Many people have a general understanding that when a marriage ends, the parties need to split their assets in a certain way and that one party may be required to pay the other support payments going forward. Many also have an idea that these financial rights and obligations of marriage can be changed if both parties sign a “prenuptial contract” or “prenup” (legally referred to in Canada as a “marriage contract”).
Marriage contracts are growing in popularity. In the United States, a 2022 survey found that 15% of Americans who previously married or were currently engaged had entered into a marriage contract, while it was only 3% in 2010 [1]. Unfortunately, I could not find any studies in Canada, but I expect the statistics could be similar. Despite the increase in marriage contracts, their use is still much lower than the overall rate of marriages ending in Canada, which averaged 36% from 2016 to 2020 [2].
Although not every marrying couple necessarily needs to incur the expense of a marriage contract, it is valuable to understand your rights and obligations before tying the knot. In this blog, I explore some of the most common situations where you should consider a marriage contract to protect your financial interests.
What is a marriage contract?
In Canada, family laws create rights and obligations for couples that live together (“cohabit”), marry and/or have children together. Many provinces and territories provide further family law rights and protections to couples that choose to legally marry as opposed to living together in a common-law relationship
It is a common misconception that cohabiting “common-law” spouses have the same rights as married spouses. There are important differences depending on the province or territory where the couple resides [3]. For example, for the purposes of paying spousal support, the Ontario Family Law Act [4] (FLA) considers “spouses” to include married couples as well as unmarried couples that have cohabited for at least three years, or shorter if they are parents of a shared child. On the other hand, the FLA only provides the right to equalize or share family property to married spouses.
In Ontario, any romantic couple that is married or intends to marry can enter a marriage contract to vary the default rights and obligations provided in the legislation to better fit their relationship’s specific needs. A marriage contract is a domestic contract, governed by section 42 of the Family Law Act [5]. It is a common misconception that you can only enter a marriage contract before you get married, because it is informally called a “prenuptial” agreement. In Ontario, married couples are free to enter a marriage contract at any time during the marriage as long as they have not already separated. Parties who want to negotiate a marriage contract before marriage but do not have time or are otherwise not able to finalize it before the wedding day may also enter into “standstill agreements” which preserve certain rights and obligations for a period of time, while they negotiate the terms of their marriage contract.
What can you agree to in a marriage contract?
A marriage contract allows parties to agree on how specific issues will be dealt with in the case of separation or death of either party. Individuals often enter into marriage contracts to protect property, contributions to joint property or govern property division on breakdown of the marriage. They may also enter into a marriage contract to govern rights and obligations relating to spousal support on separation, if they wish to divert from the legislation. Importantly, child-related issues may not be dealt with in a marriage contract. This means that parenting time, decision-making responsibility and child support may not be determined by way of a marriage contract. These issues must be determined at the time of separation based on the relevant laws at the time.
What are some important reasons to enter a marriage contract?
Marriage contracts are highly customizable and can fit the unique needs of any couple’s relationship – three common scenarios where it can be important to protect your rights include:
• Setting clear expectations for spousal support;
• Protecting your interest in a home, if you own the home and you plan to live in it as your matrimonial home on marriage; and
• Protecting property – such as family money, inheritances, and businesses.
Spousal Support
The objectives of the spousal support provisions in the Divorce Act are to recognize the economic advantages and disadvantages arising from the marriage, relieve economic hardship, and where practicable, promote self-sufficiency for both spouses [6].
This means that if one party made sacrifices in their career or stopped working altogether to care for the children or the home, they may be entitled to compensation through spousal support payments. Absent the compensatory entitlement, a party may still be entitled to “needs-based” spousal support if they face economic hardship after the separation. Importantly, a party is not entitled to spousal support simply because their ex-spouse has a higher income.
Spousal support is a contentious issue between former spouses. When parties have disparate incomes, there can be much conflict as to whether the lower earning spouse is entitled to spousal support, and if so, what that amount should be. As such, it can be constructive for parties to proactively agree in a marriage contract (while they love each other) what their shared intentions are regarding support on separation. Some common scenarios include:
• Example 1: The parties do not intend to have children, and both intend to pursue a career and maintain financial independence throughout the marriage. In this case, a spousal support waiver may be appropriate to minimize conflict and legal costs in the event of separation.
• Example 2: Both parties are later in life, are entering their second marriage, and have a clear understanding of their income trajectories and when they plan to retire. The parties may wish to waive spousal support or set the amount and duration for spousal support before marriage to avoid conflict in the future.
There is a risk that spousal support terms in a marriage contract will not be upheld by a court on separation, if the terms are not fair or do not meet the objectives of the Divorce Act [7]. It is important to speak to an experienced family law lawyer to understand the risks based on your specific circumstances.
Property
The Ontario Family Law Act is governed by a general principle that a marriage is a partnership between equals, and that property should be shared equitably at the breakdown of the relationship. To that end, in Ontario, married couples (but not unmarried couples) are entitled to equalize the value of their property at the end of a marriage, in recognition that “inherent in the marital relationship there is equal contribution, whether financial or otherwise”[8]. This means that if Spouse A’s net worth increased more than Spouse B’s during the course of the marriage, then Spouse B is entitled to receive a payment from Spouse A such that their net worth’s increased equally over the course of the marriage. The value of most property owned at the date of marriage is not equalized (called a “date of marriage deduction”).
