COURT FILE NO.: FS-19-0175-00
DATE: 2021-05-17
ONTARIO
SUPERIOR COURT OF JUSTICE
B E T W E E N:
Donna-Lynn Pringle
Mr. L. Ruberto, for the Applicant
Applicant
- and -
Brian Pringle
Ms. L. Stam, for the Respondent
Respondent
HEARD: April 15, 16, 23, and 29, 2021, at Thunder Bay, Ontario via Zoom
Madam Justice H. M Pierce
Reasons on Trial of an Issue
Introduction
[1] The applicant wife applies for an order determining the validity of a marriage contract between the parties, equalization of net family property, and other relief, pursuant to the Family Law Act, R.S.O. 1990, c. F.3, as amended. In addition, she seeks an order for spousal support pursuant to the Divorce Act, R.S.C. 1985, c. 3 (2nd Supp.) as am.
[2] Mr. Justice G.P. Smith ordered a trial of an issue to determine the validity of the marriage contract before the remaining claims are considered. These reasons deal with the validity of the marriage contract as a preliminary issue.
[3] The parties cohabited as unmarried spouses between 1995 and 1999, when they separated. Upon separation, each retained counsel and negotiated a separation agreement. There is some controversy about whether full financial disclosure was made when that agreement was finalized in 2000. However, it is agreed that Mr. Pringle paid Ms. Pringle the sum of $10,000.00 as part of the separation agreement. She used those funds to purchase a house on Kenogami Avenue in the City of Thunder Bay.
[4] In negotiating the separation agreement, Ms. Pringle learned that married spouses were entitled to more expansive rights on separation than unmarried spouses.
[5] The parties reconciled and resumed cohabitation in 2005. By this time, Mr. Pringle had a grown daughter and Ms. Pringle a grown son, both living independently.
[6] Because economic security was important to Ms. Pringle, she told Mr. Pringle that if they were to continue their relationship, it would be as married spouses. They married on June 30, 2006.
[7] The parties separated for the final time on June 16, 2018.
[8] Mr. Pringle submits that the court should not interfere with a marriage contract made by the parties in which each party was aware of the other’s assets and liabilities, and which met their objectives of preserving their assets for their children. He argues that the agreement was fairly and properly drawn and is not unconscionable.
[9] Ms. Pringle contends that the means by which the agreement was made and the agreement itself are deeply flawed, owing to the lack of financial disclosure and independent legal advice.
Legal Principles
[10] A marriage contract is a form of domestic contract defined in section 51 of the Family Law Act.
[11] Section 52 of the Act describes a marriage contract as follows:
Two persons who are married to each other or intend to marry may enter into an agreement in which they agree on their respective rights and obligations under the marriage or on separation, on the annulment or dissolution of the marriage or on death, including,
a) ownership in or division of property;
b) support obligations;
c) the right to direct the education and moral training of their children, but not the right to custody of or access to their children; and
d) any other matter in the settlement of their affairs.
[12] The Act specifically preserves a spouse’s rights to the matrimonial home. Subsection 52(2) of the Act provides:
A provision in a marriage contract purporting to limit a spouse’s rights under Part II (Matrimonial Home) is unenforceable.
What rights in the matrimonial home are protected?
[13] Section 18(1) of the Act defines a “matrimonial home” as:
Every property in which a person has an interest and that is or, if the spouses have separated, was at the time of separation ordinarily occupied by the person and his or her spouse as their family residence is their matrimonial home.
[14] Depending upon the circumstances, cottages may also be matrimonial homes.
[15] Under s. 19 of the Act, both spouses have an equal right to possession of the matrimonial home. Thus, each spouse, regardless of title, has a possessory right to the matrimonial home. However, where title is in the name of one spouse alone, the right of possession is personal against that spouse and ends upon divorce or annulment, unless a separation agreement or court order specifies otherwise.
[16] Section 24 of the Act gives the court jurisdiction to order exclusive possession of a matrimonial home and contents, regardless of title.
[17] Furthermore, a limited right of possession may continue following the death of the other spouse. Section 26 (2) of the Act provides that an untitled spouse in possession of a matrimonial home may continue to occupy the home rent free for 60 days after the other spouse dies.
