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Prenuptial Agreements: A Worthwhile Consideration for a Modern Couple

By August 25, 2021 Advisor, Blog, Consumer, News
Signing a prenuptial agreement with gold wedding rings on the table

Venturing into a marriage should never be done lightly; there are numerous things to consider beforehand. Things like where you two will live, whether you both want children, and whether your specific financial situations call for a prenuptial agreement.

Prenuptial agreements are notoriously taboo because they are viewed as a romance killer. You might be thinking, “Why would we ever need one? We’re not going to divorce.” Or something along those lines. And while no one ever plans to get divorced, the current divorce rate in Canada is at 40%, according to statista.com, which includes a lot of individuals who probably never anticipated being a part of that statistic.

Given that the roughly 18 million individuals who compose the Canadian workforce are evenly split between the sexes, we see that the historical dependence of women on men is rendered a thing of the past. So, with both parties making their own money, prenuptial agreements are both a practical and arguably advantageous thing to consider.

Let’s talk about it.

What is a prenuptial agreement?

A prenuptial agreement is a legally binding contract – brokered by a lawyer or legal counsellor – that outlines each individual’s property (and debt) rights prior to marriage, and how these assets would be divided if the couple divorces.

Do you need a prenuptial agreement?

Suppose you’ve amassed a sizeable net worth for yourself and earn over six figures a year, all before entering a serious relationship. Or maybe you have purchased a home, or own or co-own a business with a colleague. If any of these ring true to you, you should probably consider a prenuptial agreement.

Prenuptial agreements aren’t only for established millionaires but also young people at the start of their professional lives.

Prenups, or marriage contracts, make things less painful.

Negotiating a prenuptial agreement prior to tying the knot, or a marriage contract for those who have already married, might seem like an act of self-sabotage, but rather, it’s a way to set mutually beneficial terms should things sour in your marriage.

When you’re in the throes of a divorce or separation, emotions run high. The last thing you might want to do is sit down and talk about who gets what. So, if you’ve already outlined a marriage contract prior to this unfortunate outcome, then you two can merely cite it and eliminate any guesswork or unpleasant negotiations.

When composing a prenuptial agreement, legal counsel will ask for the involved parties to outline marital property and individual property. Marital property is typically an asset purchased together, like a house or property, monies invested into a joint account, etc. Individual property accounts for things like a car, collector’s items, family heirlooms from one’s family, etc.

Hashing these details out before saying ‘I do’ can minimize any unpleasantries that could arise if your match is not made in heaven.

Time (changes) All

Now, how about accounting for financial changes that occur during the marriage? Well, if either party anticipates any financial windfalls, like an inheritance or major promotion, you can account for this in the marriage contract. You can stipulate that any significant assets acquired after the issuing of the marriage license remain in the sole possession of the owner, rather than opting for the typical 50/50 split.

As for assets appreciating in value over time, this would typically be covered in a marriage contract, as well. A marital item, like property, will commonly appreciate with time, so the capital made on the sale of the item would be divided according to the marriage contract, regardless of how much or little it appreciates in value. Marital items are often purchased after marriage and would likely be subject to a 50/50 split.

The appreciation of individual property cannot be touched by a spouse, even if its value increased dramatically over the course of the marriage.

Less popularly, these legally binding contracts may also protect you from taking on debt that your spouse may amass during your marriage. If you both have personal debts through credit cards or individual lines of credit, outlining in your prenuptial agreement that the other will not take on these debts after divorce could protect you from unflattering fees.

Money For Family

For second or third marriages, prenuptial agreements might protect the finances the spouses intend for their child or children from a previous marriage. For example, if an individual is remarrying, they may wish to stipulate in the marriage contract that should they go through another divorce, the estate remains untouched by the new spouse because it is intended for their child(ren).

If this isn’t outlined prior to the marriage in a prenuptial agreement, the new spouse could argue that for any savings the other might have had put aside, regardless of what they might have intended it for, the new spouse is entitled.

Additionally, often spousal support is outlined in prenuptial agreements too. To make sure amounts – if any – sent from one party to another as support post-divorce are fair, these terms can be met prior with the assistance of legal counsel.

Conclusion

Overall, if you’re bringing assets into your marriage that you wouldn’t like to divide, if you’ve got money and/or savings that you intend for some other purpose, and if you two can have an objective conversation, then have that conversation.

Prenuptial agreements make sense because in the 21st century, everyone is hustling, and we shouldn’t have to let a sour divorce spoil the fruits of our labour.

Canada Protection Plan and its employees and Advisors do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.

Canada Protection Plan is one of Canada’s leading providers of No Medical and Simplified Issue Life Insurance. Our mission is to provide reliable protection and compassionate service from coast to coast with easy-to-purchase life insurance, critical illness insurance and related products. Our expanding product choices will help you get the coverage and peace of mind you need for a better financial future. Canada Protection Plan products are available through over 25,000 independent insurance advisors across Canada.

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