Ana Kraljevic Law Firm

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THE BENEFITS OF A PRENUPTIAL AGREEMENT

A Prenuptial Agreement is a legal written agreement between two spouses which sets out how they will divide property upon the breakdown of the marriage. Typically, it also speaks to the future obligation of each spouse to pay spousal support to the other. While a Prenuptial Agreement can cover an array of family law issues – it cannot speak to issues regarding parenting time and decision-making for the children of the marriage. However, it can prescribe who will direct the education and moral training of the children of the marriage.

A Prenuptial Agreement is a domestic contract which is defined by s. 52(1) of the Family Law Act. The courts accord respect to domestic agreements because it is generally recognized that individuals should be able to decide and make arrangements for their private affairs in a manner that meets their own wishes and expectations. However, it is important to note that Prenuptial Agreements can be set aside in the event that one of the circumstances set out in section 56(4) of the Family Law Act applies:

Setting aside domestic contract

Section 56 (4) A court may, on application, set aside a domestic contract or a provision in it,

(a)  if a party failed to disclose to the other significant assets, or significant debts or other liabilities, existing when the domestic contract was made;

(b)  if a party did not understand the nature or consequences of the domestic contract; or

(c)  otherwise in accordance with the law of contract.  R.S.O. 1990, c. F.3, s. 56 (4).

Section 56(4) of the Family Law Act makes it clear that both parties need to understand and appreciate exactly what rights and obligations they are giving up when they sign the Agreement. Obtaining legal advice from a lawyer who is experienced in drafting Prenuptial Agreements can minimize the risk that the agreement will be challenged later on. This article will explain some of the benefits of a Prenuptial Agreement as well as the legal requirements for its enforceability.

You do not need ILA but it is highly recommended!

In order for a Prenuptial Agreement to be held valid and enforceable according to section 55 of the Family Law Act, there are three basic requirements:

  1. It must be in writing;
  2. It must be signed by the parties;
  3. It must be witnessed.

While independent legal advice is not a requirement, most high-quality Prenuptial Agreements are negotiated with both parties having obtained independent legal advice. The reason for this is that a conflict of interest arises when only one lawyer is responsible for drafting the agreement. The spouse who retains the lawyer who drafts the agreement will represent only that party’s interests. Accordingly, the lawyer will draft the Prenuptial Agreement in a manner that accords with the best interests of that spouse. However, when both parties retain their own lawyers to advocate for their respective interests the final product is a fair and negotiated agreement where both parties are ad idem (“meeting of the minds”).

A Prenuptial Agreement is better than a Separation Agreement for many reasons

Unlike a Prenuptial Agreement which is executed before the marriage takes place, a Separation Agreement is executed after the dissolution of the relationship. The benefit of negotiating a Prenuptial Agreement over a Separation Agreement is that the process for the former is smoother, easier, and, for the most part, conflict-free as the parties are on good terms with one another. They generally have the same wishes and expectations for the agreement. After a separation, the level of distrust and acrimony between the parties may diminish their ability to communicate with one another and to negotiate the separation agreement fairly and in good faith. Just like the employment relationship is governed by an employment agreement that is signed before the employment starts, it is best to also have an agreement in place before the marriage starts so that the most contentious parts of the agreement are not live issues at the time of negotiation.

Prenuptial Agreements do not cause divorce!

There are many misunderstandings and misconceptions about Prenuptial Agreements. These misunderstandings can become very expensive down the road in the event that your marriage breaks down and you have no other option but to pursue remedies through the courts. It is also fundamentally illogical to assume that having a Prenuptial Agreement predisposes a marriage to failure. In the same way that having car insurance does not cause you to get into a car accident, a Prenuptial Agreement does not cause a couple to get a divorce. This type of erroneous logic not only dissuades people from getting a Prenuptial Agreement, it very often dissuades individuals from seeking legal advice just to inform themselves about their post-marital rights and obligations prior to getting married.

A Free Template on the Internet is no substitute for a Lawyer!