[18] The criteria for setting aside a domestic contract are found at s. 56(4) of the Act. It states:
A court may, on application, set aside a domestic contract or a provision in it,
(a) if a party failed to disclose to the other significant assets, or significant debts or other liabilities, existing when the domestic contract was made;
(b) if a party did not understand the nature or consequences of the domestic contract; or
(c) otherwise in accordance with the law of contract.
[19] The Ontario Court of Appeal considered the principles applicable to setting aside a marriage contract in LeVan v. LeVan, 2008 ONCA 388. At para. 50, the court observed:
Section 56(4) of the FLA was designed to address and codify prior concerns maintained by the courts that both parties fully understood their rights under the law when contracting with their spouses. It has been characterized as the “judicial oversight” provision of marriage agreements: Hartshorne v. Hartshorne, 2004 SCC 22, [2004] 1 S.C.R. 550 at paragraph 14. The provision is of such significance that, in accordance with s. 56(7), it cannot be waived by the parties.
[20] The authors of Ontario Family Law Practice 2021, Volume 1, (Coats, Steinberg, Perkins, Lenkinski and James), LexisNexis Canada, Toronto, note at p. 1565 in their annotation to s. 56 of the Act:
… the doctrine of unconscionability is imported into s. 56(4) as part of the law of contract. This doctrine focuses on the circumstances surrounding the formation of the contract.
[21] In addition, s. 33(4) of the Act gives the court jurisdiction to set aside provision for support or waiver of support in a domestic contract if the results of the provision are unconscionable.
[22] As the court explained at para. 51 of LeVan, there is a two-part analysis with respect to whether an agreement should be set aside pursuant to s. 56(4). First, the burden is on the party seeking to set aside the agreement to show that one or more of the circumstances enumerated in this section apply. Second, the court must determine whether to exercise its discretion to set aside the agreement.
[23] At para. 52 of LeVan, the Court of Appeal approved of the conclusion of Madam Justice Mesbur in Patrick v. Patrick [citation omitted] that “parties are not permitted to contract out of the obligation to disclose.”
[24] The court in LeVan, at para. 52, emphasized that in order to contract out of the Family Law Act by means of a marriage contract, parties must have a clear understanding of their rights and obligations under the Act if there were no marriage contract. It described financial disclosure as critical to this process.
[25] The court in LeVan also commented on the importance of financial disclosure and independent legal advice for parties entering into domestic contracts, citing Dubin v. Dubin [citation omitted] at para. 53:
… knowing assets and liabilities at the date of the agreement is fundamental to an eventual calculation of net family property. A party needs to know what asset base might potentially grow, in order to determine what he or she is being asked to give up in the agreement. Coupled with financial disclosure is the notion of understanding legal rights and obligations under the legislative scheme. This second notion carries with it the concept of independent legal advice. Thus, a party must know what assets and liabilities exist at the date of the contract and must understand the general legislative scheme in order to know what he or she is giving up in the proposed agreement.
[26] The trial judge in LeVan relied on Demchuk v. Demchuk (1986). 1986 CanLII 6295 (ON SC), 1 R.F.L. (3d) 176 (Ont. H.C.J.) to conclude that financial disclosure includes disclosure of the value of assets: para. 57. The Court of Appeal decided LeVan on other grounds and did not comment on that conclusion.
[27] However, in Gibbons v. Mulock, 2018 ONSC 4352, at para. 16, the parties’ net worth statements were exchanged as part of the negotiation of a marriage contract. In my view, it is not sufficient to simply disclose the nature of a party’s asset without disclosing its value. To do so may be misleading.
[28] Exchanges of sworn financial statements or statements of net worth are a starting point for understanding what each party gains or loses up upon entering into a marriage contract. They constitute a base line from which future gains or losses may be calculated should the agreement or a portion of the agreement be set aside. Indeed, without a disclosure of value, it may be impossible to accurately calculate the value of debts and assets at the date of marriage in the event that the contract is set aside.
