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Setting Aside Unconscionable Prenuptial Agreements

Lawrence Wilkes, a 62-year-old sophisticated businessman, proposed marriage to Mary.  She was only 21 years old, developmentally handicapped and very unsophisticated.  Lawrence took Mary to his lawyer where, without the benefit of independent legal advice or disclosure of Lawrence’s assets, she signed a prenuptial agreement.  By so doing, Mary gave away her right to make any claims against Lawrence or his estate.  When Lawrence died, Mary was left with nothing and she sued. Her lawyer said that the prenuptial agreement was “unconscionable”1 and should be set aside. The case was heard in Montana.

What does unconscionable mean in Montana?

Mary’s lawyer argued that the prenuptial agreement should be set aside because it was unconscionable to enforce a contract when there was no disclosure to Mary, she did not understand what she was doing and there was no independent legal advice.  The Montana Supreme Court said that there was nothing wrong with the agreement.  In their view, Mary understood what she was doing and the fact that she functioned at a low intellectual level did not make it unconscionable that she keeps what she brought into the marriage and shares only whatever might have been added to her husband’s premarital assets during the course of the marriage.

Montana’s Supreme Court upheld this prenuptial agreement even though it did not pass the smell test.

Not all of the judges in Montana’s Supreme Court were comfortable with their decision. Let’s take a look at what bothered one of the judges.  “I concur with our legal analysis and, albeit reluctantly, with the result of our opinion. Nonetheless, I remain troubled that a 62-year-old, sophisticated businessman can take his 21-year-old, developmentally disabled, unsophisticated bride-to-be, to his attorney and, in summary fashion and without her being separately represented by counsel, obtain her signature on a prenuptial agreement that effectively divests her of all interest in his property upon his death. If the applicable law included a mandate that a prenuptial agreement must also pass a smell test to be not “unconscionable,” this one, most certainly, would fail.”   What would happen if this case came to Ontario?

Arguably, Ontario statutes and courts understand unconscionable to mean something different.

In both Montana and Ontario, a prenuptial agreement can be set aside if the agreement is unconscionable.2  However, Ontario courts have been more open to setting aside prenuptial agreements that they feel are substantially unfair. One benchmark used is the Spousal Support Advisory Guidelines.3 In equity, contracts have always been capable of being set aside if they were unconscionable.4 In Ontario, the idea of what is unconscionable has been expanded when it comes to family law disputes and prenuptial agreements. For example, under Ontario law, a surviving spouse may apply to the court to have a domestic contract set aside on the basis that their spouse failed to make full disclosure.5 A case in point is the case of Rick v. Brandsema.6

It seems as if Canadian courts have broadened their definition of unconscionable and been more willing to set aside prenuptial agreements on that basis.

In Rick v. Brandsema the husband failed to make full disclosure of his assets to his wife and she was not mentally stable.  To the Canadian courts, based on previous case law and our statutes, the prenuptial agreement was unconscionable and was set aside.

 

 

Footnotes
  1.   The title of proceedings for this case is Mary Wilkes, Plaintiff and Appellant, v. The Estate Of Lawrence R. Wilkes, Defendant, Respondent and Cross-Appellant.  It is available on line at  http://bit.ly/wilkesvestateofwilkes    Mary Wilkes, brought this action in the District Court for the Nineteenth Judicial District in Lincoln County to challenge the validity of a premarital agreement that she entered into with her now deceased husband, Lawrence Wilkes.   She lost and appealed to The Supreme Court of Montana which affirmed the trial judge’s decision.
     
  2.  There are Ontario cases where the courts have set aside marriage contracts on the basis on unconscionability.  I refer the reader to:

    The unconscionability claim was rejected in:

    As well, Please see page 15 of Kimberly A. Whaley’s article, “Spousal Claims against Estates and Other Claims Arising out of Remarriages in Canada Osgoode Professional Development Advising the Elderly Client February 19-20, 2014.  As Ms. Whaley states, “Estates practitioners should be mindful of the extensive law governing the enforceability of domestic contracts, which may not be enforceable if such contain prohibited provisions; if a party failed to make full and final financial disclosure; and/or if the agreement is unconscionable.  This article is available online at http://bit.ly/sousal_claims
     

  3.   I refer the reader to Canada’s Department of Justice website (http://bit.ly/spousal_support ) which explains, “With funding from the Department of Justice, two family law professors developed guidelines in an effort to make spousal support more predictable and consistent. The Spousal Support Advisory Guidelines suggest appropriate ranges of support in a variety of situations for spouses entitled to support. The guidelines do not provide advice on whether a spouse is entitled to support. In each case, entitlement to support depends on how the law applies to their situation. The Spousal Support Advisory Guidelines are not law. However, judges often base their decisions about spousal support on the guidelines. Many family lawyers also use the guideline when helping clients to make decisions and set up spousal support agreements out of court.

