Marriage Agreements (for Married Spouses)
Division of property between spouses on a marriage breakdown in B.C. is governed by Part 5 of the Family Relations Act, R.S.B.C. 1996, c. 128 (“FRA“). Without a marriage agreement, assets that qualify as family assets are presumptively owned and divisible equally between spouses. This presumption of equal ownership and division can be rebutted by a spouse who satisfies the Court that an equal division would be unfair, taking into account specific factors listed in s. 65 of the FRA.
It is possible for spouses to contract out of the asset division regime under Part 5 of the FRA by entering into a marriage agreement. Some typical property division arrangements in marriage agreements, which differ from the division arrangements under the FRA, are as follows:
- Parties retain their respective property as separate property during and after the marriage, except for any property which is specifically registered or recorded in joint names, which is divided equally or under Part 5 of the FRA;
- All property owned by either party before marriage is kept separate during and after the marriage, but assets acquired by either party during marriage are divided equally, or under Part 5 of the FRA;
- All property is kept separate except that a graduated percentage share is acquired over time in property such as the matrimonial home and/or RRSPs by the non-owning spouse (eg. 3% per year to a maximum of 50%); and
- All property is kept separate but there is a graduated lump sum compensation to less affluent spouse on a marriage breakdown instead of a share of property.
Marriage agreements can also include provisions which address issues such as obligations for spousal support and responsibility for living expenses.
Effectiveness of Marriage Agreements
In 2004, the Supreme Court of Canada decided the case of Hartshorne v. Hartshorne, [2004] 1 S.C.R. 550 (“Hartshorne“) in which the Court enforced a marriage agreement in a long-term traditional marriage where the wife’s entitlement to property was significantly less than what she would have obtained under the FRA. The Court emphasized that an agreement does not need to reflect the 50/50 entitlement provided by the FRA to be substantively fair.
The Supreme Court of Canada decided that, provided that certain requirements are met, the terms of prenuptial agreements will be enforced in all but the most unusual of cases. The Court reasoned that it should avoid substituting its idea of what is fair for what the parties believed would be fair at the time they entered into the agreement. Although the courts do reserve the right to set aside or overrule any terms in a prenuptial agreement which they believe to be unfair, in the post Hartshorne environment, courts are less likely to vary prenuptial agreements.
Cohabitation Agreements (for Common Law Partners)
As mentioned above, only married couples can claim for the division of assets under the FRA. Since unmarried couples cannot apply for the division of assets under the FRA, they can only make a claim against assets owned by the other spouse under the common law of constructive trusts, express trusts or resulting trusts, or under the Partition of Property Act if they jointly own real property together.
Trust claims, based on common law, are more difficult to make than claims under legislation such as the FRA. If a trust claim is successful, the amount awarded is generally less than what the property award would have been had the couple been legally married and the FRA governed. It is possible for common law spouses to contract out of common law trust claims for property division by entering into a cohabitation agreement in advance.
Effectiveness of Cohabitation Agreements
Unmarried spouses (people who have lived in a marriage-like relationship for at least two years) can “opt-in” to the FRA property division scheme by making an agreement under s. 120.1 of the FRA. Some lawyers feel that this section of the FRA can be interpreted to mean that the FRA property division rules apply to any cohabitation agreement between unmarried spouses, even if the cohabitation agreement specifically provides that the FRA does not apply. The risk is that a common law partner, seeking a property award in the future, could ask a court to rely on the more preferential FRA rules and find that the cohabitation agreement was unfair.
As a result, there is some uncertainty with respect to whether or not a cohabitating couple should enter into a cohabitation agreement, if the agreement is meant to protect property. Since the Hartshorne case noted above, it is less likely that courts will impose FRA statutory property rules where a cohabitation agreement itself attempts to preclude a property claim. Of course, the FRA property division rules will still apply where a cohabitation agreement indicates that this is what the parties wish.
A cohabitation agreement is also a good option if children are being brought into the relationship, if one party wants to ward against the chance of a spousal support claim when the relationship ends or to deal with allocation of and responsibility for living expenses.