[29] Mr. Pringle relies on the decision of the Supreme Court of Canada in Hartshorne v. Hartshorne, 2004 SCC 22, [2004] 1 S.C.R. 550. Hartshorne considers the fairness of a marriage contract under British Columbia’s Family Relations Act in which the governing principle is fairness in dividing assets on marriage breakdown. At para. 9, the Supreme Court urged deference to the parties’ marriage contract, particularly if the agreement was negotiated with independent legal advice.
[30] In my view, the Hartshorne decision is distinguishable from the Ontario jurisprudence for several reasons. The legislative scheme for division of property in British Columbia is different from the Ontario scheme. The British Columbia legislation is more like Ontario’s predecessor legislation, the Family Law Reform Act, where the parties’ assets were classed as either family assets, available for division, or non-family assets, which are not.
[31] The Hartshornes were both lawyers. Both had independent legal advice, after what appears to be full financial disclosure. The value of the husband’s law practice was determined to be an excluded asset. The Supreme Court concluded that deference was owed to the parties’ agreement, especially since the wife’s economic disadvantage from giving up her law career during marriage was addressed by a spousal support order.
[32] Mr. Pringle also relies on a case involving the validity of a cohabitation agreement, J.L.S. v. D.B.S., 2016 ONSC 1704. In that case, the wife was generally aware of the husband’s assets, but not their value at the time the agreement was drawn by the husband’s solicitor. She made no inquiries as to the value of his assets. As well, the wife did not seek independent legal advice.
[33] The court held that the wife had not been “preyed upon.” The court concluded that although the wife had plenty of time to seek independent legal advice and full financial disclosure, she thought it was a fair agreement at the time and did not pursue either. The court concluded that the agreement reflected the original intent of the parties and was in substantial compliance with the Divorce Act. The court declined to set aside the agreement.
The Parties’ Circumstances at Marriage
[34] Mr. Pringle was 49 years old at the date of marriage, Ms. Pringle 44.
[35] The parties each had full-time employment at marriage, earning modest but similar incomes. Each had a pension plan. When Ms. Pringle reconciled with Mr. Pringle following the first separation, she rented the Kenogami house, of which she was the sole owner. The parties never occupied it as a matrimonial home. The rental income covered the mortgage and expenses for the Kenogami house. Ms. Pringle also had a vehicle, but no investments.
[36] At marriage, Mr. Pringle was the sole owner of a furnished house on Tulin Road in Thunder Bay; this became the parties’ matrimonial home. As well, he owned a furnished cottage on Calm Lake, near Atikokan, which the parties used for recreation. It, too, was a matrimonial home. Mr. Pringle had some investments and miscellaneous chattels such as vehicles, an ATV, small boats and a skidoo.
[37] Ms. Pringle understood that Mr. Pringle wanted to protect the assets he had accumulated prior to the marriage. She expected that “successes or failures following marriage would be equally shared.” She stated that Mr. Pringle agreed.
Preparation of the Marriage Contract
[38] Prior to their marriage, the parties agreed that they wanted to make provision for their children in the event of their deaths. Ms. Pringle suggested that they have wills drawn as well as powers of attorney for property and personal care. Mr. Pringle arranged an appointment with Rene Larson, a local solicitor whom neither party knew.
[39] On June 22, 2006, the parties met jointly with Mr. Larson. They asked him to prepare wills and powers of attorney with the goal of preserving all or a portion of their estates for their respective children.
[40] They gave instructions for mirror wills. Mr. Larson recorded these instructions:
Each would be the trustee of each other’s estate, with Brian’s sister to be an alternate trustee. Half of the spouse’s estate would go to the surviving spouse, with ¼ of the remaining estate to each of the parties’ children at age 30.
[41] Mr. Larson was aware that the parties planned to be married on June 30th. He recommended that they enter into a marriage contract to secure the property in their respective estates. This accords with Mr. Pringle’s recollection.
[42] Ms. Pringle disputes this account. She testified that the idea for a marriage contract originated with Mr. Pringle. In my view, it is more likely that this suggestion came from Mr. Larson, in response to the parties’ instructions to him about estate planning.
[43] Mr. Pringle recalls Mr. Larson asking if the parties intended to get separate lawyers. His experience with prior real estate transactions was that he and the vendor used the same lawyer. He remembers asking Mr. Larson if they needed separate lawyers. Mr. Pringle testified that Mr. Larson advised he could “do it all.” Ms. Pringle’s recollection was similar: Mr. Larson told them that each party could hire his or her own lawyer or he could do everything. She added that Mr. Larson did not indicate any preference for independent legal advice.