    As well, please see Carol Rogerson’s article entitled, Spousal Support Agreements and the Legacy of Miglin” Canadian Family Law Quarterly (31 C.F.L.Q.) 13.  For the purposes of this discussion, I draw the reader’s attention to page 16 where professor Rogerson makes the point that judges are now using these guidelines for establishing fairness of domestic contracts. She wonders whether this trend suggests a greater willingness of judges to set aside domestic contracts.
     

  4.   I refer the reader to Lorne H. Wolfson’s article in the Canadian Family Law Quarterly, Volume 26 2007  entitled  Pre-Nups:  How to Make”Em and How to Break’Em 26 CFLQ 179. Lorne comments, “Unconscionability is not a common law doctrine but a doctrine in equity”.

    Kimberly Whaley, “The Intersection of Family Law and Estates Law: Post-Mortem Claims Made by Modern Day ‘Spouses’” in The Advocates Quarterly, Vol. 40., Number 1 (June, 2012), at p. 22, citing Marha McCarthy and Heather Hansen, “Family Issues in Estate Litigation”, in Key Developments in Estates and Trusts Law in Ontario
     

  5.   Please see section 56(4) of the Family Law Act, R.S.O. 1990, c. F.3 , which 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. R.S.O. 1990, c. F.3, s. 56 (4).  For a full treatment of this issue and the LeVan case I refer the reader to http://bit.ly/setasideprenup

    As well, please see Please see Carol Rogerson’s article entitled, Spousal Support Agreements and the Legacy of Miglin” Canadian Family Law Quarterly (31 C.F.L.Q.) page 18, where she says ““And finally there was the Supreme Court of Canada’s decision in Rick v. Brandsema, released in February of 2009, in which the Court drew on ideas from the Miglin stage one analysis to shape the common law of unconscionability, imposing(with interesting echoes of LeVan), a duty of full and honest disclosure in the negotiation of separation agreements. On the facts of Rick, the husband’s failure to satisfy this duty, combined with the wife’s mental instability, resulted in a finding of unconscionability and hence invalidity. ….However the aspect of Rick that I wish to emphasize here is the way in which the Supreme Court of Canada read Miglin and described the principles that it was importing into the common law of unconscionability.”
     

  6.   2009 SCC 10, 2009 CarswellBC 342, 2009 CarswellBC 343, (2009) I S.C.R. 295, 62 R.F.L. (6th) 239 (S.C.C.). In this case, the parties were married for 29 years, had five children and acquired property together. The spouses obtained legal advice regarding a domestic contract and later (subsequent to their divorce), the wife sought to set aside the agreement on grounds of unconscionability. At trial, the agreement was held to be unconscionable because the husband had exploited the wife’s mental instability and failed to make full disclosure. The decision was appealed and the Court of Appeal disagreed with the trial judge’s conclusions about the extent of the wife’s vulnerabilities and concluded that, in any event, they were effectively compensated for by the availability of counsel. The case went to the Supreme Court of Canada (the “SCC”). The SCC emphasized the duty on spouses to provide full and honest disclosure of all relevant information in order to help protect the integrity of the negotiating process (para. 45-49). The SCC stated: “The circumstances of this case move us to consider the implications flowing from Miglin for the deliberate failure of a spouse to provide all the relevant financial information in negotiations for the division of assets. In my view, it is a corollary to the realities addressed by this Court in Miglin that there be a duty to make full and honest disclosure of such information when negotiating separation agreements” (para 5). The appeal was allowed and the compensation awarded to the wife by the trial judge was restored.”

    Relying on Miglin, the SCC also held: “Where, therefore, “there were any circumstances of oppression, pressure, or other vulnerabilities”, and if one party’s exploitation of such vulnerabilities during the negotiation process resulted in a separation agreement that deviated substantially from the legislation, the Court in Miglin…concluded that the agreement need not be enforced…” (para. 44).
     

Charles Wagner and Joanna Lindenberg

The authors of this blog are Charles B. Wagner and Joanna Lindenberg. Charles is a Certified Specialist in Estates and Trusts and partner at Wagner Sidlofsky LLP and Joanna was an associate. This Toronto office is a boutique litigation law firm whose practice is focused on estate and commercial litigation.

This blog is not intended to serve as a comprehensive treatment of the topic. It is not meant to be legal advice. Every case turns on its specific facts and it would be a mistake for the reader of this blog to conclude how it might impact on the reader’s case. Nothing replaces retaining a qualified, competent lawyer, well versed in this niche area of practice and getting some good legal advice.

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