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Setting Aside a Prenuptial Agreement – LeVan v. LeVan

After LeVan v. LeVan1, Lambert v. Lambert2  and Rick v. Brandsema,3 wealthy people who sign domestic contracts should be getting the message that failure to make full and frank disclosure of all relevant financial information opens the door for the agreement to be set aside.  But that is the end of the story – let’s start at the beginning.

In the LeVan case, Richard’s family’s business was worth $30,000,000.  Prior to his marriage to Erika, Richard’s family insisted that they enter into a prenuptial agreement.  The contract excluded Richard’s business interests and severely restricted Erika’s rights to support upon the dissolution of the marriage or upon Richard’s death. The court set aside the marriage contract and the LeVan case became the seminal case for the proposition that full and frank disclosure should be a foundation stone of every domestic contract.

When trying to understand this case and others like it, it is helpful to review key provisions in the relevant statute.  Under the Family Law Act4 (FLA) two people 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 or dissolution of the marriage or on death.  In other words, the provisions of the FLA meant to protect the financially weaker spouse do not apply if the parties sign a domestic contract that say they do not apply.  This provision is very important. While the FLA has certain provisions that provide for an equalization of net family property and support, the law allows for spouses to agree in writing5 that they can make their own deal.  In the case set out above, Richard and his family wanted Erika to sign the prenuptial agreement to prevent her from exercising those rights under the FLA.  There is however, another provision in the FLA which protects the financially weaker spouse.

Section 56(4) was the key provision that Erika relied on to protect herself.  Because of its importance I will quote it in full:

“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.”

While Richard provided some information, there was about $15,000,000 he did not disclose. There was no information about his income, no value as to his interest in the family business or his beneficial interest in a Trust. As well, as the wedding approached and without a contract signed, Richard began to undermine his wife’s relationship with her lawyer.  Once he got Erika’s first lawyer out of the picture, Richard found Erika a new lawyer who did not possess relevant financial information at the time she provided legal advice to Erika. Richard kept telling Erika that if the contract was not signed there would be no marriage.  At trial, the judge found that Richard did not want his wife to know his income or the value of his assets because he wanted to control their lifestyle during marriage.  As well he was afraid that full disclosure might lead to more aggressive demands and a less favourable contract. Thus, the trial judge concluded that Richard breached s. 56(4)(a) of the FLA and exercised her discretion6 to set aside the contract.  A key point to remember is that failure to make financial disclosure may not be enough for a court to set aside the domestic contract – it’s just the starting point7 W.D.F.L. 351, [2008] W.D.F.L. 352.  In this case the wife owned two businesses in South Africa and the husband was a doctor in Ontario. Neither the husband or wife made any formal financial disclosure and they signed a domestic contract which provided that they would keep their property separate and there would be no spousal support payable.  The wife did not receive independent legal advice.  Notwithstanding the non-disclosure and lack of ILA the court did not set aside the domestic contract.].

In the LeVan case the failure to disclose just opened the door to allow the judge the discretion to set aside the contract.  Significant to Her Honour’s decision and that of the Court of Appeal was that Erika did not have effective independent legal advice, she did not understand the nature and consequence of the marriage contract, Richard misrepresented the nature and terms of the marriage contract, he deliberately failed to disclose his entire assets and interfered with the wife’s receipt of legal assistance from her first lawyer.  The court rejected Richard’s contention that his wife would have married him anyway so the contract should stand.

Another important fact was that the domestic contract was unfair.  In reviewing the decision of the trial judge, the Ontario Court of Appeal said, “Based upon the trial judge’s twelve findings of fact that I have outlined, she properly exercised her discretion to set aside the contract for failure to comply with s. 56(4)(a). 8 In deciding how to exercise discretion, the trial judge considered the “fairness” of the contract. The appellant emphasizes that unfairness in a contract is not a proper basis for setting aside marriage contracts in Ontario. Although there is nothing in the governing legislation that suggests that fairness is a consideration in deciding whether to set aside a marriage contract, I do not see why fairness is not an appropriate consideration in the exercise of the court’s discretion in the second stage of the s. 56(4)(a) analysis. In my view, once a judge has found one of the statutory preconditions to exist, he or she should be entitled to consider the fairness of the contract together with other factors in the exercise of his or her discretion. It seems to me that a judge would be more inclined to set aside a clearly unfair contract than one that treated the parties fairly.”9

The LeVan case was decided in 2006 and is still relevant today.  Not only was the trial decision upheld by Ontario’s Court of Appeal, leave to appeal to the Supreme Court was denied.  It has been judicially considered 17 times and is still considered binding law in Ontario.

Whether a spouse makes full and frank disclosure in a domestic contract is very relevant in the context of estate disputes. Ordinarily, when the surviving spouse has been disinherited she/he may turn to their statutory rights for a division of net family property and support under the FLA10 as well as support under Part V of the Succession Law Reform Act, R.S.O. 1990, c. S.26.11  If the spouses signed a domestic contract the Estate may rely on that agreement to dispute the surviving spouse’s claim.  Even if, in accordance with the Butts Estate v. Butts case, the surviving spouse is not disentitled to support under the Succession Law Reform Act by virtue of the domestic contract, the validity of that contract may be very relevant to remedies otherwise available to her under the FLA.12

The LeVan case is especially relevant to a disinherited surviving spouse who signed a domestic contract without having full and frank disclosure, or the benefit of proper independent legal advice.  Those of us in the estate litigation bar see these types of cases often enough.