[44] The parties understood that the process could be complete before the wedding. Ms. Pringle was not aware that a marriage contract could be completed after the wedding.
[45] During the joint interview, Mr. Larson noted that the parties were living together but there is no indication for how long.
[46] His notes show that Mr. Pringle had the following assets: a house on Tulin Road, a cottage, vehicles, bank accounts, an employment pension, an RRSP, life insurance through work, a separate life insurance policy worth $50,000.00, and a life-insured loan. The life insurance policy was the only asset valued in Mr. Larson’s notes. Although his notes refer to a life-insured loan, there is no mention of mortgages or other debts.
[47] Mr. Larson noted that Ms. Pringle’s assets as follows: a mortgaged rental home on Kenogami Avenue that left her in a “break-even” position, a truck, and an employment pension. None of her assets or debts were valued.
[48] Neither party provided Mr. Larson with proof of income. Neither was given a financial statement to complete, unlike during their prior separation.
[49] Mr. Larson recorded the following instructions for the marriage contract: the parties were to keep their own houses and camps, vehicles, pensions, RRSPs. Their children would be the beneficiaries of their parent’s life insurance policies through work. He noted, “Upon separation, assets would revert to the situation immediately before marriage.” He believed that each party wished to keep what he or she brought into the marriage, not restricted to real estate.
[50] On June 23rd, Mr. Pringle called Mr. Larson’s clerk, advising that he also had “a couple of thousand dollars” worth of Bombardier shares. He did not mention this during their joint meeting. With respect to the marriage contract, the clerk also recorded the following oral instructions:
… both will walk away from the marriage with what they brought into it, no spousal support will be paid to either partner, BUT Brian will give Donna a 1-time payment of $15,000.00.
[51] Mr. Pringle also gave the clerk some new instructions with respect to the wills:
• If Donna Dies 1st, her son would get her house in town & Brian would keep his house.
• If Brian Dies 1st, Donna and Michelle [his daughters] would split everything 50/50.
• If both die, then everything would be split 50/50 between Donna’s son and Brian’s daughters.
[52] Mr. Larson described his role in drafting the contract as “neutral.” He disagreed that the agreement favoured Mr. Pringle. He characterized it as a “starting point.” He explained that it was up to the parties to “take it from there” to obtain independent legal advice and financial disclosure.
[53] Mr. Larson was aware that there were several problems with his instructions to prepare a marriage contract in the limited time allowed. He knew that without full financial disclosure and independent legal advice for each party, the marriage contract was open to challenge if the parties separated.
[54] Mr. Larson acknowledged that the marriage contract was not a complete agreement as it did not deal with all issues that might arise from full financial disclosure. He stated that he did not advise the parties about equalization of net family property. Nevertheless, the agreement exempts Mr. Pringle’s Tulin Road property (referred to in the agreement as “the family residence”), his cottage and any other real estate owned by the parties from equalization under the Family Law Act.
[55] The agreement specifically provides that Mr. Pringle shall be entitled to all proceeds of sale of the “family residence” and cottage on separation, notwithstanding any increase in value after marriage. It also waives any claims to equalization and to the matrimonial home under Parts I and II of the Act. All other assets would be retained as separate property unless a written agreement during marriage specified otherwise. Ms. Pringle’s Kenogami Avenue property is not specifically mentioned.
[56] Mr. Larson testified that he gave no advice about spousal support. Nevertheless, the agreement waives any claims for support, with the exception of a lump sum Mr. Pringle would pay Ms. Pringle.
[57] Paragraph 19 of Mr. Larson’s affidavit, filed as exhibit 10, describes how he viewed his role in preparing the agreement:
From their indications and instructions to me, it was and is my understanding that the parties received exactly what they sought, which was a recording of their understanding and arrangement they had agreed upon, in the form of a simple agreement, prepared in the form of a marriage contract, which would be at least morally binding even if it were challenged on the basis if [sic] insufficient financial disclosure or lack of independent legal advice. The document provided them with at least a provisional agreement, setting forth what they had themselves agreed upon prior to their pending marriage, which could be re-visited with more attention to precautionary requirements and formalities at a later date when the couple had the time, inclination and finances to dedicate to the process.
