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Prenups, Postnups, and Cohabitation Agreements

When most people see this title, they likely hear horror music playing in the background and want to run for the hills. However, such a reaction misses the most important thing about this title: these agreements are just tools. These tools are used by many in a positive way for both themselves and their partners.


We have all heard the statistics on the divorce rate in North America. We have also heard that MONEY is one of the leading causes of divorce. Often, it’s not the lack of money or abundance of money that’s the problem. The problem lies in the fact that we have trouble talking about money. Our feelings towards money and finances are sometimes driven by trauma or our limited knowledge of finance.


On the big screen, we usually see prenups only used by the ultra-rich. They are presented to a would-be spouse minutes before a wedding with an ultimatum to sign. If you’ve watched Succession, you have probably seen the very awkward scene where Shiv presents Tom with a prenup.


This narrative doesn’t depict how ultra-high networth families actually use prenups. In some cases, when two ultra-high networth children are getting married, teams of lawyers on both sides negotiate prenups for months.


Contrary to popular belief, prenups are not just for the rich and famous. Going through a prenuptial agreement can be healthy for a couple if approached correctly. A prenuptial agreement will force a couple to have difficult conversations around finances and help them emerge stronger on the other side.


What is a Prenup?


Prenuptial agreements, commonly known as prenups or marriage agreements, are legal contracts that outline how engaged couples will handle personal and financial responsibilities during the relationship and how to divide their family property and deal with spousal support issues if they divorce.


Benefits of a Prenup

  1. The prenup is typically put into place to protect your accumulated assets or assets you don’t want to lose in the event of a marital breakdown.

  2. Children from a previous marriage would be protected financially if something were to happen to their biological parents.

  3. Current and future business assets can be protected if outlined and documented accordingly.


Circumstances Where a Prenup Is Beneficial

  • Setting ground rules for how finances and responsibilities will be dealt with during the relationship.

  • Dealing with property, a professional practice or business ownership.

  • Expecting to receive a substantial inheritance or gift.

  • Children from a previous relationship, or if you have been married before.

  • Expecting to have children and planning to take time off, how will the spouse raising children be compensated?

  • You or your spouse have significant debt.

  • Have significant assets or expect to gain significant assets during your marriage.

  • You want to ensure that your spouse will be taken care of in case of your death.


What Happens if You Don’t Have A Prenup?


If you don’t make a prenuptial agreement, state/provincial laws determine who owns the property you acquire during your marriage and what happens to that property in case of divorce or death. (Property acquired during your marriage is known as either marital or community property, depending on your state/province.) State/provincial law may even have a say in what happens to some of the property you owned before you were married.


Under the law, marriage is considered a contract between the marrying couple, and with that contract comes certain automatic property rights for each spouse. In most states/provinces, if you do not have a prenup stating otherwise, a spouse usually has the right to ownership of property (wealth) and debt acquired during the marriage. Often that can be equal ownership.


If you own a business, a prenup can also help you protect the business. For example, if you get divorced without a prenup, your former spouse may be given ownership/shares of your business with the right to sell them. This could expose you to shareholders you don’t want owning your business or the complexities of owning a business with your former spouse.


Key Considerations


1. Start early.


Ensure that you and your spouse have time to discuss a prenup and that both parties have time to discuss the agreement with their counsel.


There are horror stories of spouses becoming aware that their partner wants a prenup just days before the wedding. Blindsiding a partner can lead to animosity, and in some cases, if the spouse doesn’t have time and legal counsel to review the prenup, the agreement can be considered null and void.


2. Hire a competent attorney and ensure your spouse/partner does the same.


Suppose you attempt to hide assets and liabilities throughout the process and in the agreement. A judge may consider the agreement null and void during separation proceedings.


Transparency is required for a valid prenuptial agreement. If an agreement is significantly unfair to one party, a judge may interfere during divorce proceedings to ensure there is fair treatment of a former spouse.


3. Be transparent and fair.


Suppose you attempt to hide assets and liabilities throughout the process and in the agreement. A judge may consider the agreement null and void during separation proceedings.


Transparency is required for a valid prenuptial agreement. If an agreement is significantly unfair to one party, a judge may interfere during divorce proceedings to ensure there is fair treatment of a former spouse.


Disclaimer: This blog is for informative purposes only and should not replace the professional advice of tax, legal, financial, or investment advisors. The opinions expressed here are merely observations of industry trends and should not be taken as stock or sector recommendations.


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