*This following post applies to common law relationship as well as to marriages – where we write ‘marriage’, we are also talking about common law relationships.
We all enter into marriage with the best of intentions. We look forward to our big day, a glittering ceremony, and the happily ever after that follows. Unfortunately, the reality is quite different for many Canadians.
According to Statistics Canada, over 40 per cent of Canadian marriages will end in divorce. These separations are one of the leading causes of bankruptcy in our country. While that should set alarm bells ringing, only eight per cent of Canadians have a prenuptial agreement in place to secure their assets.
Getting down to brass tacks and discussing assets before saying ‘I do’ is such a romance killer – we get it. But if one partner wants to protect the wealth that they, or maybe their parents, have built, it’s common sense to create a layer of protection via a prenup.
In this week’s blog, we’ll examine prenuptial agreements, and how they work to govern the assets of both parties in a marriage or common law relationship.
What is a Prenuptial Agreement?
For starters, the term “Prenuptial Agreement” is commonly known; but it isn’t the only way we refer to this document in British Columbia. Here, we use the terms “Marriage Agreement’ or “Cohabitation Agreement”. Whatever nomenclature you prefer, a prenup serves to protect your assets in the event the marriage or common law relationship dissolves. The agreement can cover assets and spousal support; it cannot cover parenting arrangements (such provisions will be unenforceable).
It is a legal document that may cover the respective responsibilities of each partner during the marriage or common law relationship, and what happens to assets if the marriage ends. It will lay out in clear and concise language each partner’s financial responsibilities relating to areas like property, debt and other assets. It handles how these items will be split. A prenup can also touch on areas like businesses, inheritances, and estates.
Common Scenarios Where a Marriage Agreement is Important
With only eight per cent of couples signing a prenup before marriage, many readers are likely wondering if they really need one. Truth is, a prenup is not for every couple. There are certain scenarios in which they provide strong legal protection. Here are some of those scenarios:
- You answer no to the question: Are you willing to lose half your net worth?
- Either spouse possesses or anticipates acquiring significant assets
- If a large disparity exists between assets and/or incomes of each spouse
- If one spouse anticipates receiving a large inheritance
- If one spouse stands to profit significantly from a business venture
- If this is a second marriage and assets from the previous marriage exist
- If one spouse has or is anticipating acquiring a lot of debt (this can become shared debt in a marriage)
Some other scenarios we wanted to explore require a little more explanation.
Co-Ownership of a Business
An increasing number of married couples are going into business together. What starts as a fun side hustle can, over time, develop into a thriving business. A prenup helps to clarify what will happen to the business in the event of a separation. Issues like division of assets, business continuation, or one ex-spouse looking to leave the business must be addressed to prevent a messy situation from developing.
With older generations bequeathing windfalls to their children, a prenuptial agreement can stipulate this income (or asset) is kept clear from being part of a separation. This can even be set out to be the case if the money is deposited into shared marital accounts.
If one party is entering into their second (or third) marriage, they may have children from their previous relationship. Signing a prenup can help to increase the chances that those children receive an agreed upon share of the estate should the current marriage end.
The Importance of Legal Representation in a Prenup
A prenuptial agreement should be vetted by an independent legal representative for each party, to ensure they understand the implication of the agreement, and they’re entering into the agreement willingly and without coercion. Both spouses should have enough time to analyze the contract thoroughly with their lawyers to ensure fairness.
Westside Family Law has years of experience in drafting prenuptial agreements. Whether you’re just thinking about it, or you’re ready to take the next steps, contact us and we’ll be happy to discuss your unique needs.