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If you are reading this, you may have recently become engaged, or purchased your first home with your partner. Whatever the occasion, congratulations are in order!
While celebrating your newest milestone with your significant other, someone (perhaps a relative or your real estate agent) asks the million-dollar question: "Are you going to get a prenup?"
A marriage contract (or a "pre-nuptial agreement" as it is sometimes called) is a domestic contract governed by Ontario's Family Law Act. There are also cohabitation agreements, which are contracts for when people live together (or intend to live together). A cohabitation agreement automatically becomes a marriage contract once a common-law couple gets married, so they are treated similarly in law in Ontario.
The thought of preparing a contract can be daunting to many, especially if in anticipation of a wedding. Although it's not something you should lose any sleep over, preparing a contract isn't as simple as putting terms on a sheet of paper and signing at the bottom.
To help you get started, we want to share with you a list of ten things you should know about marriage contracts and the process of preparing them.
1. Do you need one, though?
Not everyone needs a contract. Pop culture can lead us to believe that signing a marriage contract is the responsible thing to do, but if you and your partner are not seeking to waive or modify any current or future entitlements, rights, and obligations afforded by the law, then a contract may not be for you.
Certain property and support rights manifest at the date of marriage. Even in cases where two people are not married, support may be payable from one spouse to another if an entitlement arises, and equitable remedies for property-related issues can be awarded by a court in certain circumstances. People may agree to arrangements that are different than what is provided by the law to protect their finances. A consultation with a family law lawyer is the best way to determine whether a contract is necessary to meet your needs.
2. Plan ahead.
A contract can take a long time to prepare, especially if it's in anticipation of a marriage. After you get engaged if you choose to go with a contract, starting the process should be at the top of your "to-do" list. Many steps might not be evident at first. Financial disclosure is required; meetings with your lawyer to discuss the desired terms of your contract and the legal consequences; the negotiation process; and drafting of the contract itself. This process can take several months.
If a lawyer believes their client is signing their contract under pressure (because the parties are rushing to get one signed before the wedding), that lawyer may not sign the Certificate of Independent Legal Advice, a document that is usually appended at the back of your contract wherein your lawyer states you have received advice and understand the terms of your contract. Without a Certificate of Independent Legal Advice, one may argue that the contract should be set aside on the grounds that the signator did not understand its nature and consequences (although the success of such an argument depends on the circumstances of each case). Some lawyers may not certify a contract if it's executed less than a month before a wedding (this practice varies by the lawyer).
3. Contracts can cost a lot of money.
There are a lot of unpredictable variables that impact the pricing of legal services. Be sure to request your lawyer's pricing and billing practices before signing a retainer. Some lawyers offer flat fees, while other lawyers charge hourly. Some lawyers will work with a junior lawyer and/or a law clerk, while other lawyers work alone.
Think of your contract as an investment: you may spend a good deal upfront, but you are doing so to achieve some level of certainty with your future finances.
4. Two to tango.
Don't forget that your partner may need a lawyer too. Although one lawyer may prepare the first contract draft for your partner's review, a lawyer cannot represent both you and your partner. From the moment you contact a lawyer, that lawyer cannot assist or advise your partner.
You can't force your partner to get their own lawyer, but arguably, it's better if they do. A lack of independent legal advice can leave your contract open to being set aside. There are other advantages to your partner having a lawyer, including potentially streamlining the process.
5. Cards on the table.
You and your partner need to exchange financial disclosure. The disclosure is usually comprised of income, assets, and liabilities information.
- You can prove this with income tax returns, notices of assessment, t-slips, and pay stubs.
- Assets and liabilities are proven with monthly statements or screenshots with account balances. For complex assets and liabilities, such as a business interest, formal appraisals may be required.
A Financial Statement or a Statement of Net Worth can summarize this information, which is sometimes appended at the back of your contract.
To some, gathering this information and providing it to their partner tells them something they already know. To others, this can seem like an invasive and time-consuming process. No matter how you see it, preparing and exchanging financial disclosure is an essential step in the process. According to Ontario's Family Law Act, a contract can be set aside if significant assets and debts are not disclosed when the contract was made. Your financial circumstances give rise to some of your obligations, rights, and entitlements upon separation. You may not be able to fully understand the implications of an agreement without knowing your partner's financial circumstances.
