May 10, 2019

Enforcing a Marriage Contract for a Middle Class, Middle Aged Couple

Lehmann v. Lehmann, 2019 ONCA 357 (CanLII)

Marriage contracts are the opposite of romantic, but they are a powerful tool. They can prevent the equal division of family property that is otherwise required by statutes such as Ontario’s Family Law Act.

Marriage contracts are not only for the very wealthy. A marriage contract makes sense even for individuals with moderate assets and children from prior marriages. They want to preserve their assets for their children and grandchildren. The reality is that even when people enter matrimony with the best intentions, not all marriages succeed.

Factors Determining the Enforceability of Marriage Contracts

A marriage contract follows the same principles of contract law as any other contract, but it is also different. There is a perception that they are less solid than other types of contracts. When they are challenged, judges look more carefully at the circumstances.

Marriage contracts are often overturned when there was significant unfairness, coercion or a lack of financial disclosure. However, they will usually be upheld if reasonable care is taken. They should not be entered into at the last minute, without allowing adequate time for review. To ensure enforceability, each party must receive effective, independent legal advice to ensure that the terms of the agreement are understood.

The Family Law Act contains specific provisions that allow the setting aside of a marriage contract:

(4) A court may, on application, set aside a domestic contract or a provision in it,

(a) if a party failed to disclose to the other significant assets, or significant debts or other liabilities, existing when the domestic contract was made;

(b) if a party did not understand the nature or consequences of the domestic contract; or

(c) otherwise in accordance with the law of contract. R.S.O. 1990, c. F.3, s. 56 (4).

The latter point brings in the general principle of unconscionability. That may be used to cancel any contract, but proving it takes a high standard. In the fraught personal circumstances of the family, it is an easier standard to meet. It was the key factor in the high profile case of McCain v. McCain, 2012 ONSC 7344, where a contract denying spousal support to the wife was held to be invalid:

[88] … An agreement, which may have appeared as fair to the Husband when it was signed, can through time become unconscionable. In my view, this is what has happened, and this leaves the Wife with very little. The circumstances regarding its execution, the improvident result for the Wife and the extent of the Husband’s now wealth, are sufficient to have the spousal support provisions of the Contract set aside.

A Marriage Contract for a Middle Class, Middle Aged Couple

A recent case in Kitchener also involved a woman whose marriage contract stated that she would not be entitled to spousal support if the marriage ended. When her husband died, she sought to overturn the contract and claimed support from his estate. The judge found that there had been adequate disclosure and negotiation of terms to make it a fair and binding contract. This was upheld by the Court of Appeal.

The Lehmanns of Kitchener lived comfortably, although they had a less glamorous lifestyle than the McCains. Anna and Bill married in 1996, when they were aged 39 and 55 respectively. Bill worked in a family business, while Anna was a customer service representative earning a modest income. Bill had two children from a previous marriage, and subsequently grandchildren.

Bill died in 2015 at the age of 74. In spite of their marriage contract, Anna sought monthly support payments of $2,500 from Bill’s estate, or a lump sum of $300,000 in lieu of that. She argued that amendments to their marriage contract had invalidated her original agreement to forego support payments.

The couple did reasonably well, including a lottery win that they shared. At the time of Bill’s death, Anna was found to have assets totalling about $1.25 million.

Over the course of their marriage, the couple bought and sold various houses. Their original matrimonial home was in joint tenancy, but the one they occupied at the time of Bill’s death was held as tenants in common. That meant that half of the value of the house belonged to Bill’s estate. By contrast, if it had been in joint tenancy, Anna would have automatically become the owner of the entire property by “right of survivorship.”

A change had been made in the marriage contract that allowed the matrimonial home to be held as tenants in common instead of joint tenancy. Anna argued that, since she had given up that right, she ought to be entitled to withdraw her agreement not to seek support payments.

The trial at the lower court was Lehmann v. Lehmann Estate, 2018 ONSC 3981. It involved a detailed review of the evidence regarding the various contractual negotiations between Anna and Bill. Extensive testimony was heard from a lawyer that Anna had hired to review and renegotiate the draft marriage contract on her behalf.

The judge found that Anna had been fully advised about the consequences of the change in ownership to tenancy in common. Moreover, in the process of negotiation she had received other concessions from Bill in exchange:

[34] Anna testified that the reason why title to the Lobsinger property was taken as tenants in common was because Bill wanted to set aside money for his grandchildren. [Anna’s lawyer] understood that Bill wanted to assure that his equity in the Lobsinger property would eventually go to his grandchildren to fund their education.

[59] In my view, there is nothing in the circumstances pertaining to the negotiating and execution of the Marriage Contract which calls into question its validity or fairness. Anna agreed to the spousal support release in return for concessions favourable to her. She made it clear to her lawyer that she would only sign an agreement on her terms. She did not achieve all of her goals but she obtained, through negotiation, changes and additions to the initial drafts of the agreement which were important to her.

[73] I am satisfied that the provisions of the Marriage Contract operated fairly towards Anna at the time of Bill’s death. It would have been in the contemplation of the parties that Bill would likely predecease Anna. Anna’s assets increased in value by more than $1 million over the course of the marriage. Anna was at all times aware of Bill’s objective to not be burdened with a spousal support obligation in the event of a separation or his death.

Inevitably, there is a subjective element to arriving at the conclusion that the negotiations were balanced and that Anna was not unfairly coerced. That is the type of decision that is made by the trial judge, based among other factors on the credibility of the witnesses who testify. Once that type of decision is made by the trial judge, higher courts grant considerable deference, and it is very difficult to overturn it on appeal. That was the situation here, where the trial decision was fully endorsed by the Court of Appeal in its brief decision in Lehmann v. Lehmann, 2019 ONCA 357:

[2] … The [Appelant’s] submission fails to take into account the two significant amendments to the marriage contract negotiated by the parties. Both referred specifically to the title to the matrimonial home and, read together, make it absolutely clear that the home would be held in tenancy in common with certain rights to the appellant upon the respondent’s death. Neither amendment detracts from the waiver provision found in the original contract.

[3] The trial judge considered the terms of the contract and the amending agreements. He also considered and rejected the very same argument that counsel has forcefully advanced here: see reasons at paras. 76-80. As the trial judge was engaged in a contractual interpretation exercise, we must defer to the trial judge and his conclusion, absent a clearly identifiable error in law or a palpable and overriding factual error. We find neither.

This is in keeping with the Court of Appeal's earlier decision in the leading domestic contract case, LeVan v. LeVan, 2008 ONCA 388, that the trial judge "should be entitled to consider the fairness of the contract together with other factors in the exercise of his or her discretion" (para. 60).

Conclusion

This decision affirms that courts remain inclined to uphold marriage contracts, as long as there is evidence that the process of negotiating them was arrived at fairly. The existence of that evidence is a key factor. Therefore, it is important for people preparing new marriage contracts to document all this information as fully as possible, in case it is ever challenged.

Caution needs to be exercised by anybody seeking to challenge a marriage contract. As this case showed, litigation requiring a multi-day trial to hear witnesses can be quite expensive. The estate incurred trial costs of $168,000, while Anna incurred costs of $90,000 of her own (and was required to pay $75,000 towards the estate’s costs). The cost of the appeal was on top of that.