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Marriage Agreements and Cohabitation Agreements

Naomi McKay

Oak Bay woman awarded nearly $1 million after relationship fails

You may have read this article in the Victoria Times Colonist on Tuesday January 6, 2004 and wondered how this could have happened. In 1994, a younger woman signed a cohabitation agreement with a multi-millionaire man nearly 30 years her senior. The cohabitation agreement provided that neither party would seek spousal support or division of assets and that in the event that the relationship ended, the most the woman could receive was $5,000. Six and a half years later, she sought a much larger share of his assets and the B.C. Supreme Court agreed with her, set aside the cohabitation agreement and awarded her $966,000.

All couples hope their relationships will last forever. However, many people entering new relationships have already been through a separation or divorce, have children from previous relationships, or enter relationships at a time when they are older, more established and have significant assets. Once a person has previously paid both the emotional and financial costs associated with a divorce or separation, they may enter relationships more guardedly. They may be concerned about the possibility of their new relationship failing.

If you plan to marry or to cohabit with another person, whether of the opposite sex or same sex, you may wish to consider entering into a marriage agreement or cohabitation agreement. Properly drafted, these agreements can be very valuable. As is clear from the recent decision described above, however, there are factors that must be considered to ensure that a cohabitation agreement or marriage agreement will actually protect you if your relationship ends.

You may think the idea of entering into such an agreement is distasteful and merely indicates that you expect your relationship to fail. However, the “happily ever after” scenario we all grew up with is, sadly, not always the case. Overall, about one third of all marriages in Canada end in divorce, and the rate is somewhat higher for remarriages. Dissolution rates are even higher among cohabiting couples. Divorce rates in Canada continue to rise. The risk of divorce peaks after only four years of marriage ( Statistics Canada). In light of these statistics, is it really that distasteful to plan for such an unfortunate event? Hopefully you will never need to rely on your marriage agreement or cohabitation agreement, but if it becomes necessary, you will require an agreement that is properly drafted.

Without a marriage agreement, the Family Relations Act provides that upon the occurrence of a triggering event, each married spouse is entitled to one half of all family assets upon dissolution of the marriage. The courts have said that when you marry, you announce to the world at large that you are entering into an economic partnership, and that you are agreeing that your support obligations may really continue well past the end of your marriage. If you enter into a marriage agreement, you decide what is fair. You determine what share of your assets and what amount of support, if any, you are prepared to provide to your partner in the event of your relationship ending.

You may chose not to marry but to live with your partner. Common law partners are not entitled to protection under the Family Relations Act which provides a presumptive 50% interest in “family assets”. Common law partners must prove an interest in assets. Despite the fact that common law relationships are treated differently than marriages, a common law relationship of sufficient duration, or where children are involved, may result in both spousal and child support and significant property interests.

Do you need a cohabitation agreement or marriage agreement?

You are more likely to need a cohabitation agreement or marriage agreement if there is a significant imbalance in your relationship. If you are wealthier than your partner, have recently received an inheritance, or you are the owner of a business or home, you may wish to protect your financial assets with a cohabitation agreement or marriage agreement. As well, if you or your partner has children from a previous relationship you should also consider a marriage or cohabitation agreement. To determine whether you need a cohabitation agreement or marriage agreement, make an inventory of your assets and liabilities and ask yourself whether you are willing to lose half of your net worth in a separation or divorce.

How to ensure your cohabitation agreement or marriage agreement is valid

Cohabitation agreements and marriage agreements are contracts and can be set aside for the same reasons that a commercial contract could be set aside. Other factors are specific to such domestic contracts. To ensure that your cohabitation agreement or marriage agreement will be enforceable at a future time, the following factors should be considered.

• As a formal requirement, parties entering into a cohabitation agreement or marriage agreement must show that they intend to create a legally enforceable agreement. As well, the agreement must be in writing, signed by both parties and witnessed
• Both parties should fully disclose details of their assets and liabilities
• Each party must have their own lawyer. If one party did not have independent legal advice, they may be able to set aside the agreement on this basis
• Each party should enter the agreement voluntarily and without any pressure from the other side. The pressure to sign an agreement can take the form of economic dependency, physical threats, or threats of ending the relationship
• The agreement should be reasonable at the time it is entered into and should plan for future events such as a lengthy cohabitation or marriage, joint business ventures, or the introduction of children by birth or adoption. Many cohabitation agreements and marriage agreements are set aside on this basis. This is precisely what happened in the case discussed above. The court found that the agreement was unfair in the sense that it lacked any balanced future plan for what might become a long-term relationship
• Even in the event that a cohabitation agreement or marriage agreement meets all of the above criteria, it may still be set aside if the parties do not abide by the terms of the agreement. If such an agreement stipulates that the parties’ assets will be separate and neither party will support the other’s children from a previous marriage, the agreement may be set aside if they then go on to commingle their financial affairs and stand in the place of a parent to their children. .

When should you enter into a cohabitation or marriage agreement?

You can enter a cohabitation agreement at any time during your relationship, but it is best to do so before you commence cohabiting. Similarly, you should enter a marriage agreement before you marry. A lawyer can ensure that your interests are protected by such agreements.

Naomi McKay is a lawyer in Victoria, British Columbia.