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.

Who needs a lawyer? Let’s settle this between us!

Jack is ready to officially move out of the home as he wants to get on with his life.  Since he expects to have significant parenting time with the children, he rented a home which he now needs to furnish.  For that reason, he had a discussion with Jill this morning and gave her a list of things he wants to take with him including furniture, electronics, tools and other household contents.  He also proposed to Jill a way of dividing equally between them their debts, car payments, home expenses and other monthly liabilities.  Jack was told by his best friend Mark that everything needs to be divided 50-50, so that’s how he suggested that he and Jill divide their debts and expenses.  Jill seemed satisfied with the proposal and Jack started drafting a brief separation agreement confirming the parties’ decisions.  After all, Mark and his ex-wife did it this way, they had no problems and they saved a lot of money. In addition, Jack has a copy of Mark’s separation agreement and so it should be relatively easy to just copy the relevant provisions.

For many good reasons, resolving the issues between you and your ex as quickly and cheaply as possible should be your ultimate goal during the separation process.   However, there are a few caveats you should be aware of when you decide to put a family settlement in writing without the assistance of a qualified family lawyer, or at least some guidance from such a professional. Too often, what appeared to have been a simple issue can turn out to be a very complex and expensive one.   When it comes to resolving family law matters, the agreement or the piece of paper signed by both parties may not be a binding contract recognized by the legal system.   In fact, it can be challenged on various grounds and the judge hearing your case may later decide that your “agreement” is null and void.

The first thing you must understand is that in family law, for a contract to be valid it must at least be dated and signed by the two parties before a witness.  Secondly, it is possible for the person who challenges the validity of the agreement to argue that the contract should not stand because he or she:

• Did not understand the nature of the contract, its content or consequences
• Was forced to sign the contract by some form of duress, pressure or undue influence
• Signed the contract without financial disclosure, or
• Feels that the contract is simply unconscionable (i.e. completely unacceptable in  the eyes of the law)

Finally, to make sure that the contract you signed will be enforced by a court if ever challenged by your ex-spouse in the future, you should always obtain independent legal advice (i.e. ask a family lawyer to review your agreement before you sign it).  Make sure that your ex-spouse ALSO gets legal advice but from a different lawyer (the same lawyer cannot give you both legal advice).  If you don’t, you may very well have to deal with the same issue all over again in the future, and at a much higher cost. When advising you on your separation agreement, your family lawyer will make sure that you fully understand the content of your agreement, that you are not signing the contract out of duress or some other form of pressure, and that the financial disclosure obtained from your former spouse allowed you to make informed decisions.

Who said you can keep the car and the investments too?

The Christmas holidays are over and Jill is very happy that things went much better than she anticipated with Jack and the children over the Holidays.  Since their separation in August, Jill has become more financially astute and received as a Christmas gift from her father a book entitled “The Wealthy Barber Returns” (click here to have a peak at that book) which she read while the children were visiting with Jack.  She truly enjoyed this book which explains in a simple and humorous way important financial concepts she needs to understand in order to move on with her life post-separation.  The new year has just begun and Jill feels it is now time for her and Jack to begin discussing how they will divide their family property (assets and debts).   Jack must have read her mind because he sent her an email this morning listing the items he wanted to keep including the new car, the plasma tv, the bedroom suite, and more of the “good stuff”.   That really upset Jill as she felt Jack was only thinking of himself, once again.  Out of exhaustion, she is thinking that it might be better to just let him have his way to finish this off quickly.

When anger is high and feelings are hurt, disputes over the division of household contents often turn into endless emotional battles during the separation process which fuel the litigation and can significantly increase costs to both parties’ detriment.  Remember that what you “feel” is yours may not necessarily be so in the eyes of the law.  Similarly, assuming that you are entitled to «half of everything » just because you were married is not necessarily true either.  To reach a quick settlement and to reduce the stress, some people are tempted to rush through the process of dividing their family property. Others mistakenly believe that dividing everything in half (splitting every asset and every debt in half) is the simplest and fairest way of dividing family property.  Thinking that the settlement was fair they then chose to sign a “kitchen table” agreement (i.e. one drafted by themselves without legal advice) to put the issue behind them.

In reality, dividing your assets and debts, while it does not have to be a complicated, requires a much deeper analysis in most circumstances and should never be accomplished without a deep understanding of the long-term consequences of any given property settlement.  Doing so could result in a settlement that is completely unfair to you and / or which may have very serious financial consequences in the future which you were not aware of.  A separation agreement should never, (and I repeat) never be signed unless you have spent at least one hour with a family lawyer who can explain to you what you are fully entitled to by the law, what you may be leaving on the table and what the long-term financial implications of your decisions will be. Experience has shown that settlements which seemed simple and fair at first glance do not necessarily stand the test of time and you would not want to be eating cat food just because of hasty decisions you made to settle your separation quickly. 

