Article by Lev Abramovich

The benefits of a Domestic Contract

Levine Associates specializes in Immigration and Family law.   In this article we examine domestic contracts and some of the reasons why you should consider having one.

Modern life is complex, fast paced and often filled with pressures and stress leaving less time for family and relationships.  The divorce rate across Ontario and Canada has been close to 40% for the past five years.  Given these factors, domestic contracts make good sense for many couples planning to marry or enter into a common law relationship.

There is nothing romantic about domestic contracts.  In particular young, asset-less and idealistic couples tend to shy away from the idea of entering into such contracts for fear that they will “ruin the moment”.  However, such fears can be shortsighted and eventually lead to far complicated AND litigious situations down the road.

Types of Domestic Contracts

Couples may sign a domestic contract at any stage of their relationship (prior to marriage, during the marriage and after separation). Marriage contracts[1] (also known as prenups) refer to contracts entered by people that intend to marry or are married.  Cohabitation contracts refer to contracts entered into by people who intend to live in a common law relationship.  If the parties subsequently marry, the agreement is deemed to be a marriage contract.  Separation agreements are executed after a couple separates in the absence of a domestic contract or a cohabitation or marriage agreement which fails to deal with separation.

While each of these contracts have their challenges it has been our experience that couples gain the most benefit where the agreement is signed prior to entering into the union.  One obvious advantage is that the couples are in a constructive stage of their relationship and thus much more capable of tackling many of the difficult issues which must be addressed during separation. 

By contrast separation agreements are usually far more difficult and acrimonious than domestic contracts given that such agreements are usually negotiated during a time of emotional trauma when one or both parties may be unable to rationally deal with the many complicated issues arising out of the breakdown.  Needless to say, separation agreements are almost always vastly more expensive to negotiate than domestic contracts.  For this reason alone many couples should strongly consider a domestic contract.

What is included in a Domestic Contract?

With a few exceptions, a domestic contract, just like any other legal contract allows the parties to summarize their obligations to each other. Some of the notable exceptions are custody of children and the right of possession of the matrimonial home.

Some of the common issues dealt with in Domestic contracts include but are not limited to:

  • Protection of pre-acquired assets;
  • Children’s education and upbringing;
  • Control over budget and bank accounts;
  • Equalization and division of property;
  • Support obligations; and
  • Pensions & RRSPs.

How to ensure Domestic Contracts are Enforceable

There are a number of issues that can allow a court to set aside a domestic contract. Some of the issues are quite technical in nature and it is always advisable to work with a family law practitioner when drafting one. Some of the more common issues are discussed below.

A court may set aside a domestic  contract if there was a lack of disclosure with respect to significant assets or liabilities or if the contract was one sided and the disadvantaged party did not fully understand the consequences of the contract. As a result Independent legal advice (ILA) is almost always required to ensure the agreement is enforceable as it helps to demonstrate to a court that the parties understood the contents of the agreement.  It is therefore advisable that each party to the contract gain independent legal counsel.

The Expense

The expense of hiring a lawyer to draft a domestic contract and provide ILA is like any insurance.  At the time of payment the parties begrudge the expense but if failure occurs the parties’ initial expense is long forgotten and the contract appreciated as a benefit both in terms of significant financial savings and reduced emotional trauma. 

Legal proceedings can be prolonged, complicated, emotionally draining and almost always very expensive.  In some cases the actual divorce order will be granted by the court only after all of the issues have been settled. This means that the absence of a domestic contract can sometimes prolong the time it takes to resolve a case preventing parties from remarrying.

To sign or not to sign

We deal with a significant number of disputes which could have either been avoided altogether or where a domestic contract would have narrowed the issues.   The savings in time, emotional trauma and energy and money are all strong reasons for considering a domestic contract.

Levine Associates provides a responsive and understanding environment for discussing and drafting domestic contracts.   Do not hesitate to contact one of our family lawyers for a free consultation to discuss how such an agreement may help you.

[1] Section 51 of the Family Law Act defines domestic contracts as: “[…] a marriage contract, separation agreement, cohabitation agreement, paternity agreement or family arbitration agreement…”.  This article will primarily focus on domestic or marriage contracts and we will use the term “domestic contract” to refer to both marriage and cohabitation arrangements unless otherwise indicated.