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Posted on January 23rd 2007 in Family Law

Marriage Contracts: The Necessity of Full Disclosure

Marriage Contracts: The Necessity of Full Disclosure

The Family Law Act sets out many of the rules that govern relationships in Ontario. When a couple decides to marry they are entitled to create their own rules if those set out in the Act do not suit their situation.1

With a few exceptions, a couple who is married or intend to marry can enter into an agreement setting out their respective rights and obligations in the marriage or on separation, on the annulment or dissolution of the marriage or on death. Those rights and obligations may pertain to
– Ownership in or division of property;
– Spouse support obligations;
– The right to direct the education and moral training of their children; and
– Any other matter in the settlement of their affairs.

In addition to negotiating the details of the marriage contact, there are two other important steps that must be included in the process. The first is full disclosure. It is incumbent upon both parties to disclose the value of all significant assets, debts and other liabilities–whether the information has been requested or not. The second is independent legal advice. Both parties should have their respective lawyers review the agreement so that each understands the nature and consequences of what they are signing. While the courts recognize the importance of requiring that couples live by the deal they struck, a marriage contract may be set aside if there has been a lack of full disclosure or a failure to obtain independent legal advice.

LeVan v. LeVan
LeVan v. LeVan is a recent Ontario decision involving a request to have a marriage contract set aside. The LeVans married in 1996. The wife brought little in the way of material wealth into the marriage. The husband, on the other hand, was a controlling shareholder in his family’s business. The wife knew she would be asked to sign a marriage contract and this occurred two days before the nuptials.

Seven years later, the marriage ended and the wife was left with a very one-sided marriage contract. She successfully brought an application to have the contract set aside.
After a careful examination of the circumstances surrounding the signing of the marriage contract, the judge concluded that, among other things, the husband had made much less than full disclosure of his true financial worth.

The Family Business
The husband’s father built the family business from the ground up. With the assistance of corporate and financial advisors, he created a complex corporate structure to protect the company and to ensure that shares never went to someone outside the family.

The husband disclosed to his future wife his interest in the company, however he failed to mention the shares he owned in two related companies, the value of which was in excess of $10 million. He also failed to disclose his income. Although he discolsed his interest in the LeVan Family Trust, he claimed it had no value, which was certainly not true. The husband took the position that his future wife knew he was worth a lot of money and that she was not concerned with an exact amount since she was prepared to sign the marriage contract regardless.

Although the wife had her own lawyer, the husband undermined the relationship at every opportunity and convinced the wife to fire him. Two days before the wedding, the husband’s lawyer hired another lawyer for the wife.

The judge concluded that the husband failed in his disclosure obligation, and she exercised her discretion to set aside the marriage contract for the following reasons.

– The husband misrepresented the effect of the marriage contract to the wife. Although the purpose of the contract had been to protect the shares in the LeVan family companies, in fact it excluded all of the husband’s business interests from net family property and it severely restricted the wife’s right to support.

– The husband applied significant pressure on his future wife, repeatedly telling her that there would be no marriage without a contract. He also pressured her into firing her lawyer, who had been requesting financial information about the husband’s interests.

– The marriage contract was not reasonably fair to the wife since she surrendered virtually all of her rights without any meaningful information about the husband’s assets or income.
While this case may seem like an extreme example because of the millions of dollars involved, it highlights the importance of full financial disclosure when negotiating a marriage contract. The law permits marriage contracts, which can allow for greater protection and certainty. However, certain conditions must be satisfied to obtain this comfort, conditions which are not onerous.

A Few Tips
If you and your spouse-to-be are thinking about a marriage contract here are a few tips.
– Get professional legal help.
– Work cooperatively with your future partner so that all interests are protected.
– Make full disclosure of your income, your assets and your liabilities, along with their value.
– Do not leave this important task until days before the wedding.
– Approach the task with your business hat on, not your rose coloured glasses. Look at a marriage contract like any other insurance you buy.

For additional information and for assistance drafting a marriage contract or any other domestic contract please contact one of the lawyers in our family law group. 1

1. This will generally be the case in the event that it is a second marriage for one of the spouses or one spouse is bringing greater wealth into the marriage.

2. A couple cannot decide custody or access issues, or child support, nor can they limit rights with respect to the matrimonial home.