This blog has been written by Darren Lund a partner at Fasken LLP.

Marriage contracts and cohabitation agreements are an increasingly important aspect of estate planning and wealth preservation. They can be used for a number of reasons and in a variety of contexts. Think of the parents wishing to protect a cash gift to a child to assist with the purchase of a home, the business owner who wants to protect the family business as younger generations become owners, directly or through a family trust, or the person entering into a second marriage who wants to preserve assets for their children from a prior relationship.

What happens if spouses enter into a marriage contract and subsequently move, such that they reside in a jurisdiction that is different from the proper law of the contract? The Ontario Court of Appeal decision in Torgersrud v. Lightstone, 2023 ONCA 580, is a cautionary tale.

The couple, in this case a husband and wife, were married on March 31, 1987 in Montreal. At the time of their marriage, the husband was the beneficiary of a testamentary trust under his mother’s will. The husband’s father had also died before the date of the parties’ marriage. Three years after the marriage, the husband received funds from his father’s estate and he used it to acquire the family home. There were three children of their marriage.

In 1988, one year after the parties were married, the husband’s uncle suggested he enter into a marriage contract to protect his interest in the family business. The husband and wife entered into a Quebec instrument before a notary which renounced their rights to a “partition of acquests” and declared they were “separate as to property”. In short, they adopted separation as to property as their matrimonial property regime.

Two years later, the parties entered into a second Quebec instrument. At the time, Quebec had recently legislated a “family patrimony” regime, which provided for a mandatory division of the value of the assets forming part of the family patrimony (i.e. family residence, certain retirement plans, among others). In the second Quebec instrument, the parties opted out of the family patrimony regime within the timeline required under the new legislation.

The parties moved to Ottawa in 1993, where they lived until they separated in 2015. Following their separation, the wife made an application for an equalization of their net family property under the Ontario Family Law Act (“FLA”).

At trial, the court concluded that the Quebec instruments were marriage contracts that met the formal validity requirements of the FLA. However, the court also found that Ontario law governed the parties’ matrimonial property rights because their last common habitual residence was in Ontario. While the Quebec instruments were formally valid under Ontario law, the FLA provides that in order for a marriage contract to prevail over a matter this is dealt with under the FLA, the contract must itself deal with that matter, expressly or by necessary implication. The court concluded that “separate as to property” under the Quebec instruments dealt only with the ownership and division of property; it did not deal with the equalization of the value of property on marriage breakdown. Since the Quebec instruments did not deal with equalization, they were not effective to oust the equalization regime under the FLA.

The Court of Appeal did not decide whether the trial judge was correct on that point, although it is consistent with prior case law. Instead, the Court of Appeal affirmed the trial judge’s alternative analysis.

The FLA provides that, even if the proper law of a contract is a law other than Ontario (as in this case) and the contract is formally valid as a marriage contract under Ontario law, the provisions in the FLA that permit a court to set aside a marriage contract on specified grounds continue to apply. Those grounds include the failure to make full financial disclosure and a failure to understand the nature or consequences of the contract. The trial judge found that the husband had not made full financial disclosure (which was not strictly required in Quebec), in particular with respect to his inheritances, and the wife did not understand the consequences of entering into the Quebec instruments. The Court of Appeal agreed, and affirmed the trial judge’s decision allowing the wife’s equalization claim to proceed.

The Court’s decision is an important reminder that planning which may be effective in one jurisdiction may not be effective in another, even if documents made in the original jurisdiction are formally valid in the latter jurisdiction. Planning should always be revisited when a party is on the move. In the specific case of marriage contracts, if there is a potential or foreseeable connection to more than one jurisdiction, it is always prudent to satisfy the requirements of both jurisdictions for an enforceable contract.