Challenging Domestic Contracts in Ontario
Domestic contracts, such as cohabitation agreements, marriage contracts, and separation agreements, play a crucial role in managing and settling matters in a relationship. However, there may be circumstances where one party wishes to challenge the terms or validity of these contracts. Ontario's Family Law Act (FLA) sets out the grounds for setting aside a domestic contract.
Grounds for Challenging a Domestic Contract
Section 56 of the FLA identifies three primary grounds to set aside a domestic contract:
A party failed to disclose a significant asset or debt existing when the contract was formed.
A party failed to understand the nature and consequences of the agreement.
The contract can be attacked on other grounds typical to any ordinary contract, such as fraud, duress, or undue influence.
It's important to note that full and honest disclosure can preempt the first ground. This means parties should provide accurate values for assets and liabilities, and income. However, regarding cohabitation and marriage agreements, exact values are less critical so long as they are reasonable. Independent legal advice usually addresses the second ground, ensuring that both parties fully understand the contract's implications.
Court Rulings
Several rulings have provided further clarity on challenging domestic contracts. The 2004 Supreme Court of Canada ruling in Hartshorne v. Hartshorne established that a contract could only be successfully attacked for unconscionability if the deal is unfavourable to the challenging party and if this outcome resulted from the other party preying upon the challenger's weakness. It emphasized that more than a bad deal is required to set aside a domestic contract. It also underscored the importance of full disclosure and independent legal advice.
The ruling also highlighted that private parties should be able to reasonably rely on their financial arrangements upon the dissolution of their marriage. The unconscionability of a contract is determined upon the breakdown of a marriage, considering the financial needs, means, and other circumstances of the parties.
In 2008, the Court of Appeal for Ontario in LeVan v. LeVan opined that even once grounds to set aside a domestic contract have been found under Section 56 of the FLA, the determination as to whether the contract should be set aside is a purely discretionary matter for the court. Fairness is an appropriate consideration in this determination. The court emphasised that every spouse has a positive duty to make complete, fair, and frank disclosure of all financial affairs.
More recently, in 2018, the Court of Appeal for Ontario in Turk v. Turk ruled that a party’s failure to disclose a significant asset will not automatically result in a domestic contract being set aside. The court stated that non-disclosed assets should be compared to the value of the party’s total assets. In this case, the court found that the parties had negotiated a favourable settlement for the wife, which had been incorporated into a separation agreement. The trial judge had correctly assessed the significance of the non-disclosed assets in the context of the settlement and determined that the disclosure would have not greatly changed the outcome of the mediation.
Navigating the complexities of challenging domestic contracts can be overwhelming, but understanding the legal grounds and being aware of the impacts of these landmark rulings can go a long way in helping parties make informed decisions.
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