Like the travel industry, the wedding industry is in full-steam for the summer of 2022. Two years of blissful couples-to-be not being able to host their dream event have led to a flurry of weddings this summer season. Besides the increased number of wedding invitations for the summer months, the increase in engagements to complete marriage contracts is an indicator that something is different this year. For those couples-to-be that are in the planning phases, one thing to add to that “checklist” of ‘things to do’ is to consider whether a marriage contract is warranted in the circumstances. Today’s blog will provide a general overview of the three matters that marriage contracts typically address: general property rights, specific provisions for family residences, and spousal support rights.
General Property Rights
General property rights outline what happens to the parties’ property upon a breakdown in their relationship. Contrary to popular belief, the rules in Ontario do not provide for an automatic 50:50 sharing of a couple’s property. Rather, the rules provide for an equalization payment, to be made from one spouse to the other, with the payment generally made in cash. Specifically, the spouse whose net family property is the lesser of the two spouses’ net family properties is entitled to an equalization payment from the other spouse, equal to one-half of the difference between their net family properties. The goal of this payment is to ensure an equal sharing in the growth in value of the spouses’ respective net worth’s during the marriage.
Net family property is a formula that is defined by law. As described above, it is the increase in net worth that a spouse experiences during the marriage. There are rules that define what falls into a spouse’s net family property. For example, gifts and inheritances received after marriage (other than of a matrimonial home) are excluded from a spouse’s net family property but gifts and inheritances received prior to marriage are not. There are other forms of property that are excluded from net family property.
A marriage contract can be useful by taking exclusions one step further and expanding what can be considered excluded property. For example, if one party wants to protect their interest in a family business by excluding the value of their shares held in a privately-held corporation, they can do that in a marriage contract. They can do the same thing for other interests, such as an interest in a family trust.
In addition, because the rules do not detail how a couple is to deal with ownership of property that is co-owned, whether 50/50 or otherwise, a contract can include provisions with respect to how ownership of jointly owned property (e.g. furniture, and even pets), is to be addressed, so as not to have a dispute over such property upon a breakdown.
Houses, Cottages, and The “Matrimonial Home”
Marriage contracts often have specific provisions to deal with real estate. This is not only because real estate is often a person’s most significant asset, but also because the rules in Ontario have very specific provisions to deal with the matrimonial home.
A matrimonial home is:
Every property in which a person has an interest and that is or, if the spouses have separated, was at the time of separation ordinarily occupied by the person and his or her spouse as their family residence is their matrimonial home.
Essentially, the matrimonial home is the “family residence”. Spouses can have more than one matrimonial home, and they don’t necessarily need to live in a given residence year-round for it to be a matrimonial home. A cottage would be a prime example of a “secondary” matrimonial home.
If a property is a matrimonial home, then both spouses have an equal right to possession of the matrimonial home, or, in other words, a right to reside and stay in the matrimonial home (often until the date a divorce is finalized or the marriage is declared a nullity). Also, spousal consent is needed to deal with any property that is a matrimonial home. These rights can present challenges when the home is a solely owned property that was, say, an inherited cottage.
A marriage contract can mandate that the spouses are to only have one matrimonial home at all times. A marriage contract could also determine what is to happen to the matrimonial home, as well as any other residences, upon a breakdown in the spouses’ relationship.
If spouses in Ontario separate, it is often the case that one spouse will have to make periodic payments of support, to the other, for some duration of time after the separation.
The rules surrounding spousal support are complicated, but there are several bases on which a spouse could claim a support entitlement, including direct financial need, compensation for lost opportunity (i.e. staying home to maintain the family), or pursuant to a marriage contract. As with equalization payments, spouses can even make support claims against a deceased spouse’s estate, although this is called dependant’s relief.
Spousal support calculations require a great amount of consideration and discretion from a court. A court will consider many factors in determining the length, quantum, and payment intervals for spousal support, including whether the spouses have children, the length of the marriage, each party’s ability to sustain themselves, and whether one spouse suffered economic losses by pulling out of the workforce in order to support the other spouse and their children. The Government of Ontario has also established the Spousal Support Advisory Guidelines (SSAG) for assessing support that a court will use as a starting point, but not the standard, for such determinations.
The biggest challenge with this is the uncertainty of how the rules will operate. Depending on the context, a marriage contract can create a more regimented set of rules for calculating spousal support, including mandating its own schedule for spousal support, setting the SSAG amounts as maximum amounts, or providing for a single lump-sum payment in lieu of interval-based spousal support. Similarly to the calculation of net family property, the marriage contract can also deal with how to calculate the parties’ income for the purposes of spousal support.
Marriage contracts can be useful for many issues that arise as a result of a separation and ultimately divorce. Do note that there are certain things that marriage contracts cannot address, such as child support. It is also important to consider that there must be full and frank financial disclosure between the spouses of their property and liabilities in order to ensure the contract will withstand later review by a court. In addition, the contract must be negotiated fairly and collaboratively, without duress and both spouses must obtain independent legal advice.