Henderson Heinrichs LLP

Why prenuptial agreements are good for both of you.

Jonathan Song

Written by: Jonathan Song (View All Posts • View Bio) Published: January 20, 2017

Categorized: Agreements, Alberta, Prenuptial Agreements.

You may have heard that prenuptial agreements are a good way of reducing conflict if and when a couple separates. If you’ve been through a break-up you will remember that emotions run high and it’s not always easy to be objective, rational or fair when it comes to disentangling. Now throw in years of living together with the joint property and financial decisions that come with life as a couple with or without children.  This is why it makes good sense to talk through property and financial issues when you each want what’s best for the other.

However, raising this issue with one’s spouse can seem daunting. Your spouse may think that you want a prenup because you are not committed to the relationship. Furthermore, a prenuptial agreement generally needs to be drafted and reviewed by lawyers to be binding, and so it also costs money. However, there are good reasons why both parties should seriously consider a prenuptial agreement. Here are some talking points to help make your discussion easier.

A prenuptial agreement is like an insurance policy

Divorce rates in the contemporary society are high. Every year, many more people are divorced in Canada than are severely injured in motor vehicle accidents. Yet everyone who drives is supposed to have some level of motor vehicle insurance even though most of us will not or certainly do not intend to be involved in a motor vehicle accident. The same logic applies to prenuptial agreements (which do not have to be “prenuptial,” they can also be signed after the two of you began cohabiting or have been married). Thus, having a prenuptial agreement does not mean that you are not committed to your relationship, only that you are mindful that you cannot predict the future. Furthermore, unlike most insurance policies, a prenup usually only needs to be done (and paid for) once.

Not having a prenuptial agreement can leave you with huge financial risks

In Alberta, the basic rule about the division of property for married couples is that the net value of property (assets – debts) acquired by either party after the date of marriage, regardless of who paid for what and who has title on what, is to be split equally between the parties (unless they agree otherwise). This basic rule also applies to your pension. It can also mean that if you get your income from a business that you built after the date of marriage, that by having half of your business’s fair market value roped into a settlement payment to your spouse, you might not be able to carry on with your business and earn a living.

If you are not married but are living together as a common-law couple, then the basic rule is that each person keeps their own stuff and that, if it is in joint names, then it is assumed that jointly owned property is meant to be split equally unless it can be shown why that is not fair. That could be a big problem if you made your spouse a joint owner of your business which you built yourself, and then you find that you presumptively owe them half of it. Furthermore, even property that is in one person’s name alone could be split with the other person depending on that other person’s direct or indirect contributions to its value. What “indirect contributions” are and how much they are worth can become very contentious and may require a lot of legal work and time in court to determine.

For spousal support, the court is often encouraged to make one spouse pay enough spousal support to the other so that both spouses have the same level of income each month. This is the case regardless of why the parties separated. That your ex may spend too much or have been cheating will not make any difference. Furthermore, it is often one of the spouses that is carrying most of the debt accumulated during the relationship, and such a spousal support order could be catastrophic for him or her.

Also to note is that if a couple has children and the spouse with less income is also the one with primary care of the children, then the other spouse could end up paying much more than half of his or her total monthly income in combined child and spousal support payments. He or she could also be paying spousal support for much longer than the two parties have actually lived together.

When you look at it this way, the money spent on preparing and reviewing a prenuptial agreement is well worth it.

A prenuptial agreement does not need to mean that your spouse will be destitute if the two of you separate

What kind of prenuptial agreement is best for you and your spouse depends on how your relationship will affect how each of you earns income.

If the two of you were working before getting together and intend for both of you to continue working afterward, then it may make sense for each of you to waive any potential claim for spousal support against the other. It would also make sense for your agreement to state that, unless an asset or debt is in joint names, it stays with the person whose name is on it.

However, if the two of you decide that one of you will stop working and be the stay-at-home spouse, then it might not make sense for that stay-at-home spouse to agree to a full waiver of spousal support in the future. Instead, your prenuptial agreement can contain limits on how much and for how long spousal support would be paid that are acceptable to both of you. For property division, one might then choose not to have anything in the prenup about it, or one might specify that certain assets, such as a business or a pension, will not be split or will be split a certain way defined in the agreement.

These are just a few reasons why a prenuptial agreement would be beneficial in any serious relationship.

Facebooktwitterlinkedinmail
Share This