There are some exceptions and exclusions to this rule – two of which are addressed in this blog – the matrimonial home exception and inheritances as excluded property. A marriage contract allows couples to agree on their own rules as to what property, if any, will be shared or equalized on separation.
The Matrimonial Home Exception
In Ontario, when calculating net family property for equalization, a party is entitled a date of marriage deduction for all assets less liabilities they held at the date of marriage. The exception to this is the value of the matrimonial home (the home ordinarily occupied by both spouses) cannot be deducted if it is the same matrimonial home on the date of marriage and date of separation [9].
The effect of this exception is that if one party owns the home before marriage and they own the same home if and when they separate, they are effectively giving half of the value of the home to their spouse on their wedding day. This can potentially lead to unfair outcomes, particularly in short marriages or when the family home is one party’s significant asset. Consider the following scenarios:
• Example 3: Spouse A and Spouse B each own their own condo before marriage, and they decide that before they marry to sell Spouse A’s condo and live in Spouse B’s condo. At separation, they still live in Condo B. Spouse A would get a date of marriage deduction the full value from selling Condo A, meaning it is not equalized with Spouse B, but Spouse B cannot deduct the value of Condo B at the date of marriage because it is a matrimonial home.
• Example 4: if Spouse C and Spouse D buy their home together before marriage, and Spouse C contributes $200,000 to the down payment and Spouse D contributes $20,000. No matter how the legal ownership of the home is registered, both parties would not be entitled to a date of marriage deduction for the value of their interest in the home at the date of marriage.
To avoid such dramatic outcomes, marriage contracts allow spouses to agree to different rules about how the value of the matrimonial home will be divided, such as:
• In Example 3, Spouse A and Spouse B may agree in a marriage contract that Spouse B can deduct the value of their condo at marriage, so that each party can retain their significant asset that they had at the date of marriage.
• In Example 4, Spouse C and Spouse D may decide that if they separate and sell the home, Spouse C will receive their $200,000 initial contribution, Spouse D will receive their $20,000 initial contribution, and the remaining value of the home is divided equally.
Protecting Gifts and Inheritances
While the Ontario FLA allows a spouse a date of marriage deduction for the value of inheritances received before the marriage, they are obligated to share any growth in the value of that inheritance over the course of the marriage [10]. For any gifts or inheritances received by a party during the marriage, the inheritance is excluded from equalization, provided it is kept separate and not comingled with family property or family money [11].
If parties intend that the growth of inheritances received before marriage should be excluded from the Ontario family property regime, or that an inheritance received during the marriage and spent on the family should be “reimbursed” if the parties separate, a marriage contract is required to enforce these terms. Consider the following examples:
• Example 5: Spouse A received a $50,000 inheritance of securities before marriage, which he keeps in a dedicated account. The securities regularly receive dividends that are reinvested into the account, so the account is expected to grow throughout the marriage.
• The parties can agree in a marriage contract that the growth of that account will be excluded from any future equalization
• Example 6: Spouse D expects to receive a $100,000 “advance inheritance” gift from her parents after marriage. The parties want to spend it to renovate their jointly owned home, but Spouse D wants to retain her full advance inheritance if they separate.
• The parties can agree that Spouse D will receive the $100,000 contribution back in the event of separation, that this amount will not be equalized, but the value of the matrimonial home will still be equalized.
Marrying couples can customize property regimes however they wish in a marriage contract, including being completely separate as to property as if they were unmarried common-law partners.
Conclusion
Marriage is a major commitment as a romantic and social union. The default rights and obligations of marriage in Canada and in Ontario also make marriage a dramatic financial union that may not make sense for all marrying couples, particularly those that are entering the marriage with significant assets. A marriage contract allows parties to modify these financial obligations to fit the realities of their relationship, including sharing the matrimonial home and other assets in a way they agree is most equitable at the end of the relationship. It also allows parties to agree to certain terms about spousal support early in their relationship, rather than risk disagreeing on those terms at separation.
These are just a few common scenarios where a marriage contract would be worthwhile, but every marriage is a unique partnership. While a marriage contract is not necessary for every couple, we encourage everyone who is getting married or who lives with or is considering moving in with their romantic partner to ensure they understand their rights and obligations on cohabitation and marriage
This blog is intended to provide legal information only. This blog does not provide legal advice. If you need advice, contact us or another experienced family law lawyer.
[1] AJ Skiera, More Couples Are Signing Prenups Before Saying “I Do”. (The Harris Poll, 12 July2022), online: https://theharrispoll.com/briefs/popularity-of-prenups-rising-2022/
[2] Statistics Canada, Table 39-10-0051-01 Number of divorces and divorce indicators (2022, November 14).. https://doi.org/10.25318/3910005101-eng
[3] For a review of how common-law partner rights vary across Canada, see Laurence Breton & Margo Hilbrecht, The Rights of Common-Law Partners in Canada (Ottawa: Vanier Institute for the Family, November 2023), online:https://vanierinstitute.ca/resource/the-rights-of-common-law-partners-in-canada/.
[4] Family Law Act, RSO 1990, c F 3, s 29 [FLA].
[6] Divorce Act, RSC 1985, c 3 (2nd Supp),s.15.2(6).
[7] Miglin v Miglin, 2003SCC 24.
[9] FLA,s 4(1), “net family property”. Note that this provision is unique to Ontario; in other provinces and territories of Canada, the matrimonial home is not excluded from property equalization/division at the breakdown of marriage.