Penalty Clauses in Family Law Agreements

  • November 20, 2023
  • Alison Boyce

The recent decision of the Ontario Court of Appeal in Assayag-Shneer v. Shneer, 2023 ONCA 14, addresses the issue of penalty clauses in family law agreements. Penalty clauses in a contract are provisions that specify the consequences of breaching the contract. They usually require the breaching party to pay a certain amount of money to the other party as compensation for the breach.

The background facts of the case are as follows: The parties met in 1992, married in August 1994 and separated in November 1997, however they used March 1998 as the formal date of their separation. The parties entered into a separation agreement in September 1999 which formed the basis for a divorce judgment. The order required the husband to pay the wife a total of $388,000 as spousal support at the following intervals: $50,000 by September 16, 1999, $50,000 by October 1, 1999, and starting November 1, 1999, $4,000 per month for 72 months (to November 2005). Of importance, the divorce judgment included a penalty clause that provided if Mr. Shneer defaulted in making any payment, then twice the amount which remained outstanding plus $50,000 would become due to Ms. Assayag-Shneer.

Paragraph 3 of the divorce judgment increases the amount payable as support if there is default in the spousal support payments. It provides: