Why Every Happy Couple Should Have a "Pre-Nup"

by Jason Murphy | Dec 27, 2012

Today I’m looking at marriage contracts and cohabitation agreements, or “pre-nups”, as they are commonly called. They may be the last thing you want to discuss with your loved one while picking out wedding rings or purchasing a home, but they may also be the smartest bit of planning you can do before tying the knot or sharing a roof.

First, a little terminology. Cohabitation agreements are entered into by couples who are living together or are about to start living together. Marriage contracts are entered into by couples who are about to get married or are already married. Under Ontario law, they are both types of “domestic contracts” and, when properly done, are enforceable in our courts.

The beauty of a domestic contract is that, with a few exceptions, it can deal with just about any legal issue that may arise during a relationship or after its breakdown. This can narrow or eliminate disputes between separating couples, saving them thousands of dollars in legal fees and months or years of wasted time in court.

Here are a just few types of problems a domestic contract can address:

A House Divided

For most of us, our home is our largest asset. So planning for what happens to it in the event of separation just makes sense. For example, if cohabitation ends, who gets possession of the home, and how soon? If the house is in one party’s name only, can the other party make a claim for a financial interest in it? How should that interest be calculated? In a divorce, should your spouse be entitled to an equal share of the matrimonial home’s value even if you brought the house into the marriage? Without a domestic contract, courts and statutes will answer these questions in ways that will surprise you.

What’s Mine is Mine. Maybe.

Bitter disputes about who gets what and who pays off what are common in separations. This is especially the case when some assets and liabilities are held in one party’s name and others are held jointly. The argument might seem trivial when it’s about which party keeps the barbecue or the coffee table. But if one partner has racked up a considerable credit card debt or has been contributing to a good pension plan for several years, the stakes get much higher. A domestic contract can set out in advance how ownership of assets and debts will be determined and how the value of assets that appreciated during the relationship will be divided if it ends.

Lean on Me?

Spousal support, or “alimony” as it’s called in the U.S., is another issue that is often contentious between separating couples. A lower-earning spouse may have a claim for ongoing or lump-sum financial support from the higher-earning spouse at separation. This claim can be based simply on financial need or on the grounds that one spouse incurred some economic disadvantage during the relationship that should now be compensated for. A classic example is where a woman has left work to care for the children of the relationship and her career prospects and earning potential have suffered as a result. Without a domestic contract, whether you are entitled to spousal support, for how much and for how long will all be up for negotiation between your lawyers at separation.

Can We Talk About This?

It’s not fun to think about your relationship breaking down, especially when it’s just getting started. But look at it this way: there’s no better time for you and your significant other to address these potential problems than now, when you are most inclined to be open and fair with each other. Otherwise, you are only agreeing to deal with these issues later through courts and lawyers in a much more expensive and difficult way.

And if that doesn’t make you feel any better, in a country where more than 40% of marriages and cohabitations end voluntarily at some point, just think of a domestic contract as a type of “relationship insurance.”

Hopefully, you and your partner will never need to use it. But you - and your wallets - will be glad to have it if you do.

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