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Jun

26

Prenup | Prenuptial Agreement Forms (Part 4): What happens if a prenup is set aside?

Toronto Business LawyerPlease note that the information provided herein is not legal advice and is provided for informational and educational purposes only. If you need legal advice with respect to getting a prenuptial agreement, you should seek professional assistance (e.g. make a post on Dynamic Legal Forms). We have Toronto, Ottawa, Hamilton, Brampton, Mississauga and other Ontario lawyers registered to help you. We will soon be offering Prenuptial Agreements in our Legal Forms + Video Guides section. You can contact me directly if you need a lawyer.

This is the fourth of a series of blog posts I’m writing about prenups or prenuptial agreements for Ontario. In the first blog, I discussed what they are, when are they used, and what is required for them to be valid and enforceable. In this blog, I’ll discuss how they can be challenged. In the second blog, I reviewed Loy v. Loy – a Ontario Superior Court of Justice case which reviewed the jurisprudence concerning how prenuptial agreements (and other domestic contracts) can be challenged. In the third blog, I’m discussed some tips that will help mitigate against future challenges to prenups. In this blog, I’m going to talk about what happens if a prenup is set aside (in other words, what will govern the division of property, spousal support, etc.)? I’ll also discuss the doctrines of UNJUST ENRICHMENT, CONSTRUCTIVE TRUST, and RESULTING TRUST – which all doctrines based on equity which can be used by a party to claim that they are entitled to certain property.

What happens if a prenuptial agreement is set aside?
If a court sets aside a Prenuptial Agreement, then that Agreement will not apply to the termination of the parties’ relationship. So what COULD govern the ownership or division of property and support obligations?

  • Well, the Family Law Act would govern the ownership and division of property, while the Divorce Act would govern spousal and child support issues.
  • Under the Family Law Act, absent a valid domestic contract (such as a Prenuptial Agreement), the net worth of the couples during the course of their marriage is equalized (i.e. split in two). Essentially, you take the value of spouse’s property at the date of separation, subtract the value of their property at the date of marriage, and split that amount between the two spouses. This is called EQUALIZATION OF NET FAMILY PROPERTY.
  • Finally, if the Prenuptial ends because one of the parties dies, then the Succession Law Reform Act could impose support obligations on the deceased party’s estate. That Act COULD apply if the parties were spouses (as defined above under the Family Law Act) and the deceased spouse was providing support or was under a legal obligation to provide support immediately before his or her death. Here, if the deceased spouse failed to provide proper support for the remaining spouse, the latter could apply to the court for proper support.

In addition to these statutes which could govern the ownership and distribution of property, there are other arguments which parties could make if the statutes didn’t apply for some reason. For example, absent an agreement that says otherwise, gifts and inheritances are typically excluded from NET FAMILY PROPERTY under the Family Law Act. But under an equitable doctrine such as Unjust Enrichment, Constructive or Resulting Trust (discussed below), the other spouse could claim an interest to such property.

UNJUST ENRICHMENT
The doctrine of unjust enrichment is not found in any statute. Rather, it is an old judge-made law that allows one party to claim compensation from another party on the basis of an unjust enrichment. 3 requirements must be met in order for a spouse to claim unjust enrichment:

(1) an enrichment enjoyed by the other spouse;

(2) a corresponding deprivation suffered by the complaining spouse; and

(3) the absence of a juristic reason for the enrichment.

Now, it these 3 elements exist, then a spouse may be entitled to damages. Where simply having the other spouse pay money is not enough, then the doctrine of CONSTRUCTIVE TRUST comes into play.

CONSTRUCTIVE TRUST
If there was an unjust enrichment and there was a link between the contribution that founds the action and the property in which the constructive trust is claimed, then the complaining spouse may receive an ownership interest in that property. To recap, the idea behind a constructive trust is as follows. The marriage ends. Only one spouse holds title to property. If there was an unjust enrichment and monetary damages would not be a sufficient remedy, then the complaining spouse may receive an ownership interest in the other spouse’s property.