I’ll get the kids for Christmas!

These past few months have been very difficult and emotionally draining for Jill and the children. For this reason, Jill plans to travel to Nova Scotia this year with the children to spend a few weeks with her family over the holidays.  She knows that Jack will not want to spend the Christmas Holidays without the children.  All Christmas dinners have been held at Jack’s parents, a family tradition that has never been broken since the day she met Jack.   This year however, Jill wants to have Christmas dinner with her family.  She is prepared to let Jack have the children with him on New Year’s day and allow him to keep them in his care until school resumes.  As Christmas is just few weeks away, Jill was advised by her friend to immediately begin emergency court proceedings to obtain an order allowing her to travel with the children to Nova Scotia for Christmas.  She wonders if she should….

Most parents have a very limited understanding of the complexities of the family court process.  In addition, many of them have unrealistic expectations with regard to the delays associated with family court proceedings and the powers conferred upon judges to render decisions when dealing with custody and access matters, especially in the interim stage of a separation (that means, before a full trial is conducted). Here are a few things you should know about a family court proceeding:

• Trial - A family court proceeding can take up to two years (sometimes much longer) before it is ready to proceed to trial.  A trial is when all the witnesses testify in court in front of a judge who ultimately renders a final decision in the case.  
• Interim or emergency hearings - Called “motions” or in some provinces “applications”, these hearings are brought often as a court proceeding begins to obtain temporary decisions on issues that require immediate attention, for instance when you need an order to confirm with whom the children will reside, to obtain child support or to force the sale of the family home.  It can take several weeks and even months (depending on where you live in Canada) to have a motion heard by a judge in family court, unless you can show an extreme emergency.  Spending Christmas with your children does not usually qualify as an emergency.  The evidence used for a motion hearing is presented to the judge by way of written statements (called affidavits) – there are no “live” witnesses.  The judge reads the affidavits before the motion hearing takes place.  Since one party’s version of the story is never the same as the other party’s, the judge is often unable to determine which story is the “true” story.  As a result, the judge is often not in the best position to make an order that truly meets your children’s best interests.
• Alternative options - Courts make lousy parents, and you should always try to explore other ways of resolving disputes about parenting issues.  The following options can be arranged relatively quickly: jointly hire a parenting mediator to help you craft an arrangement that meets both parents’ desires, seek the assistance of an experienced social worker who can sit down with all of the family members (including your older children) and facilitate a discussion around the various options.  If a negotiated resolution is not possible, enter into a private arbitration with an experienced and qualified family lawyer who will take the time to hear both parents’ views and concerns and then make a decision on the disputed issue.  These alternatives not only have the benefit of being more expeditious, they are also often much, much cheaper than going to court.

After the Separation - The Need to Plan the Christmas Holidays!

The Christmas holidays are just around the corner and Jack would really like to work out the holiday schedule and travel plans with Jill.   Jack’s mother is hoping that she will be able to give her annual Christmas dinner and she is pressing Jack to get an answer from Jill as soon as possible.  Jill is still very angry at Jack and unreasonable when it comes to making decisions with respect to the children.  Jack fears that she will not let him have the children for  his family’s traditional Christmas dinner, a festivity that the children enjoy very much as they get to play with all their cousins. Jack is anxious and feels that, at least for this year, the existing family traditions should be maintained.   

If, like many other separated families, you must face the prospect of sharing the children with your ex-spouse this year, chances are you will be spending either Christmas or New Year or some very important event without your children.  Planning is the key to help you cope with being either home alone during some of these times and/or without your children.  Here are a few tips you may want to consider to make this holiday season as merry as possible, in the circumstances:

• Talk to your children – Mark the calendar so that they understand the schedule that was agreed upon with your ex-spouse.  You may tell them how much they will be missed when they are with the other parent, however, reassure them that you also have fun plans.  While it is important to be honest with your children about how you feel, they are not responsible for your happiness (or unhappiness).
• Make plans with your children – It is not important what you do or when you do it, as long as you plan to celebrate the holidays in YOUR own special way.  Start a new family tradition that the children will cherish for years.  Children remember true joy, comfort and laughter, not specific days of the week.  Ask for their advice as children always have great ideas.
• Touch base – When your children are with the other parent, arrange to have some kind of contact with them.  A quick phone call or a text message on Christmas day can go a long way.   A contact, no matter how brief, will help the children cope and help ease your own feelings of loneliness.  Remember, you will soon be reunited again.
• Most importantly, make plans for yourself – It does not have to be earth shattering but make sure to plan something out with family and friends during the children’s absence.  Also plan for some time alone to rejuvenate.  Your heart and soul might be aching with pain for not being with your children, but a good laughter might be the cure you need.  Cook a special meal, go to a movie or to a fine restaurant, read a good book, rent a movie, get a massage or a beauty treatment, finish a home project, stay in bed as long as your heart desires, go away for a few days or give some time to a local charity.  What truly matters is that you take time to make plans for yourself!