6. What a contract can't do.
Not everything you include in a contract is necessarily enforceable in law. For example, a Court may disregard provisions of a contract regarding a child's "education, moral training or decision-making responsibility or parenting time" if they are not in the best interest of the child. Also, your home may be afforded special treatment and it may need to be dealt with more carefully. Your lawyer will be able to tell you if your desired terms are enforceable (and whether it may be best to leave them out).
7. 50/50 split, right? Maybe not.
A common misconception is that your partner will receive "half of your stuff" upon separation. Although couples may acquire certain property rights or have equitable remedies available to them in certain circumstances, the foregoing is an oversimplification of the property regime in law. Fortunately, there are ways that a contract can limit your expose to certain property-related claims.
First, you and your partner may decide whether to waive or modify rights to an equalization payment. Ontario's Family Law Act says that the spouse whose net worth (referred to as "net family property" under the Family Law Act) is smaller is entitled to an equalization payment, which is one-half the difference between you and your partner's net worth at the date of separation. Some couples may waive this right. In contrast, others may modify it by agreeing that they will not share in any increase in value of the property, such as a particular bank account or a beneficial interest in a family trust. In Ontario, an equalization payment is currently available to married couples only.
Second, you and your partner may decide to include provisions governing some property ownership. For example, if you own a business, you may want to have terms that prevent your partner from claiming an interest in your business; however, you may not necessarily oppose sharing the potential increase in business value. It's important that the contract carefully defines all nuanced instructions you may have regarding the treatment of your property.
8. Spousal support provisions can be set aside in the future.
It's important to understand that spousal support provisions can be set aside in the future. Where there is a discrepancy between earning potential or future career goals, one might seek to limit (or eliminate) any future possibility of paying spousal support to the other. A contract may be able to address this concern but only to a certain extent.
If over time these spousal support provisions become unconscionable, a Court may choose to set aside these provisions (or perhaps even the entire contract) and order that a different amount of spousal support be paid. This point is not meant to deter you from including a spousal support release in your contract, as this may play out differently on a case-by-case basis.
9. Should I get another lawyer?
Family and estates law often intersect, and the preparation of a contract is no exception, so you may need to consider bringing in a lawyer who can address these specific concerns. You may want to consider adding provisions to manage your estate if you pre-decease your partner before separation, as certain entitlements, rights, and obligations can arise upon your death. You may also want to consider preparing a Will simultaneously, ensuring that your Will dovetails with your contract.
Keep in mind that not every family lawyer can assist with the intricacies of estate planning. If your family law lawyer cannot advise you on these matters, they can likely refer you to someone who can. Some full-service firms, like Lerners, have lawyers on staff to handle all of this at once.
10. Before the wedding or after, both work.
A marriage contract signed after a wedding is just as enforceable as before the event. What happens if you run out of time before your wedding to make a marriage contract? Or, what happens if you and your partner decide to change your mind about the terms of your marriage contract? Depending on the provisions in your initial contract, you may also be able to prepare a second contract amending the provisions in the first one. A disadvantage to a "post-marriage" contract is that certain rights crystalize at the date of the marriage, which means that you lose the opportunity not to marry your partner (and prevent them from accruing certain rights) if they do not agree to your terms.
This is just a quick overview of a few of the considerations you should keep in mind when considering a marriage contract. Meeting with a trusted lawyer for legal advice, even if it is only for a few hours, should always be your starting point.
Enjoy your big day!
ABOUT THE LERNERS FAMILY LAW GROUP
When much is at stake, there is no substitute for having the experienced and skilled advocates from Lerners at your side. You need compassion and understanding, but you also need someone to protect your interests. Our Family Law Group tailors its approach and strategy to your goals to achieve the best possible outcome. Our team, located in Toronto, London, and the Waterloo Region, serving the GTA, Southwestern Ontario, and beyond, has the experience to handle matters both straightforward and complicated, without ever over-lawyering or contributing to unnecessary conflict. With a successful track record that includes some of Canada's most complex family law cases, we are focused on getting you results and helping you move forward. Contact us to see how we can help.