RESULTING TRUST
When married spouses separate and only one of the spouses own a property, the Court will ask whether or not there was an agreement or COMMON INTENTION that the other spouse was to take a beneficial interest in that property. The court will look to the facts and circumstances surrounding the acquisition, or improvement, of the property. If the spouse with no title in the property has contributed, directly or indirectly, in money or money’s worth, to acquire or improve the property, the doctrine of resulting trusts is engaged. An interest in the property is presumed to result to the one advancing the purchase moneys, or part of the purchase monies.

So when will a Court find COMMON INTENTION if there is no agreement? The Court will have to gleam this from the conduct of the parties if it is not expressly made. The Court will look at financial arrangements in acquiring or maintaining the property. The Court may also look at who benefited from the property (either directly or indirectly).

So, there you have it: UNJUST ENRICHMENT, CONSTRUCTIVE TRUST, and RESULTING TRUST.

What about the matrimonial home?
Even if a prenuptial agreement deals with the matrimonial home (e.g. it will be owned solely by one person upon termination of the marriage, etc.), that Agreement cannot supersede each spouse’s right to possess the matrimonial home under the Family Law Act.

Part II of the Family Law Act deals with the “Matrimonial Home”. This is the home that either a spouse has an interest in or, if the spouses are separated, was at the time of separation “ordinarily occupied by the person and his or her spouse as their family residence”. OK, so what’s so special about the matrimonial home? Well, section 19(1) of the Act says that BOTH spouses have an EQUAL right to POSSESSION of a matrimonial home. Section 19(2) goes on to say that, when only ONE spouse has an interest in a matrimonial home, the other spouse’s right to possession ends when they cease to be spouses (unless a separation agreement or court order says otherwise).

So what does this mean for you? Well, even if a Prenuptial Agreement says that only ONE spouse will be the owner of the matrimonial home, the OTHER spouse will still have a right to possession. This means that the ONE spouse who owns the matrimonial home CANNOT dispose of (i.e. sell, transfer, gift, etc.) or encumber (e.g. mortgage, use as collateral, etc.) any interest in a matrimonial home UNLESS:

  • the OTHER spouse signs the paperwork;
  • the OTHER spouse consents to the transaction;
  • the OTHER spouse has released all rights under Part II of the Family Law Act by a Separation Agreement;
  • a court has authorized the transaction or has released the property from Part II of the Family Law Act; or
  • the property is not designated by both spouses as a matrimonial home and a designation of another property as a matrimonial home, made by both spouses, is registered and is not canceled.

Importantly, if only ONE spouse owns the matrimonial home tries to dispose or encumber the matrimonial home without falling under one of the above situations, then that transaction may be SET ASIDE by a court. Finally worth mentioning is that, regardless of who owns the matrimonial home or its contents, and despite a spouse’s right of possession, a spouse can ask the court for exclusive possession of the home (among other things). In determining whether an order for exclusive possession is appropriate, a court must consider the following factors under sections 24(3) and (4):

  • the best interests of the children affected (i.e. possible disruptive effects of a move to another home and the child’s views and preferences – if they can be ascertained);
  • any existing orders under Part I (Family Property) and any existing support orders;
  • the financial position of both spouses;
  • any written agreement between the parties;
  • the availability of other suitable and affordable accommodation; and
  • any violence committed by a spouse against the other spouse or the children.

Interestingly, even if a court orders that ONE party be given exclusive possession of the matrimonial home, it can still direct that party to make periodic payments to the other spouse (among other things), pay for all or part of the repair and maintenance of the matrimonial home, and keep or remove certain contents of the matrimonial home. Finally worth mentioning is that under section 25, if a court is satisfied that there has been a material change in circumstances, it can discharge, vary or suspend any order made concerning possession of the matrimonial home (as noted above).

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