What is the purpose of a cohabitation or prenuptial agreement?
Couples may choose to enter into a cohabitation or prenuptial agreement for a variety of reasons. Some of the most common reasons include
- To protect assets and property that either party brings into the relationship or acquires during the relationship, especially in situations where one party has significantly more assets than the other.
- To protect either party from future spousal support claims or to establish a contractual entitlement to spousal support.
- To establish a clear plan for the division of property and assets in the event of separation or death.
- To avoid disputes and minimize the cost of legal proceedings in the event of separation or death.
- And to provide certainty and peace of mind for both parties and their families.
On what grounds can a cohabitation agreement or prenuptial agreement be set aside?
When a party seeks to set aside an agreement respecting property division or spousal support, the court will engage in a two-step fact-specific analysis. First, the court must determine if there was procedural unfairness, such as one party taking improper advantage of the other’s vulnerability, a party’s lack of understanding of the nature or consequences agreement, or the failure to disclose significant property, debt, or relevant information. If the court finds that there is no procedural unfairness, the second step requires the court to assess whether the agreement is significantly unfair.
This process was explained by Madam Justice Young in the context of an agreement on property division in Bartch v. Bartch, 2019 BCSC 1643.
[146] First, the court considers whether the agreement was formed in a procedurally unfair manner under s. 93(3). Second, the court must consider the substantive fairness of the agreement, that is, the agreement’s effect. If the agreement was reached by an unfair process, it may nonetheless be upheld if the court would not have replaced it with an order that is substantially different from the agreement’s terms: s. 93(4). On the other hand, where an agreement was reached by a fair process, the court may still set it aside if the substance of the agreement is significantly unfair: s. 93(5); see Asselin v. Roy, 2013 BCSC 1681 at paras. 125-127.
Section 164 of the Family Law Act provides a similar structure for setting aside agreements respecting spousal support.
An example of this type of analysis is found in the recent case of C.C. v S.P.R, 2022 BCSC 1817, where the respondent used the framework of s. 93 of the Family Law Act to argue that the prenuptial agreement he signed was both procedurally and substantively unfair.
[17] First, the respondent says he had no independent legal advice and was unable to obtain legal advice prior to entering into the Prenuptial Agreement. Without that advice, the respondent asserts he did not understand the “nature and consequence” of the agreement when he signed it.
[18] Second, the respondent asserts he was in a vulnerable position as compared to the claimant because he wanted to marry her and knew that in order to do so he needed to sign the Prenuptial Agreement.
[19] Third, the respondent says that, when viewed holistically and given the particular circumstances of this case, the result of the Prenuptial Agreement is unfair.
The first two arguments relate to the issue of procedural unfairness. After engaging in a detailed factual analysis of the circumstances in which the agreement was made, including the testimony from the witnesses to the agreement, neither argument was ultimately successful.
The court observed, among other things, that the respondent was well-educated and had previously taken courses related to the law. The respondent should have understood that there could be consequences to signing the agreement and been aware that he had the right to obtain legal advice. The court also found that the possibility that the claimant would not marry the respondent if he did not sign the prenuptial agreement or obtain the claimant’s parents’ blessing did not amount to duress.
To assess substantive unfairness, the court needed to determine, as of the time of the breakdown of the marriage, whether upholding the prenuptial agreement would be significantly unfair. If upheld, the prenuptial agreement would prevent the respondent from benefiting from the townhome that the claimant brought into the relationship or otherwise dividing the assets and debts in each party’s name.
The respondent argued that upholding the prenuptial agreement would be significantly unfair based on a number of circumstances, including his role in caring for the claimant after the birth of a child, his significant legal fees, money he contributed from his employment, money earned from homestay students, and assistance provided by the respondent to the claimant while she completed a master’s degree.
The court rejected the respondent’s position that upholding the prenuptial agreement would be substantively unfair based on the following factors: the parties married after less than a year, and the marriage lasted less than four years; the respondent entered the marriage with few assets compared to the claimant and contributed little to the maintenance of the claimant’s townhome; and the prenuptial agreement did not exclude the option for child or spousal support.
In upholding the prenuptial agreement, the court emphasized that the decision to set aside a prenuptial agreement is a fact-specific exercise. Under a different set of facts, the type of arguments raised by the respondent could be more successful.
Is independent legal advice required for an agreement to be enforceable?
As the court explained in Bradshaw v. Bradshaw, 2011 BCSC 1103, a lack of independent legal advice does not in itself invalidate an agreement, nor will the receipt of independent legal advice automatically cure an otherwise invalid or unfair agreement. However, the issue of independent legal advice may become a significant factor where other issues of procedural unfairness are also apparent, such as financial vulnerability or poor financial disclosure: Liu v. Xu, 2020 BCSC 92.
Agreements may also still be valid even if they are not witnessed: Asselin v. Roy, 2013 BCSC 1681. In unusual cases where enough evidence is available, even an oral cohabitation agreement could be enforced: Voitchovsky v. Gibson, 2022 BCSC 355, aff’d Voitchovsky v. Gibson, 2022 BCCA 428.
How could independent legal advice improve the enforceability of agreements and help prevent disputes?
The involvement of lawyers in drafting a cohabitation agreement or prenuptial agreement and providing independent legal advice may reduce the likelihood that an agreement will later be challenged, particularly on the basis of procedural unfairness. For instance, a party would generally be less likely to argue that they were ignorant [s.93(3)(b)] or did not understand the “nature or consequences” of their agreement [s.93(3)(c)] after receiving legal advice.
A well-drafted agreement will also include a schedule of assets and debts, complete with up-to-date valuations, and highlight the significant property that each party is bringing into the relationship. The inclusion of this information in an agreement helps ensure the parties have met the requirement to disclose significant property or debts and other information relevant to the negotiation of the agreement [s.93(3)(a)]. A lawyer can assist in making the appropriate disclosure requests.
A lawyer can also provide advice on the substantive fairness of an agreement and discuss circumstances that could affect the substantive fairness of an agreement in the future. For instance, the possibility of one party leaving the workforce to raise a child or a party’s anticipated financial contribution to the other party’s property would be important issues to canvas.
Forgoing independent legal advice when preparing a cohabitation agreement or prenuptial agreement is often a false economy — a decision that costs less at first but results in more money being spent later. Even when an agreement without independent legal advice is upheld in court, the cost of litigation will almost always exceed the cost of each party consulting a lawyer at the beginning and potentially avoiding many of the grounds for a future dispute.