Decide If You Need a Prenuptial Agreement Before Your Marriage

A prenuptial agreement is a marriage contract that a couple enters into when they are planning to get married. Prenuptial agreements allow couples to settle important family law matters for themselves, giving them more control over and certainty about the future than if those matters are left for a judge to decide. Coming to an agreement in advance also saves you the expense of going to court.

Marriage is a Financial Partnership

Prenuptial agreements are often associated in the public mind with celebrities who have a lot of money at stake. They are also widely considered “unromantic,” as though entering into a prenuptial agreement is calculating. Ordinary people who are contemplating marriage may very well wonder if a prenuptial agreement is ever right for them.

However, Canadian family law recognizes marriage as a financial partnership. It is in your best interest to understand the legal rights and obligations that are part of marriage.

Some major indications that a prenuptial agreement may be right for you:

• You are bringing significant assets into the marriage
• You are bringing the matrimonial home into the marriage
• You and your future spouse think an alternative arrangement would be fairer

In order to decide if you need a prenuptial agreement, however, you must understand the relevant aspects of family law.

Property Division and Prenuptial Agreements

In Canada, property division is governed by provincial and territorial law. Under Ontario’s Family Law Act, when couples divorce, one spouse must make what is called an “equalization payment” to the other. First, each spouse calculates his or her Net Family Property (NFP).This is their net worth at the date of separation less their net worth at the date of marriage. The lower NFP is subtracted from the higher NFP and the difference divided in half. The spouse with the higher NFP pays this difference to the spouse with the lower NFP.

Prenuptial agreements allow you to make alternative arrangements regarding the handling of property and debt. They also allow you to make your own arrangements regarding spousal support. The terms will generally be enforceable, providing that the agreement is:

• Reasonably fair;
• Entered into fairly; and
• Made with full financial disclosure by both parties

Prenuptial agreements should always be prepared with the help of a lawyer. It will also help with enforceability if both parties get independent legal advice before signing the contract.

The Matrimonial Home and Excluded Property

The formula for the equalization of net family property given above does not fully describe the law’s treatment of property division. It does not address:

• Excluded property
• The matrimonial home

Prenuptial agreements often address excluded property or the matrimonial home. This is because in many cases couples feel that their treatment by the law is unfair.

Under the Family Law Act, if the matrimonial home at the date of separation was also the matrimonial home at the date of marriage, the owner spouse cannot deduct the value of the home at the date of marriage from his or her Net Family Property. Accordingly, if you are bringing the matrimonial home into the marriage, it may be in your best interest to have a prenuptial agreement allowing for that deduction or making some other arrangement that will protect this asset.

Related Podcast: The Legal Definition of the Matrimonial Home

Rather than protecting their assets, couples can also use a prenuptial agreement to allow for greater sharing of property than the law requires. For example, you can agree to share the value of excluded property, such as gifts and inheritances that are received during the marriage. Prenuptial agreements give you the freedom to divide your property in a way that you and your future spouse agree is fair.

Don’t rely on any divorce lawyer for your family needs, our experienced family lawyers in Toronto are always available.