. This helps to address any power imbalances, and engages both parties in the discussion of the terms. Only after the key terms have been discussed and agreed is the contract drafted.

Marriage contracts are considered to be contracts “of the upmost good faith”. It is important, therefore, to pay at least as much attention to the process of negotiating a marriage contract as to its terms.

[1]      This blog is written from the perspective of the law of Ontario only. The reasons for, or need of, a marriage contract, and the impact of not having one, will vary between jurisdictions.