There are many free templates on the internet for Prenuptial Agreements and people commonly make the mistake of thinking that they can simply sign these agreements and save themselves a lot of money in legal fees. However, while these free templates often include many of the same clauses contained in Prenuptial Agreements that are drafted by lawyers, people often do not fully understand the terms in these agreements. They may be hard to understand because they are in “legalese” or they may not fully appreciate the consequences of how a particular term may apply to their own situation. And if you do not understand what you are signing, the agreement is not valid anyway!  This is a basic principle of contract law which a lawyer can explain to you, however, if you do not see a lawyer in the first place then you will be operating under the misapprehension that your internet template agreement is equivalent to a properly executed agreement. People are often shocked to learn that an agreement that they signed is not valid when the marriage breaks down many years later. A one-time flat fee may save you tens of thousands of dollars in future court fees for a case that may drag on for years. Do yourself a favour and speak to a knowledgeable lawyer who has drafted many agreements in the past and can give you proper legal advice on how to protect yourself and your assets. A free template on the internet cannot give you informed and specific legal advice about your own unique situation.  

Prenuptial Agreements are not just for the wealthy!

Prenuptial agreements are not just for wealthy people. It can also protect both spouses from paying spousal support to the other upon marriage breakdown if they include a spousal support waiver in the agreement. While a court may set that provision aside if one party brings an application in court, a signed Prenuptial Agreement with a spousal support waiver acts as a shield to show that both parties had a settled intention to live their lives independently at the time it was executed. The spouse applying to have that waiver set aside bears the burden of showing why the agreement should not be upheld. He or she will need to demonstrate that there was procedural and substantive unfairness at the time that the agreement was executed or that upholding the agreement would be unfair due to changed circumstances at the time of application.

Prenuptial Agreements are especially important in certain scenarios

  1. For people who were previously married and wish to pass on separate property to their children upon death. These individuals may own property such as family businesses, real estate, or other property attributable to generational wealth which they always intended on vesting with their children. Without a Prenuptial Agreement, the surviving spouse will have a right to claim the other spouse’s property, leaving their children with less. If you have a contemplated estate plan then you would want that included in your Prenuptial Agreements so that your assets are distributed according to your wishes.
  2. People who are very wealthy and come into the marriage with significant assets. When there is a large imbalance in the spouse’s premarital net worth, the wealthier spouse may wish to include a clause that provides adequate provision for the other spouse while protecting their assets.

A Prenuptial Agreement can protect the spouse who owned the home prior to the marriage

The law treats the home where a couple lived during the marriage, referred to as the matrimonial home, differently from other types of property in the marriage. In fact, Part Two of the Family Law Act is exclusively about the rights and obligations of each spouse with respect to the matrimonial home. If you don’t have a Prenuptial Agreement, then the entire value of the matrimonial home is split equally between both spouses with no credit given to the spouse who owned the home prior to the marriage. It doesn’t matter who is on title or the exact nature of the respective contributions of each spouse to its acquisition, preservation, and/or maintenance. However, if you decide to negotiate a Prenuptial Agreement then both spouses have an equal say and can mutually decide how they want to deal with the matrimonial home if that is different from what the Family Law Act dictates. The are many different ways to resolve the issue of how to fairly distribute the equity in the matrimonial home and a lawyer will be able to explain the possibilities to you so that you understand the options. For example, the parties may decide that the spouse who is on title owns the entire equity in the home, or that you only split the increase in value from the date of the marriage, or that the non-owning spouse receives a set amount or a certain percentage, or that the apportionment of its value is contingent on his or her contributions to the home. The possibilities become almost endless with a Prenuptial Agreement in place. The only right that a spouse cannot waive in a Prenuptial Agreement is the right of a spouse to live in the matrimonial home after separation, to sell the home, or to otherwise encumber it.

the takeaway

A Prenuptial Agreement provides you with the freedom to make decisions about how to order your own affairs in an individualized way. After you are married you will have a Prenuptial Agreement by default. However, this agreement may bear little to no resemblance to your own wishes and objectives as its terms are dictated exclusively by the Family Law Act. It’s best to speak to a lawyer before so that you can plan for the future and eliminate any unpleasant surprises down the road.

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