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The Family Law Act (FLA) permits couples to enter domestic contracts to resolve familial and financial obligations and avoid disputes. Parties may obtain legal advice, but sometimes, parties may enter into agreements without the assistance of a lawyer and without obtaining independent legal advice.
These can be referred to as “kitchen table agreements.” These agreements carry risk and may be challenged because a party was vulnerable or not properly informed about the consequences of signing the agreement. And this is not limited only to “homemade agreements.” Even if a lawyer is involved in preparing an agreement, it is necessary that both parties understand the full nature of the agreement they are signing.
Courts Can Decide Whether to Enforce a Domestic Contract
In Irving v. Irving, the parties had been living in Canada but married in St. Lucia. The day before the marriage, they entered into a marriage contract. The respondent retained a lawyer in St. Lucia and provided instructions to him, including the terms of the marriage contract. It provided that the parties would keep their property separate, including property brought into the marriage or acquired during the marriage. The applicant did not have independent legal advice before signing the contract. When the relationship broke down the applicant argued the marriage contract was not valid or enforceable, and the court had to determine whether there were grounds to set aside the contract.
Contracts made outside Ontario must be “entered into by Ontario’s internal law” to be enforceable. Also, agreements must meet the formal requirements in section 55(1) of the FLA. That section provides that a domestic contract is unenforceable unless made in writing, signed by the parties and witnessed. In this case, the applicant stated that she did not know what she had signed. The lawyer who prepared the contract testified that he read the document to the parties, had them read it, and witnessed their signatures. The judge determined that the marriage contract met the formal statutory requirements. However, even where domestic contracts meet the requirements in section 55(1), courts have discretion over whether the contract should be enforced under section 56(4). That enables a court to set aside a domestic contract:
- if a party failed to disclose to the other significant assets, or significant debts or other liabilities existing when the domestic contract was made
- if a party did not understand the nature or consequences of the domestic contract; or
- otherwise by the law of contract.
Importantly, in this instance, there was no evidence of any negotiations between the parties on the terms of the contract, and the judge believed there were factors that supported setting the agreement aside under section 56(4).
“Kitchen Table” Agreements Contain Risks for the Parties
The applicant claimed this was a “kitchen table” agreement, but the respondent rejected that characterization. Justice Ramsay explained that the term “suggests that the agreement is not formally agreed to.” Significantly, a “kitchen table” agreement is not limited to a “homemade agreement.”
In Zheng v. Jiang, the judge cautioned against homemade agreements that spouses may enter into while not being informed of the “facts and law surrounding their circumstances,” concluding that the FLA was designed to deter these agreements. In Irving, the agreement was not homemade, but the judge concluded that the applicant was not properly informed when she signed the agreement. There was no negotiation between the parties or disclosure before the parties signed the agreement. Moreover, it was ultimately signed without the lawyer who drafted the agreement, and the lawyer did not clearly understand the parties’ intentions. Overall, the applicant did not understand the agreement’s consequences.
In Gallacher v. Friesen, the Ontario Court of Appeal explained that the FLA permits couples to “resolve differences and avoid disputes” and that instead of “exhibiting a bias against domestic contracts,” the Act encourages them to make their own arrangements regarding property. But courts have also emphasized that the purpose of the formal requirements in section 55(1) of the FLA is not just to provide proof that the parties signed t a document but also to “ensure a measure of formality in the execution of a domestic contract”, and to “avoid ‘kitchen table’ agreements.” For example, in Virc v. Blair, the Ontario Court of Appeal emphasized that the provision assures that the parties “were deliberate in reaching their agreement and understood the obligations being imposed.”
Parties Must Understand the Agreements They Enter Into
In Irving, the contract was drafted in haste and was only signed on the eve of the wedding. Although the respondent claimed the marriage contract used “clear language,” the court disagreed. The lawyer even had a different understanding of why the parties entered the contract; he believed the parties would live in St. Lucia and thought the agreement was related to property in St. Lucia. Some of the legal terminology that was used was specific to St. Lucia. Also, the applicant had a limited education, and there was no evidence that the lawyer who prepared the document explained the terminology to the parties. The court was prepared to conclude that the contract was a “kitchen table” agreement. The applicant lacked fundamental knowledge, including any financial disclosure from the respondent. Without this knowledge, the court could not conclude that the applicant understood her rights or the corresponding obligations the agreement imposed.
Justice Ramsay also suggested that even if the applicant could hear what was in the document, she still would not have understood the consequences of signing the agreement. This was because the agreement used technical legal terminology, and she had a limited education. The evidence was unclear whether the applicant had read the document before signing it, although she stated that she had only signed an open page on cross-examination.
Regardless, the court concluded there would not have been time at the short meeting for the applicant to appreciate the consequences of signing and understand what she would be giving up. Moreover, the applicant did not have access to professional advice and did not have the benefit of legal advice, which explained her legal entitlements if the marriage broke down. Ultimately, the contract was presented to the applicant as a “fait accompli,” but she was not informed about her legal rights and the consequences of signing it.
Independent Legal Advice Helps Parties Make Informed Decisions
The FLA does not require that parties obtain independent legal advice before signing a domestic contract. Here, the respondent correctly argued that the lack of independent legal advice is not determinative in whether a domestic contract must be set aside. In Dougherty v. Dougherty, it was noted that “the lack of independent legal advice is a factor for the court to consider along with all the other circumstances.” Nevertheless, as the judge noted, case law clearly states that independent legal advice can safeguard “the integrity of the bargaining process.”
In Hartshorne v. Hartshorne, Justice Bastarache, for most of the Supreme Court of Canada, explained that independent legal advice during the negotiation can ensure the parties have made an informed decision to agree. Likewise, in Anderson v. Anderson, the Supreme Court of Canada agreed that it “can serve as a hallmark of a fair bargaining process” even if legal advice’s “curative impact” cannot be assumed.
In this instance, the applicant was not involved in the agreement’s drafting. And there was no evidence that the lawyer provided legal advice to the parties. Instead, the lawyer did not accurately understand why the parties agreed. The respondent indicated that the lawyer jointly explained the contents of the contract to the parties. The lawyer’s own evidence was that he did not refer the applicant to another lawyer to receive independent advice. The respondent argued that the applicant could seek more information or receive independent advice if she wanted, but she did not choose to do so. The applicant confirmed that she did not review the agreement with any other third party. In this case, the agreement was vulnerable to the court’s intervention. There was unfairness to the applicant in the bargaining process, which justified setting aside the marriage contract.
Parties Must Understand the Obligations Being Imposed
Parties are encouraged to enter domestic contracts, but courts can still review them. If parties have not obtained independent legal advice, they are particularly vulnerable to being set aside if there is an indication that a party did not understand the significance and consequences of signing the agreement.
Windsor Family Lawyers Advising On The Risks of Uninformed Domestic Contracts
If you are considering entering into a domestic contract, it is crucial to understand the potential risks involved. At Johnson Miller Family Lawyers in Windsor, Ontario, our experienced team can guide you through the process, ensuring you fully understand your rights and obligations. We can help you draft a comprehensive and legally sound agreement that protects your interests. Contact us today for a consultation to discuss your specific situation and learn how we can assist you. Call 519.973.1500 or contact us online.
