Creating a marriage contract helps couples protect assets.

Jennifer Jolly called off a wedding. But not her own—her client’s.

The bride-to-be contacted Jolly, a lawyer at BLG in Ottawa, a week before her nuptials. The woman’s fiancé, who was also her employer, had handed her a marriage contract that would waive her spousal support if they separated.

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The terms were particularly unfair, Jolly says, because the couple wanted to have children. “I told her we had to plan for what would happen if it didn’t work out. She’d lose her job and she may have kids to support.”

The wedding was postponed while both parties negotiated. But there was a happy ending when the client’s fiancé agreed to provide spousal support if they had children and then split. The couple got hitched.

To avoid such last-minute hassles, Jolly says, couples should discuss and sign contracts before getting married.

Howard Feldman, a Toronto family lawyer, agrees. These marriage contracts, also called prenuptial agreements, are important because they protect both parties if unions end.

And when clients draw one up, adds Feldman, it’s crucial they abide by the terms and keep it up to date.

“Sometimes people sign a contract and live completely contrary to it,” he says. “They shift assets back and forth as a result of tax issues, debt or just plain love. When the contract is triggered as a result of death or if the marriage falls apart, they’re shocked and it causes many problems in court.”

8.5

Risk

Not having a marriage contract means clients could lose wealth.

For instance, a contract could state the husband gets the business and the wife gets the house if they separate. But if, during the marriage, he sells the business, takes the proceeds and pays off the house, she’d get a mortgage-free house upon separation and he’d get nothing.

In second and third marriages, couples are usually more open to signing marriage contracts after being burned before. But, says Feldman, these marriages also have more financial complications, such as spousal support, kids, more assets and higher expenses. For these couples, the goal is to protect their homes, while still providing for any children from previous unions.

Mythbuster

A prenup is set in stone

Not true. Lack of independent legal advice and failure to completely disclose income and assets can make it void.

Often, clients don’t know the house they live in is deemed the matrimonial home, says Jolly. This means both parties get an equal share if they separate.

Let’s say your Ontario client buys a $400,000 house. Ten years later she marries and her husband moves in. Six years later, they split. Even though she bought the home, and probably put in more equity, she and her husband would each get half its worth at that time.

“You can’t get an exemption for that,” says Jolly. “There’s a deduction for everything else you bring in, including RRSPs, but not for the house itself.”

This differs for common-law couples, who only share property if ownership is under both names.

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If both spouses contribute to the mortgage, Jolly suggests using a mathematical formula to allocate each person’s share of the home equity and then including those details within the marriage contract.

Clients could also work out an expense-sharing formula, says Feldman. It could state the wife owns the house and the husband lives there, but he will pay two-thirds of the expenses.

But clients must abide by these rules, and “in some cases it’s better not to put expense-sharing in the contract,” says Feldman. “If someone doesn’t pay, it could get tricky proving [in court] who paid what 20 years down the road.”

Children are another complication. For instance, if a husband doesn’t plan to provide for his wife’s children from her first marriage and the couple then splits, he might still have to pay.

“Ontario law says if you’ve acted as a parent to the child, you may be obligated to support the child if there’s a question [he] won’t be supported,” says Jolly.

While the courts examine situations like this on a case-by-case basis, one example of obligation could be if a stepfather contributes to a child’s university tuition.

“So if you don’t intend to have a relationship with the child, put it in the contract—but there’s still a chance it might not hold up in court.”

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