Cohabitation Agreements – The Law Upholds Fairness not Equality
“The settlement of matrimonial disputes can only be encouraged if the parties can expect that the terms of such settlement will be binding and will be recognized by the court.... The court must look not at which party made the better bargain but rather, to whether one party took advantage of their ability to make a better bargain. In that taking of advantage is to be found the possibility of unconscionability”. - McGee J in Harnett v. Harnett, 2014 ONSC 359.
The Principle
The law allows common law and married couples to enter domestic contracts to plan/arrange their family affairs. Before separation, these contracts would include cohabitation and marriage agreements. These agreements enable parties to futuristically determine their post separation affairs including financial support, division of property or release from any obligations the law might otherwise impose.
The negotiation and signing of these contracts are typically concluded independently of any court appearance or judicial review, as that is the point of it. However, there are rules regarding the procedure for entering into these domestic contracts to ensure that they do not lead to unconscionable outcomes. For example, a domestic contract can be set aside by the family court if a party:
failed to disclose a significant asset or debt to the other,
did not understand the nature or consequences of the contract, or,
can show that the agreement offends the law of contracts, e.g. entered into under duress, mistake, misrepresentation, incapacity or illegality.
However, parties must exercise due diligence in reviewing the contract to confirm that the terms align with their intention. The court will not set aside a contract because a party complains about their own failure to read or understand a mutually negotiated and signed domestic contract, with clearly articulated terms.
The Facts
In Harnett v. Harnett, the parties acquired a Brooklin residence in 2002, with the Respondent contributing $135,840 from the sale of his Toronto condo and the Applicant contributing $7,500. To secure homebuyer benefits, the property was registered solely in the Applicant's name.
The Respondent proposed a cohabitation agreement, drafted by his lawyer and reviewed by the Applicant’s lawyer. The agreement, signed in May 2002, allocated the first $135,840 in equity to the Respondent, divided the next $15,000 equally, and distributed remaining equity 70/30 in favor of the Respondent. Other terms of the cohabitation agreement were that if they married, it's terms shall be made a marriage contract, and if they separated; each party releases the other from any spousal support, neither party shall split their assets, title to the Brooklin property shall be returned to the Respondent.
The parties were not married at the time of the purchase. They moved into Brooklin property, subsequently married and equally shared the monthly mortgage payments. They both maintained their careers, with the Applicant gaining detective status in law enforcement and the Respondent continuing as a Branch Manager with Unifirst. They separated in 2011.
After separation, the Applicant sought to have the agreement set aside on the ground that she did not fully understand the agreement. She alleged believing that it provided for an equal division of the home’s value after protecting initial contributions.
The Ruling
The Court determined that there was no evidence indicating that the Respondent exploited or manipulated the Applicant during the signing of the contract to gain an unfair advantage. Although the quality of independent legal advice she received prior to signing the agreement was “woefully deficit”, the terms of the agreement were sufficiently clear regarding the now disputed 70/30 sharing of the home equity.
The Court acknowledged that the Respondent may have been disinterested in financial affairs, but at no time was she incapable of understanding the financial matters. She was 28 years of age, a skilled police officer, literate and articulate. There was no physical or emotional abuse at the time of the agreement. The court was satisfied that there was no undue influence and that the terms of the agreement, even though not equal were not unconscionable.
The contract was upheld as valid and binding on its terms, including the 70/30 sharing of the home equity in favor of the Respondent.
Our Thoughts
In the absence of some sort of duress, material concealment, misrepresentation or scheme to take advantage of a party, the court will respect the autonomy of private individuals to enter binding contracts, even in family law matters. A claim to not understand the plain language of a signed contract will not be sufficient reason to deviate from the law. To allow this would discourage parties from attempting to plan or arrange their own future affairs.
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