Not just for the rich and famous
The engagement party has come and gone, the wedding date is looming and your head is full of thoughts about flowers, vows and first dances. This is already a stressful period and would be the worst time to deal with a complicated prenuptial agreement, right?
Or perhaps you’ve been living with your partner for a few years now. Your relationship is becoming serious and you’ve discussed a future together. Despite being committed to one another, you don’t believe that marriage is your next step, which means a marriage contract wouldn’t apply to you, right?
Maybe you were recently married. In the excitement of the wedding planning and honeymoon, you and your spouse didn’t get around to meeting with lawyers to write up a prenuptial agreement. And now that the wedding is over, it’s too late to sign anything, right?
Wrong. In the three circumstances listed above, a domestic contract of some type may not only be appropriate, it might also be smart financial planning. In fact, 37.9% of new Canadian marriages will end in divorce before their 30th wedding anniversary*; a marriage contract is simply like taking out an insurance policy in case a marriage ends.
Often known as prenuptial agreements, cohabitation agreements, or marital agreements, domestic contracts are written because one or both partners do not want the standard rules concerning family property, the family home, spousal support, and pension rights to apply to them. Instead they establish a contract that specifies what each partner is entitled to in the event of a breakdown in the relationship and/or the death of one of the parties.
In what circumstances should a domestic contract be considered? A domestic contract is often recommended for a person who owns a business or has a large net worth they wish to protect that would otherwise be shareable, by statutory rules, at the time of separation. Nowadays though, more people are entering into these agreements for other reasons. Whether it’s to protect future earnings or an expected inheritance, domestic contracts are not just for celebrities anymore.
At what point in a relationship can you enter into a domestic contract? The most commonly mentioned domestic contract is a prenuptial agreement which, by definition, is signed well in advance of the wedding day by a couple planning to become legally married. There are other domestic contracts though, such as cohabitation agreements and marriage contracts that are applicable for common-law couples and in some instances, couples who are already married.
When is a domestic contract valid? To be enforceable, domestic contracts should be in writing, signed by both parties, and witnessed. Each of the parties should have received independent legal advice. As well, each party must provide complete financial disclosure of assets and income.
What about common-law rights? The rights of common-law partners who do not have a written domestic contract vary quite dramatically across the country. In the majority of provinces common-law partners don’t have any right to a division of family property, and even where they do, it is never too late to enter into an agreement – the parties can generally agree to release their family property rights. To find out about the rules that apply where you live, it’s best to consult with a lawyer in your home province.
What do I do if I want a domestic contract? To reduce legal costs, complete a full inventory of individual assets, income and financial obligations including debt, prior to consulting with a lawyer. Your first step should be to call us to get a complete picture of your financial plan.
*Source: Statistics Canada, Canadian Vital Statistics, Divorce Database and Marriage Database