Preserving Intentions: Prenuptial Agreements and the Power of In Terrorem Clauses

By Ryan C. Baker and Ashley Hizo

Prenuptial agreements, also known as a marriage contract in Ontario, are legal documents that outline the rights and responsibilities of spouses in the event of a future separation or divorce. These agreements can address various aspects of a marriage, including property division, and support terms.

To discourage future disputes arising out of a prenuptial agreement, some couples have included the addition of an in terrorem clause. A recent illustration of such clause can be seen in the case of Kevin Costner and Christine Baumgartner.

The inclusion of an in terrorem clause, also known as a “penalty clause” or a “no-contest clause”, can impact the dynamics of a prenuptial agreement by imposing penalties or forfeitures on a spouse in the event that they choose to challenge or contest specific provisions of the terms of or validity of the agreement.

Put plainly, an in terrorem clause acts as a warning sign. It tells both partners that they should follow the plan they had originally agreed to. To illustrate, if one person is promised a certain amount of money or specific property in the case of a relationship breakdown, an in terrorem clause serves to discourage future disputes and aims to uphold finality and preserve the intentions of the spouses as outlined in the agreement. This is particularly valuable in high-profile or high-net-worth marriages, where significant assets are at stake.

The widely publicized divorce of Yellowstone actor Kevin Costner and Christine Baumgartner has brought recent attention to in terrorem clauses in the family law context. Costner and Baumgartner’s prenuptial agreement included a clause that if Baumgartner contested the agreement at a future date, she would forfeit a substantial $1.5 million settlement she would have otherwise received. While highlighting the potential financial consequences of challenging the agreement, the addition of this clause also ignites discussions of its fairness and enforceability.

There has been limited discussion of in terrorem clauses in Ontario family law cases. However, in the case of Dundas v Schafer,^[1] the Manitoba Court of Appeal overturned a decision and held that an in terrorem clause of $20,000 was an unenforceable provision as it was not a true pre-estimate of damages for a challenge of the agreement.

As the law stands in Canada, the rules surrounding in terrorem clauses are based on whether there is a relationship between the breach and the amount that is being sought under the clause. Canadian Courts will scrutinize in terrorem clauses to ensure that they do not unduly coerce or oppress the parties involved. While such clauses are subject to scrutiny, they may be upheld if they are found to represent a reasonable pre-estimation of the damages the aggrieved party might suffer as a result of the breach.

Understanding the implications of an in terrorem clause is crucial for individuals navigating family law matters. For any questions related to this article or legal assistance regarding a family law related matter, we encourage you to reach out to one of our experienced family law lawyers at SorbaraLAW.