At 12-year old, my child is old enough to choose where he wants to live!

Jack is a bit annoyed with Jill.  She now believes that she should have sole custody of the children although she was always the first one to tell family and friends that her husband was the best father and that the children loved him very much.  Jack knows that he is able to care for the children in his own way.  His parenting skills are different from Jill’s and while the children need their mother very much, they also need him too.  The children are not little kids now, they are 10 (Adam) and 3 (Eva).  Adam has expressed his wish to spend his time equally with both parents.   Jack was advised by some of his friends (who went through a separation not too long ago) that at 12 years old, Adam can chose where he wants to live.  While Eva is too young to make that decision for herself,  Jack was told  that courts rarely separate sisters and brothers and since Adam is clear about his preference,  Jack feels confident that the custody issue will go his way. 

There is a very wide-spread myth that once children are 12 years old, they can decide for themselves with which parent they will live.  Let’s make one thing very clear: there is NO such principle in Canadian law.  This is just another example of why you need to make sure that you obtain sound and reliable information about your separation and divorce issues.   What the law really says is that the wishes and preferences of children is one of many factors that need to be considered by a court when making a decision about the care and custody of children.  Of course, the older the children are, the more weight their wishes and preferences will be given by the court.  As you can appreciate, the older the children,   the more outspoken they become about their wishes and preferences.   Also, older children often go where their feet go and it will be more and more difficult to impose upon them living arrangements that they disagree with.

When older children are caught up in custody disputes, a lawyer can (and will very often) be appointed by the court to represent the children to ensure that their wishes and preferences are heard and shared with the judge.  However, when rendering a decision, courts will consider several factors and the children’s wishes and preferences will only be one of them, although it will take more precedence as the children’s age and level of maturity increase.   Courts want to ascertain that the children’s wishes and preferences are based on valid reasons such as they feel closer to one parent or because they have a well-established routine with one parent and not with the other.   However, if the children’s reasons are they they are free to do as they please while in the care of the “preferred” parent (who may often be the less disciplinary parent), including missing school and adopting delinquent behaviours, then courts will not give much weight to their wishes and preferences no matter how old they might be.

I want sole custody of my children!

Jill has made up her mind.  She wants sole custody of the children!  She is moving into a new home and the kids are coming with her, whether Jack likes it or not. Although, Jill knows that it is important for the children to continue to have a healthy relationship with their father and to spend time with him, something she is more than prepared to accommodate, she feels that it is in the children’s best interest to live with her permanently.  After all, she has always been primarily responsible for all of their needs, organizing and attending doctors’ appointments, parent-teacher meetings, and activities, getting them ready for school, doing their homework, and so on.  Jack seems to think that they would have joint custody of the children but Jill disagrees.  She will not spend a whole week without her children because they are still too young, and a week on/week off schedule will be too disruptive for their routine. After all, it’s Jack who wanted to end this marriage, not her, and she won’t live without her kids!

When discussing a parenting plan with an ex-spouse, many people misuse some of the legal terminology which often leads to disputes where there is really none. That is because the term “custody” is used to express two completely different things.   The first one refers to the decision-making process and the other refers to the time-sharing arrangements. However, most people understand the concept of “joint custody” to mean that the children spend an equal amount of time with each parent, which is not necessarily so.  In fact, the term “custody”, legally speaking, refers to who will be responsible to make the day-to-day decisions about the children such as:  Where will the children live?  In what school are they going to go?  What religion will they practice, if any?  What activities will they be engaged in?  Having joint custody of the children means that both parents are making those decisions together.   Having sole custody of the children means that only one parent can make those decisions, without having to consult the other parent.  Our courts now also recognize the concepts of split custody and parallel parenting, the former referring to a situation where each parent has sole custody of one or more children and the later referring to each parent having exclusive decision-making authority on one or more aspects of the children’s upbringing (for instance the father makes all decisions about all the children on educational matters and the mother makes all of the decisions about all of the children on health and religious matters). 

The term “access” refers to how the children’s time will be divided between the parents. The expression shared custody is often used by parents and lawyers (although it is not a term used in the legislation) to describe a situation where the children spend an equal amount of time with each of their parents.  Both parents normally want to continue to be equally involved in the lives of their children and therefore agreeing on these difficult topics is not always easy. To avoid unnecessary disputes, it is important for you and your former spouse to understand and express clearly what you have in mind when using these terms.  I have seen parents taking strict positions against a request for “joint custody” not understanding that the other parent did not really want to have the children in his or her care half the time, but only wanted to continue to be involved in the decision-making aspects of the children’s upbringing.