Do You Need a Pre-nup?

If you’re getting married, it’s an exciting time. You’ve got many things to do before the big day – is a prenuptial agreement one of them? It’s usually not top of mind for couples entering marriage, but it’s worth considering.

A prenuptial agreement (also called a prenup or marriage agreement) is a written, legally binding document that a couple signs before they marry. In the event of divorce, a prenup determines the rights of entitlement (e.g., how assets are divided). People often hesitate to sign a prenup. They feel it assumes the relationship is headed for divorce or treats marriage as a business arrangement. That’s not necessarily the case.

Think of it as a form of insurance. When you buy home insurance, you’re not assuming your house will burn down. When you buy disability insurance, you’re not assuming you’ll suffer a major accident. You just want peace of mind knowing that you’re protected if something bad happens.

Benefits of a prenup

A prenup encourages open communication before marriage regarding important life issues. You will disclose financial circumstances (good and bad), major goals, approach to childrearing, etc. You’ll learn what’s important to your partner and what needs and concerns he or she may have.

Here are eight more reasons to sign a marriage agreement:

1. You want to protect your existing assets (e.g., a home, investments, insurance policies, jewelry or other possessions with monetary/sentimental value) and future inheritances.

2. There’s a significant imbalance in the value of assets each person brings to the marriage.

3. You own or have an ownership stake in a business (especially a family business).

4. One partner (or both) is carrying a large amount of debt into the relationship.

5. You want to uphold an existing estate plan so your assets are distributed according to your wishes when you die.

6. One partner (or both) is already divorced and/or has children who may be receiving financial support.

7. A prenup can make divorce less contentious, facilitate a smoother settlement (which may mean lower legal fees) and ensure a fair distribution of assets.

8. Divorce is a common cause of financial hardship and bankruptcy, potentially jeopardizing long-term financial health and stability.

Postnuptial (postnup) and cohabitation agreements

Like a prenup, a postnup is legally binding and stipulates how a couple’s assets are distributed in the event of divorce. But as its name suggests, a postnup is signed after getting married. Courts often treat a postnup carefully to ensure validity of the reasons why the couple made this arrangement after they exchanged vows.

Cohabitation agreements differ slightly. Without a prenup, a divorcing couple typically splits their assets equitably. This default action doesn’t apply to common-law couples with no cohabitation agreement. For example, you’re not automatically entitled to 50% of the shared home, even if you’ve been making 50% of the mortgage payments and covering 50% of home maintenance costs.

Keep all receipts and other documentation regarding home-related expenses, and ensure your name appears on the title of the home. Alternatively, a cohabitation agreement can clearly (and legally) spell out how you deal with financial issues when together, and what happens to your assets should the relationship end.

This article is a general discussion of certain issues intended as general information only and should not be relied upon as tax or legal advice. Please obtain independent professional advice, in the context of your particular circumstances. iA Private Wealth Inc. is a member of the Canadian Investor Protection Fund and the Investment Industry Regulatory Organization of Canada. iA Private Wealth is a trademark and business name under which iA Private Wealth Inc. operates.