Do you need a prenup?

We enter marriage and relationships with a lot of hope, but we have all heard horror stories when it doesn’t go right. Prenuptial agreements are controversial, but they truly are designed to protect assets and offer each spouse a clear and fair path to exit, if the relationship doesn’t work out. That doesn’t seem so scary, does it? Read on to learn about the options available to you, and how to get protected. 

Financial planning when it comes to marriage has come a long way. Many of us view it as only required when there is an extreme situation, either in financial differences or age differences. Choosing to create a marriage agreement doesn’t mean either party is a gold digger, and it’s definitely not a sign of a lack of trust. Rather, it should be a sign of care for one another and a desire to be on the same page.

The Marriage Agreement:

First of all, a prenup stands for “prenuptial agreement”, which means an agreement formed prior  to marriage. There is also such thing as a “postnuptial agreement” which is an agreement formed after the marriage has taken place. 

In Canada, prenups and postnups are actually called marriage agreements.  A marriage agreement is for individuals who are planning to get legally married, or who already are.  It serves to protect your assets in case of divorce. It does not involve child custody. Usually, it is  the partner who has more assets who suggests the prenuptial agreement. This can be scary, because you don’t want to hurt your partner. If you are the partner receiving a suggested agreement, you might feel hurt or ashamed. 

Creating your own marriage agreement is very dependant on the laws that exist in the province in which you get married (and obtain your marriage license), as well as the province you live in. One common requirement is that each person must have their own legal counsel to review and when signing in order to have the agreement be valid. This ensures that nobody feels forced or coerced into agreeing to terms that they may not understand or which may not be suitable.

In the provinces, marriages are governed by marriage acts  within Family Law which are a set of guidelines. A marriage agreement must follow the guidelines in order to be considered valid. This means that if a spouse agrees to something which is deemed “unconscionable” or unfair, the courts are likely to negate that clause in the event the agreement is challenged.


Common-Law Relationships

You may have also heard of Common Law marriages, which are not part of the marriage act. A common law partner is defined in Canada as a couple living together in a conjugal relationship continuously for a period of one year or longer. Within this definition, the different provinces also have different timelines. For example, in BC, a common law couple is deemed as married if they have lived together for two years, and they have the same rights and responsibilities as a married couple. In Alberta, common-law relationships are called “Adult Interdependent Partners” once they have lived together for three years or more, or one year if they have a child and live together. Ontario and Manitoba have the same timelines as Alberta in order to deem a couple in a common-law relationship. However, while in Manitoba you may register as a common law partnership, the term “common law” doesn’t really exist in Ontario, there’s no registration as such.

In Quebec, there is no recognition of common-law relationships. Instead, Quebec has chosen to exclude common-law style relationships from being recognized, regardless of how long the couple has lived together. 

The Cohabitation Agreement:

If common-law is something that interests you, or you are happy living out your days together as a couple without signing that little piece of paper, there is an agreement for you too! The Cohabitation Agreement allows you to define the rights that you would like to have with one another. For example, they can help protect assets that you have going into the relationship (like inheritances or a property you owned previously) in case your partner one day tries to make a claim to it. You can also define the debt each party brings into the relationship and who will take responsibility - especially if you don’t want it to be you!

Beware! Living in common law does not entitle you to equal property rights and the division of assets in the same way as if you were married. If a common law relationship breaks up, you will need a paper trail showing your contribution to things like rent or a mortgage, or any other assets. It’s also helpful to show your name as a contributor to bills, joint credit cards, utility payments etc... This becomes especially important if you are living in a house where you are not on title. A cohabitation agreement can set out how you will keep documentation of these matters as well as how you envision splitting your financial lives up, in the event of a breakup. Remember, continuing to make credit card payments individually also helps you maintain a strong credit history throughout your relationship.

Common-law relationships also take into account other forms of contribution. If you have your own property and your partner spends time and money renovating and refurbishing, in the event of a break up, they can make a claim for that time and cost - if they have saved receipts. At the time of the break up, if you don’t have that cash lying around, you could be forced to sell your property!

Agreements like these are uncomfortable and can be pricey as you need lawyers for each of you to witness it. However, it can really save money in the long run. 

Moving in with a partner or getting married are very exciting and hopeful milestones, but speak to anyone who has gone through a rough separation, and you will quickly see the value in setting up agreements up front. Once it’s done, it’s done and you can think of it like insurance, you have it for peace of mind, but you hope you never have to use it. 

While you’re at it, try setting up a marriage contract for the other areas of a marriage. Remember, your finances are only one facet of your marriage. These agreements can help you define your approach as a couple to different life events like having children, taking maternity and paternity leaves, how you manage the household, caring for aging parents and more. 

So, do you need one?

We recommend every couple goes through the exercise of creating a marriage contract, even if you don’t necessarily want to make it legally binding. The exercise itself will guide you through several necessary discussions that we sometimes like to avoid. However, a legally binding official marriage or cohabitation agreement is especially important for you if:

  1. You are not willing/able to give your partner half of your net worth in the event of a relationship breakdown

  2. Either of you have significant assets prior to marriage

  3. One of you has a much higher net worth than the other. This includes high value assets and high value debts.

  4. One of you has a lot of debt consumer debt before entering the relationship and the other party wants to protect themselves from inheriting this debt in case of a breakup. In this situation we also recommend cohabitation (common law) rather than getting married until debt is well under way to getting repaid.

  5. You anticipate receiving a large inheritance or are otherwise involved in family business where you have shares, receive income, etc…

  6. If this is your second marriage and you have children or an ex-spouse you need to provide for and would like to protect.

  7. If you have other family members you would like to take care of, such as a disabled sibling. 

Tell us in the comments below, do any of you have a marriage contract? Do you believe in them? 

*Please note, this is a summary of topics you should consider. Marriage and relationship agreements are legal matters and should always be created with legal counsel.