Footnotes
  1.   LeVan v. LeVan, (2006) O.J. No.3584, 177 (Ont. S.C.J.); affirmed 2008 CarswellOnt 2738; additional reasons 2008 CarswellOnt 3713 (Ont. C.A.);
     
  2.   Lambert v. Lambert, 2008 CarswellOnt 2663 (Ont. S.C.J.);
     
  3.   Rick v. Brandsema (2009), 2009 CarswellBC 342, 2009 CarswellBC 343, 62 R.F.L. (6th) 239 (S.C.C.);
     
  4.   Section 2(10) of the Family Law Act provides that a contract is determinative of the rights between the parties unless the Act provides otherwise.  As well please see section 52 of the  Family Law Act, R.S.O. 1990, c. F.3 ;
     
  5.   See section 55(1) of the FLA which provides that a domestic contract is unenforceable unless made in writing, signed by the parties and witnessed.
     
  6.   Paragraph 33 of the LeVan decision is very important.  The fact that there was no disclosure does not mean the contract is automatically void.  It just means that the judge has discretion to set it aside.
     
  7.   An example of a case where non-disclosure did not result in the domestic contract being set aside was Loy v. Loy, 2007 CarswellOnt 7123, 45 R.F.L. (6th) 296, [2008
     
  8.   Please see paragraph 60 of  LeVan v Levan 2008 CarswellOnt 2738, 2008 ONCA 388;
     
  9.   For an informed analysis on this topic please see Professor McLeod’s annotation quoted at paragraph 151 of Loy v Loy 2007 CarswellOnt 7123 where the court states, “In Rosen v. Rosen ((1994), 1994 CarswellOnt 390, 3 R.F.L. (4th) 267, 18 O.R. (3d) 641, 72 O.A.C. 342 (Ont. C.A.) ) the Ontario Court of Appeal confirms that the courts do not have a general discretion under the Family Law Act (…) to set aside domestic contracts that appear to be unfair. Neither do they have the power under the Act to override a valid and enforceable agreement that a particular judge thinks is unfair (…)  In most cases one person will be in a stronger bargaining position, either emotionally or economically. Hard bargaining does not, however, amount to unconscionability. ”

    Several observations regarding Loy v. Loy.  The Ontario Court of Appeal had yet to affirm LeVan v. LeVan.  Its comment with respect to fairness was therefore not taken into account by Lafrenière J. of the Superior Court of Justice.  For those relying on the OCA’s comments in the 1994 Rosen decision it makes sense to analyze if the position changed having in mind the OCA’s position in LeVan in 2008. With respect to the issue of fairness, it behooves those researching this issue to take a look at the case Rick v. Brandsema,  2009 SCC 10, (2009) 1 S.C.R. 295, 303 D.L.R. (4th) 193.  There the Supreme Court found that that given the information not known by the wife and the husbands’ psychologically exploitative conduct, and the fact that enforcement of the agreement would deny the wife her ½ of the property made the deal unconscionable and thus unenforceable.
     

  10.   Unless there is a valid domestic contract precluding the option, under the FLA a spouse has a right to elect in favour of equalization of net family property (“NFP”).  In the context of estate litigation this happens where the surviving spouse is not happy with what he or she receives under the Will or under the laws of intestacy as set out in Part II of the Succession Law Reform Act.  It is beyond the scope of this blog to go into great detail about the how  Equalization of NFP works but a good summary is available on Kim Whaley’s website at http://whaleyestatelitigation.com/practice/flaelections.html
     
  11.   Part V of the Succession Law Reform Act, R.S.O. 1990, c. S.26 (SLRA) provides to dependants the right to apply to the court for support if the decease did not adequately provide for them.  Under section 58 of the SLRA the court may order such provision that it consider adequate be made out of the estate for the proper support of the dependants.  It is beyond the scope of this paper to address key questions such as who qualifies as a dependant, what factors are taken into account to determine the quantum of support.  I refer the readers to an excellent paper on this topic by Ian Hull entitled, “DEPENDANTS’ RELIEF CLAIMS AND SPOUSAL PROPERTY ON DEATH which is chapter 17 in Widdifield on Executors and Trustees, 6th Edition – Carswell.
     
  12.   Interestingly, in Butts Estate v. Butts (1999), 27 E.T.R. (2d) 81 (Ont.Gen.Div.), a husband and wife signed a separation agreement providing for $500 per month support. No one disputed that this was to be a final agreement. Despite the fact that there was a contract where both parties fully understood the terms of that agreement the court decided that the support provided was insufficient and increased the support payments to be paid by the estate to the separated wife by $1000 per month. Butts stands for the proposition that a domestic contract does not oust the jurisdiction of the Court to make an award of support to a surviving spouse even when a domestic contract purports to deny the surviving spouse that right.

    I refer the reader to  Part V of the Succession Law Reform Act, R.S.O. 1990, c. S.26 and in particular section 62(1)(m) which lists the factors taken into account. By virtue of an “agreement” being only one factor the courts have made awards of support even though there was a domestic contract. As well, section 63(4) which provides that an order under this section may be made despite any agreement or waiver to the contrary.

    For an interesting review of this topic I refer the reader to an excellent paper by Archie Rabinowitz entitled  “Dependant’s Support Applications – The Statute that Continues to Speak.”
     

Charles Wagner

The author of this blog is Charles B. Wagner. Charles is a Certified Specialist in Estates and Trusts and partner at Wagner Sidlofsky LLP.

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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