[58] The wills and powers of attorney were executed by the parties on June 26, 2006. Mr. Larson also reviewed the terms of the draft marriage contract with them that day. Mr. Larson testified that this was the first time the parties had seen the draft marriage contract, but he thought he left the draft copy with them. Mr. Larson stated that they indicated they understood the terms and no requests for revisions were made.
[59] Mr. Larson testified that he finalized the marriage contract and returned to the parties’ residence the following day when he again reviewed its provisions. He believed that they understood and agreed with the terms in the agreement.
[60] Mr. Larson testified that the marriage contract was never intended to be comprehensive. Rather, he said the purpose of the agreement was to freeze the value of the matrimonial home at the date of marriage. This is peculiar as no value is attributed to either Tulin Road or the cottage property.
[61] Mr. Larson stated that there was no discussion about the growth in value of assets after marriage: that the agreement did not deal with after-acquired assets or their potential for increase in value.
[62] Ms. Pringle testified that it was the parties’ intention that the agreement would make them equals in marriage, while protecting the value of assets brought into the marriage.
[63] Mr. Pringle testified that it was the parties’ intention to keep what they brought into the marriage. It is doubtful that either of them considered what would happen if their assets increased in value after the wedding. There is no indication of baseline values for assets or debts at the date of marriage.
[64] Mr. Larson testified that because the purpose of the marriage contract was to protect property, spousal support was not relevant; therefore he did not advise the parties about it. He assumed that they had discussed spousal support between themselves; however, he explained that he did not know what they knew – or did not know – about spousal support or the Spousal Support Advisory Guidelines.
[65] Ms. Pringle agreed that there was no discussion with Mr. Larson about spousal support. However, she testified that she and Mr. Pringle discussed spousal support and what was provided in the agreement reflects what they discussed.
[66] However, Mr. Pringle recalled discussing spousal support during their joint meeting with Mr. Larson. He added that Mr. Larson suggested that he pay Ms. Pringle the sum of $10,000.00.
[67] I conclude that Mr. Pringle is mistaken in his recollection.
[68] Mr. Larson’s notes do not reflect that he was instructed to include a spousal support payment to Ms. Pringle in the agreement. The first indication he received these instructions was when his clerk received a phone call from Mr. Pringle the day after the joint meeting.
[69] Mr. Pringle instructed Mr. Larson’s clerk that there would be no spousal support but that he would pay Ms. Pringle $15,000.00 as a lump sum. Whether Mr. Pringle intended this sum would settle any property claims or serve as spousal support is not clear from the clerk’s note or other instructions.
[70] Mr. Larson testified that he did not know what was intended by this payment. He did not recall suggesting to Mr. Pringle that he pay a lump sum. Nevertheless, Mr. Larson included the proposed payment in the agreement under the heading, “Spousal and Child Support.”
[71] Mr. Larson commented that he believed the first time Ms. Pringle would have seen the provisions waiving spousal support (except for the lump sum of $15,000.00), was on the day the agreement was signed. He stated that if she had an objection, she should not have signed the agreement.
[72] The agreement was signed by the parties on June 27th. Mr. Larson agreed that because of the time constraints, the parties could not have secured independent legal advice before signing the marriage contract.
[73] The final agreement included an acknowledgement by the parties, confirming that each read and understood their rights under the agreement, fully disclosed financial information, believed the agreement to be fair and reasonable, and signed it voluntarily.
[74] In order to cover off the lack of financial disclosure and independent legal advice, the acknowledgement also contained the following provisions:
We hereby acknowledge that Rene E.E. Larson has been engaged as a neutral lawyer by both parties for the preparation of this agreement under joint instructions from us, and that he also prepared our Last Wills and Powers of Attorney under joint instructions for immediate effect and for and in contemplation of our marriage.
We acknowledge that although Rene E.E. Larson witnessed the signatures of both parties, he did not give either of them independent legal advice pertaining to this Agreement.
