Prenuptial Agreements - An Insurance Policy for Savvy People

Jack is having dinner tonight with his long-time friend Dave who is getting married to his new girlfriend this Summer.   As Jack just spent the past two weeks going through his financial disclosure with a view of beginning the process of dividing his family property with Jill, what a perfect opportunity – he  thought  – to bring the subject of a prenuptial agreement with his dear friend.  After all, isn’t that what true friends are for? Since Jack now understands how the family pie gets divided upon separation – and how quickly it has changed his retirement dreams – he now  realizes that he and Jill could have chosen to do things differently when they got married (had they only known…).  Jack feels that the best wedding gift he can possibly give his best friend is to talk to him about the importance of discussing money issues (and potentially a marriage contract) now that he contemplates to unite in the financial partnership that is marriage (yes, you heard this right). 

Many people are dreading their future spouse’s reaction to the suggestion of a prenuptial agreement (in Canada, the legal term is “Marriage Contract” if you are married or “Cohabitation Agreement” if you are in a common law relationship).  It is generally believed that the purpose of such an agreement   is to prepare for separation or divorce.   This is because most people misunderstand the many purposes that a prenuptial agreement can have and most think that talking about money with your future wife/husband is not sexy...   A marriage contract or cohabitation agreement is akin to an insurance policy for savvy people – you hope that you’ll never have to use it but you have if it becomes necessary.

Who should get a prenup, you ask?  Well, everyone should at least get proper information about legal rights and obligations created by marriage or common law relationship as early as possible prior to making the commitment.  But at a minimum, a contract is highly desirable in many circumstances such as if you own a business, if you entered the marriage with significant assets or if you expect to inherit large sums of money.  In these cases, a prenuptial agreement may not just appeal to you, but will also appeal to your family members who wish for this wealth to be passed on from generations to generations and to your business partners who do not want the business to be paralyzed or affected as a result of your potential separation.  You might be surprised to hear how many businesses go bankrupt as a result of the separation or divorce of its owners (or one of them).  Furthermore, as the rules differ for common law partners, many of them leave long-term relationships with nothing but the shirts on their backs even though they have played a very important role in building the other spouse’s business or financial wealth.

One of the many assurances a marriage contract or cohabitation agreement can provide is the ability for a couple to determine in advance how they will manage their financial affairs during their relationship.  Even if you are 100% positive that you will never separate, statistics show that almost 50% of marriages (the rate is higher for common-law relationships) end in separation and divorce.  The reality is that finances do play a major role in these statistics.  So now that you know, why not fully understand how the law works and how it would apply to you?

Another assurance that a properly drafted domestic contract will provide is that neither spouse will need to spend thousands (and thousands, and thousands…) of dollars on legal fees to settle their affairs in the unlikely event of a separation. Most people I meet do not want nor can afford  to be dragged into lengthy and costly legal disputes post-separation.

And you know what?  If your loved one throws a fit after you bring  up the idea of a prenuptial agreement, that’s a pretty  good indication of how “amicable” the settlement of your financial affairs is likely to be if you ever separate. In fact, I believe that spouses who truly love and trust each other should have sufficient maturity to engage in an open and honest discussion about their views and values surrounding money. The best time to have such a  discussion is NOT when the relationship ends (as is the case for most people), but rather when you enter in the relationship or whenever  you make a major financial decision in the course of your relationship.  Love can move mountains.