Commentary on the Compact

Commentary on the Compact
Last week, I outlined the Compact, a simple set of standard procedures I propose be used in all cases involving marriage contracts and cohabitation agreements. They are nothing more than seven steps to be followed by lawyers retained on these sorts of files.

Here I will discuss each of the seven steps in more detail.

1.     The four-month rule: no work shall be started on a file unless the wedding is at least four months away

I propose four months because even the most simple of marriage contracts takes at least three months to complete when the Compact is followed, and, ideally, there should be at least one month between the signing of the contract and the wedding date.

From the time it takes to get both counsel onboard, to exchanging financials, to negotiating the deal, and to drafting it up, I find only the most organized and determined couples can get a good agreement done in less time.

2.    Each party must have his/her own lawyer from the outset, before any negotiations begin or anything is drafted

This rule is designed to address the problem, all too common in many contracts I have attacked and defended in court, where one party has significantly more wealth than the other, already has a solid relationship with a lawyer (usually from a previous separation), and simply drops a draft agreement in the hands of the other party days before the wedding.

Despite how fair the content of the agreement may actually be, the entire process becomes stained from the outset.

3.    Each party provides full financial disclosure before any negotiations begin

Other than allegations of duress, the most common argument as to why an agreement should be set aside is: “I didn’t know what he earned” or “I didn’t know what he owned.”

The assumption here is that had the spouse known what he earned or owned she would have negotiated for a more favourable deal, which is usually (but not always) false.

While there is no way to know whether that (rather presumptuous) assumption is true or not in a particular case, many courts have found that a significant failure to disclose is sufficient to void a contract. Thus, in order to strengthen a contract, full financial disclosure should occur in every case, even when the client tells you (as they often do): “My spouse knows everything I have.”

Accordingly, step 3 is the exchange of a disclosure brief, complete with Form 13 Financial Statement, complete income tax returns with notices of assessment for three years, three recent paystubs, and statements proving the values of all major investments and debts.

In the event one party is self-employed, corporate tax returns and business financial statements for the past three years should be attached as well. This is not to say this is all the disclosure that should ever be produced but it should constitute the minimum.

4.    At least one four-way without prejudice meeting must be held

After the financial disclosure has been exchanged the parties and counsel should have a without prejudice four-way meeting. The meeting should take place even if counsel believe the parties are ad idem on the key points.

Even on files where I believe, going in, that the meeting will not lead to anything new being agreed upon, I am always proven wrong for there always seems to be myriad things that were either not fully understood by one party or topics the lawyers bring up which neither party even thought about and require more fulsome discussion.

5.    The reporting letter

After the four-way meeting each lawyer reports in writing to his/her client on what transpired, making sure the letter reflects on what each party’s position was, what the lawyer’s advice is, and what they feel the next steps should be.

The importance of all of this documentation proves invaluable in cases of future attack where the court is often called upon to piece together what the terms of the agreement were — or were not.

It also is usually very helpful in cases where the negotiations were complicated, the client needs to process what happened, and there are various scenarios to be considered. Laying it out carefully in writing for the client helps lead to more fuller discussions between lawyer and client and, hopefully, a more carefully considered contract.

6.    Term sheet

In most cases the four-way meeting is a success and all four participants leave with a good understanding of what has been agreed to. This should then be followed up by a short letter from one counsel to the other, outlining the terms understood to be agreed upon at the four-way. The letter should make it clear that before the contract will be prepared, a letter from the other lawyer is requested confirming that the proposed terms are in fact agreeable in all respects.

The benefit of this step cannot be overstated.

First, because the letter is usually sent a few days after the meeting, it gives each side time to consider and reflect upon what was discussed. Although to counsel these issues are often rather straightforward and customary, for clients they are sometimes overwhelming.

Things happen in a blur and they need time to understand what was discussed, read the reporting letter, perhaps even discuss it with counsel and make sure they are still good with the terms discussed at the meeting.

The second benefit is that almost always the letter that comes back either modifies the proposed terms or significantly changes them. This is either because one party (or one lawyer) misunderstood something that was discussed at the meeting, or sometimes one party changes their mind.

This is a good thing and should be welcomed, for it shows how an agreement comes together. It shows the back and forth involved in a genuine negotiation and prevents agreements from being drafted, which are later labelled unconscionable.

7.    Drafting and signing

Once the confirming letter comes back approving the terms, you are then — and only then — ready to proceed to draft.

Draft the agreement, review it with the client in all respects before it is sent to the other lawyer (making sure to get the client’s approval by e-mail on it before it is sent out) and forward it to the other side for approval as to form and content.

No matter what, do not have your client sign and send over four copies until the other lawyer has approved the draft.

Brahm D. Siegel is a partner at Nathens Siegel LLP in Toronto and a certified specialist in family law by the Law Society of Upper Canada.

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