We acknowledge that we have been advised by Rene E.E. Larson that this agreement may later be interpreted by a Judge as being ineffective and non-binding because we chose not to prepare and give to each other complete financial statements and because we chose not to seek independent legal advice from our own personal lawyers.
[75] The parties’ recollections of events around the giving of instructions and the execution of their documents differs. Given the passage of time, this is not surprising. I find that the documentary record is probably the correct one.
[76] For the purposes of determining the validity of the marriage contract, I do not attach any weight to conflicting evidence about who scheduled the appointment with Mr. Larson; when and where the agreement was executed; the financial arrangements between the parties during marriage; whether each party assisted with improvements to the other’s property; whether the marriage contract was filed in the safe or the filing cabinet; and whether Ms. Pringle had access to the agreement during the marriage.
[77] None of these issues are relevant to whether the marriage contract is valid. The time to determine the validity of the marriage contract is at the date of its execution, not subsequently.
Discussion
[78] It is clear from Mr. Larson’s evidence that he understood that the Pringles’ marriage contract was fraught with problems and vulnerable to challenge for two reasons:
the lack of full financial disclosure and
the lack of independent legal advice.
[79] I agree.
[80] No sworn financial statements were exchanged. No net worth statements were exchanged. Significant assets and debts were not valued.
[81] Mr. Larson’s notes indicate that, with the exception of one life insurance policy, values for the parties’ debts and assets were not discussed with him. It is also evident that Mr. Pringle forgot to disclose his ownership and value of his Bombardier shares during their joint meeting.
[82] Financial disclosure, however imperfect, made when the parties entered into a separation agreement in 2000, is no substitute for full financial disclosure in the preparation of the marriage contract six years later. Subsection 56(4) of the Act requires disclosure of significant debts or assets at the time the domestic contract is made. The parties are not permitted to contract out of the obligation to disclose. Thus, Ms. Pringle has met the burden of establishing the lack of full financial disclosure.
[83] I also accept that the parties could not have understood the nature or consequences of the domestic contract because neither had independent legal advice. This is the second element in s. 56(4)(b) of the Act. Ms. Pringle has also met the burden of proving this criterion.
[84] I find that the parties were given no advice about whether an increase in the value of assets during marriage would affect equalization in the event of separation.
[85] It is also common ground that the parties were not advised about the significance of rights to a matrimonial home at separation, under the Act.
[86] Further, there was no advice given about potential claims for spousal support, including the objectives set out in the Divorce Act. Although each party was employed at the time of marriage, there was no consideration about what might occur if there was a change in circumstances, such as a spouse’s inability to work.
[87] Because of a lack of independent legal advice, neither party had a clear understanding of their respective rights and obligations under the Family Law Act with or without a marriage contract. Consequently, neither party could understand what he or she was getting or giving up by signing the marriage contract. Ms. Pringle testified, “I would have been better off without an agreement!”
[88] In view of my finding that Ms. Pringle has met her burden of proof, it is not necessary to consider whether the agreement is unconscionable.
[89] Should the court exercise its discretion to set aside the marriage contract? I conclude that it should.
[90] The protections for spouses entering into a marriage contract - full financial disclosure and independent legal advice - are completely lacking here. Mr. Larson conceded as much.
[91] It is apparent that the parties did not understand the implications of the marriage contract since neither considered what should be done about any increase in the value of assets brought into the marriage or with after-acquired assets. Nor was there any discussion about potential claims for spousal support by either partner if there was a change in circumstances.
[92] An order will issue setting aside the marriage contract between the parties dated June 27, 2006. The parties are directed to schedule a case conference to discuss the remaining issues.
Costs
[93] If the parties are not able to agree on costs, either party may seek an appointment with the trial coordinator within 30 days of the release of these reasons to argue costs, failing which, costs will be deemed settled.
“original signed by”
The Hon. Madam Justice H.M. Pierce
Released: May 19, 2021
COURT FILE NO.: FS-19-0175-00
DATE: 2021-05-19
ONTARIO
SUPERIOR COURT OF JUSTICE
B E T W E E N:
Donna-Lynn Pringle
Applicant
- and -
Brian Pringle
Respondent
REASONS ON TRIAL OF AN ISSUE
Pierce J.
Released: May 19, 2021
/lvp